Research Summary
The report provides a comprehensive analysis of the crypto derivatives markets, focusing on the volatility and yield trends of Bitcoin (BTC) and Ethereum (ETH). It highlights the impact of the potential approval of an Ethereum spot ETF on the market and discusses the increased demand for leveraged long exposure in futures markets.
Key Takeaways
Volatility Trends in Crypto Derivatives Markets
- Increased Volatility: The report notes a gradual rise in volatility across the term structure, with ETH experiencing a significant spike following an upgrade in the probability of an Ethereum spot ETF being approved. This has led to an inversion in the term structure, with implied volatility for ETH options reaching levels not seen since April.
- Volatility Skew: The volatility smile skew recovered towards calls over the past week, but has since sold off at the front-end as investors rush to purchase out-of-the-money (OTM) puts for downside protection.
Yield Trends in Crypto Derivatives Markets
- Increased Yields: Yields at tenors 1M and beyond for BTC have increased steadily over the past week as BTC approaches range highs. For ETH, yields at short-dated tenors rose beyond longer-dated tenors following an increase in the probability of an ETH ETF.
Leverage in Futures Markets
- Increased Leverage: Leverage in futures markets has increased, particularly at short-dated tenors which have risen beyond longer-dated tenors, indicating a demand for leveraged long exposure that is stronger for ETH.
Perpetual Swap Funding Rate
- Increased Demand for Leveraged Long Exposure: The BTC funding rate traded positively over the past week with some volatility, indicating increased demand for leveraged long exposure. The ETH funding rate recently spiked to levels not seen since April as the probability of an ETH ETF being approved this year was upgraded by analysts.
Actionable Insights
- Monitor Volatility Trends: Investors should keep a close eye on the volatility trends in the crypto derivatives markets, particularly for ETH and BTC. The recent spike in ETH volatility following the potential approval of an Ethereum spot ETF could have significant implications for investment strategies.
- Assess Leverage Opportunities: The increased leverage in futures markets, particularly at short-dated tenors, indicates a strong demand for leveraged long exposure. Investors should assess these opportunities in light of their risk tolerance and investment objectives.
- Consider Yield Trends: The report highlights the increasing yields for BTC and ETH. Investors should consider these trends when making investment decisions in the crypto derivatives markets.
