Research Summary
The report provides a detailed analysis of the crypto derivatives markets, focusing on Bitcoin (BTC) and Ethereum (ETH). It highlights the strong demand for leveraged long exposure, reflected in the high futures-implied yields and funding rates for both cryptocurrencies. The report also discusses the volatility term structures and volatility smiles for BTC and ETH.
Key Takeaways
Strong Demand for Leveraged Long Exposure
- Increased Futures-Implied Yields: The report indicates a strong demand for leveraged long exposure, as evidenced by the rise in futures-implied yields for both BTC and ETH. This demand has been particularly strong following the rally to all-time high BTC prices.
- High Funding Rates: The funding rates for both BTC and ETH have been consistently high, further reflecting the strong demand for long exposure in the listed expiry futures.
Volatility Term Structures and Smiles
- Inverted Term Structures: The term structures for both BTC and ETH have significantly inverted, with the implied volatility at the front end reaching approximately 75%. This is a repeat of the reaction to last week’s spot rally.
- Skewed Volatility Smiles: The volatility smiles for both cryptocurrencies are skewed strongly towards out-of-the-money (OTM) calls. BTC upside exposure slightly outperformed ETH.
Options Market Dynamics
- BTC Options: The volatility term structure for BTC options has inverted again, similar to last Wednesday’s rally. While volatility smiles skewed very strongly towards OTM calls in the last 24 hours, those levels have been moderated.
- ETH Options: ETH’s term structure is similarly inverted, with at-the-money (ATM) volatilities rising as high as 80% at short tenors. ETH volatility smiles are skewed decisively towards calls, but did not see the same spike and reversal that BTC’s did.
Volatility Surface
- BTC Implied Volatility Surface: Volatility across the BTC surface is at the top of its 30-day range, with short-tenor OTM calls outperforming.
- ETH Implied Volatility Surface: ETH’s volatility surface shows a rise in volatility across the surface, with out-performance in 1-week and 1-month calls and 3-month puts.
Actionable Insights
- Monitor Futures-Implied Yields: Given the strong demand for leveraged long exposure, investors should closely monitor futures-implied yields for both BTC and ETH. These yields can provide insights into market sentiment and potential price movements.
- Assess Volatility Term Structures and Smiles: The inverted term structures and skewed volatility smiles for both BTC and ETH suggest potential opportunities for options traders. Traders should assess these dynamics when formulating their strategies.
- Consider Options Market Dynamics: The dynamics in the options market, including the inversion of the volatility term structure and the skewing of volatility smiles, could provide opportunities for sophisticated investors. These dynamics should be considered when making investment decisions in the crypto derivatives market.
