Research Summary
The report provides a comprehensive analysis of the crypto derivatives markets, focusing on Bitcoin (BTC) and Ethereum (ETH). It covers aspects such as futures implied yield, ATM implied volatility, perpetual swap funding rate, and options. The report also provides insights into the volatility by exchange and cross-exchange volatility smiles.
Key Takeaways
Decline in Yields Implied by Futures Prices
- Yields Reduction: The report indicates a decline in yields implied by futures prices over the past week. This has led to a steepening of term structures that have experienced several inversions in the past month. The reduction in leverage has been more pronounced for BTC compared to ETH.
Volatility Expectations
- Upward Trend: Volatility expectations are trending slightly upward, in line with the increased market choppiness over the last week. ETH volatility markets continue to command a premium, reflecting their futures markets.
Perpetual Swap Funding Rate
- ETH’s Active Rate: ETH’s perpetual swap funding rate remains active but below the levels observed at the end of May. This contrasts with BTC’s funding rates, which echo the lacklustre performance in futures yields, remaining pinned to 0% in either direction during the leak lower in spot price.
Options Market
- Bullish Positioning: ETH’s skew indicates slightly more bullish positioning than BTC’s, with both vol smiles moving closer to neutral for shorter-dated expiries. This is reflected in the volatility smile that is strongest at shorter-dated options.
Volatility by Exchange
- Exchange Differences: The report provides insights into the volatility by exchange for both BTC and ETH. It shows that ETH’s volatility remains elevated above that of BTC’s across the term structures.
Actionable Insights
- Monitor Futures Market: The decline in yields implied by futures prices and the reduction in leverage, especially for BTC, suggest that investors should closely monitor the futures market for potential shifts in market sentiment.
- Assess Volatility Expectations: The upward trend in volatility expectations, particularly for ETH, indicates that investors should assess their risk tolerance and potentially adjust their investment strategies accordingly.
- Consider Perpetual Swap Funding Rate: The active but low perpetual swap funding rate for ETH compared to BTC’s lacklustre performance suggests that investors might want to consider the potential implications for their investment strategies.
- Evaluate Options Market: The bullish positioning indicated by ETH’s skew in the options market suggests that investors should evaluate the potential opportunities and risks in this market.
- Examine Volatility by Exchange: The differences in volatility by exchange for BTC and ETH indicate that investors should examine these differences and consider their potential impact on their investment strategies.
