Research Summary
The report provides a comprehensive analysis of the crypto derivatives market for the fourth week of January 2024. It covers key metrics such as implied volatility, futures implied yield, perpetual swap funding rate, and volatility surfaces for major cryptocurrencies like Bitcoin (BTC) and Ethereum (ETH).
Key Takeaways
Stability in Implied Volatility
- Implied Volatility Trends: After a decisive downward move in the previous week, implied volatility has found stability. It traded around 40% across both major cryptocurrencies, BTC and ETH. Despite a brief inversion due to increased demand for out-of-the-money (OTM) puts, volatility surfaces trended back towards neutral skews.
Futures and Perpetual Swap Funding Rate
- BTC Futures: BTC futures are expected to trade sideways at 10% above the spot at an annualised rate, with a shallow steepness across the term structure.
- ETH Futures: ETH futures have seen their spread along the term structure narrow, with futures prices trending closer to the spot over the last week.
- Perpetual Swap Funding Rate: The demand for long exposure using the perpetual swap contract has largely diminished for both BTC and ETH, as indicated by the low funding rates.
Options Market
- BTC Options: BTC options have resolved another inversion in its structure, with implied volatility of short-tenors declining afterwards. Mid-to-long dated tenors trade sideways, with short tenors resolving a skew towards OTM puts.
- ETH Options: ETH options have also seen a similar trend. The implied volatility inverted similarly to BTC, but trades sideways across the term structure at pre-inversion levels. The 25-Delta Risk Reversal recovers towards a more neutral skew across the surface.
Volatility Surface
- BTC Volatility Surface: The BTC implied volatility surface reports a cooling across the whole volatility surface.
- ETH Volatility Surface: ETH implied volatility surface also sees a similar surface-wide cooling, with long dated tenors being further away from their historical 30-day average.
Volatility Smiles
- BTC Smile Calibrations: The report provides a snapshot of BTC smile calibrations for the 23-Feb-2024 expiry.
- ETH Smile Calibrations: Similarly, ETH smile calibrations for the 23-Feb-2024 expiry are also provided.
Actionable Insights
- Monitor Implied Volatility: Given the recent stability in implied volatility, it would be prudent to keep a close watch on this metric for any significant changes that could impact trading strategies.
- Assess Futures and Perpetual Swap Funding Rates: With the diminishing demand for long exposure using the perpetual swap contract, traders might want to reassess their positions and strategies.
- Review Options Market: The recent trends in the options market, particularly the resolution of inversions and the movement towards neutral skews, could present opportunities for strategic positioning.
