Research Summary
The report provides a comprehensive analysis of the crypto derivatives markets, focusing on volatility, futures, and options for Bitcoin (BTC) and Ethereum (ETH). It highlights the subdued volatility in the options markets, the consistent positive perpetual swap funding rates, and the 10% premium over spot at an annualized rate in futures prices.
Key Takeaways
Subdued Volatility in Options Markets
- Continued Downward Trend: The report notes that volatility in the options markets for both BTC and ETH has remained subdued following the passing of the ETF event risk. ATM levels have continued their slow downward trend, trading between 40% and 50% across the term structure.
- Neutral Sentiment: The skew towards puts that was observed in the aftermath of the ETF announcement has abated. The report indicates that smiles in both markets and across the term structure now reflect a sentiment much closer to neutral.
Positive Perpetual Swap Funding Rates
- Consistent Positivity: The report highlights that perpetual swap funding rates have been consistently positive. This indicates a willingness among market participants to pay for leveraged long exposure.
- High BTC Funding Rate: Despite the lackluster performance in spot prices over the last month, BTC funding rates have remained high and positive.
10% Premium in Futures Prices
- Annualized Premium: Futures prices imply a 10% premium over spot at an annualized rate. This suggests that investors are willing to pay a premium for the potential upside in the future.
- Stable Annualized Yields: Both BTC and ETH annualized yields have settled near 10% across the term structure. This stability has been observed since before the ETF announcement.
Volatility Surface and Smiles
- Decreased Volatility: The report notes a decrease in volatility across the surface for both BTC and ETH. A stronger fall in puts has resulted in the upward move in BTC’s risk-reversal.
- Neutral Smiling: Both BTC and ETH reflect a shift in sentiment towards neutral smiling over the last week, as indicated by their 25-Delta Risk Reversal.
Historical SABR Volatility Smiles
- Steady BTC SABR Calibration: BTC SABR ATM Implied Volatility trades with a steep structure, rising from 40% at a 1-week tenor to just above 50% at a 6-month tenor.
- Sideways ETH SABR Calibration: ETH SABR ATM Implied Volatility traded sideways in the 40-50% range over the last week, with short tenors briefly pushing higher.
Actionable Insights
- Monitor Volatility Trends: Given the subdued volatility in the options markets for both BTC and ETH, investors should keep a close eye on these trends as they could indicate potential market movements.
- Consider Perpetual Swap Funding Rates: The consistently positive perpetual swap funding rates suggest a willingness to pay for leveraged long exposure. This could be an area of interest for investors looking for opportunities in the crypto derivatives market.
- Assess Premium in Futures Prices: The 10% premium in futures prices over spot at an annualized rate could be a key factor for investors to consider when evaluating potential positions in the crypto derivatives market.
