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 also examines the perpetual swap funding rate, options, and volatility by exchange for both cryptocurrencies. The report further presents the market composite volatility surface and listed expiry volatility smiles for BTC and ETH.
Key Takeaways
Volatility and Yield Trends
- Volatility Trading Sideways: The report notes that volatility has largely continued to trade sideways in both BTC and ETH over the past week. This is due to a lack of significant macro and crypto-specific events.
- Increased Demand for Leveraged Long Exposure: Over the past month, there has been an increase in demand for leveraged long exposure in both BTC and ETH. This is indicated by the consistent rise in futures yields, suggesting that investors are willing to pay a premium above the spot price to gain exposure to the underlying asset.
Perpetual Swap Funding Rate
- BTC Funding Rate: The BTC funding rate has continued to trade positively over the past week as the BTC spot price remains at range highs. However, the volatility with which it traded towards the end of May has subdued.
- ETH Funding Rate: The ETH funding rate trades close to zero, at similar levels to BTC, indicating that investors are not currently opening heavily leveraged long positions.
Options
- BTC Options: The report shows that the volatility at the front-end for BTC options has increased from May’s monthly lows as BTC continues to trade at the top of its range. The skew at short-dated tenors has recovered from bearish levels as implied volatility for out-of-the-money (OTM) puts fell over the past week.
- ETH Options: For ETH options, the report notes that the volatility across the term structure has traded sideways following a muted reaction to the news of an ETH ETF. The skew trades higher at short-dated tenors as implied volatility for OTM puts falls, and is skewed towards calls at all tenors.
Volatility by Exchange
- BTC and ETH Volatility: The report presents the volatility of BTC and ETH at a 1-month tenor, showing the calibration of the Stochastic Volatility Inspired (SVI) model for different exchanges. The data suggests that the volatility of both cryptocurrencies varies across different exchanges.
Actionable Insights
- Monitor Volatility Trends: Investors should keep a close eye on the volatility trends of BTC and ETH, as these can provide valuable insights into market sentiment and potential price movements.
- Assess Leveraged Long Exposure: The increased demand for leveraged long exposure in BTC and ETH indicates a bullish market sentiment. Investors might want to consider this trend when making investment decisions.
- Consider Perpetual Swap Funding Rates: The funding rates for BTC and ETH can provide insights into the leverage levels in the market. A positive funding rate suggests that long positions are paying short positions, which could indicate bullish sentiment.
- Evaluate Options Data: The options data for BTC and ETH can provide valuable insights into market expectations and sentiment. Investors should consider this data when making investment decisions.
- Compare Volatility Across Exchanges: The volatility of BTC and ETH varies across different exchanges. Investors might want to consider this when choosing an exchange for trading.
