Research Summary
The report provides a comprehensive analysis of the crypto derivatives market for the seventh week of 2024. It focuses on the volatility trends, futures implied yield, perpetual swap funding rate, and options for both Bitcoin (BTC) and Ethereum (ETH). The report also highlights the impact of the Consumer Price Index (CPI) print on the market.
Key Takeaways
Volatility Trends and Market Sentiment
- Volatility and Sentiment Correlation: The report notes a consistent upward trend in volatility, which has been mirrored by each sentiment indicator. The volatility smiles across the term structure have skewed strongly towards out-of-the-money (OTM) calls, indicating a bullish market sentiment.
- Impact of CPI Print: The larger-than-expected CPI print for January led to a collapse in yields and a slight pause in the skew towards OTM calls, moderating the bullish sentiment and highlighting the tentative nature of market conditions under strong expectations.
Futures and Perpetual Swap Funding Rate
- Futures Implied Yield: The futures implied yield for both BTC and ETH climbed to their highest values since before the ETF announcement date in mid-January. However, they collapsed following the CPI print.
- Perpetual Swap Funding Rate: The funding rates for BTC and ETH have spiked to their highest levels since December last year, indicating a strong demand for long exposure.
Options for BTC and ETH
- BTC Options: The BTC SABR ATM implied volatility has increased consistently over the last week, trading at its highest levels in over a month. The BTC 25-Delta Risk Reversal has followed this upward trend, showing strong demand for optionality expressing a bullish view.
- ETH Options: The ETH SABR ATM implied volatility trades at the top of its monthly range after climbing consistently over the last week. The ETH 25-Delta Risk Reversal shows strong demand for upside participation, with a stronger tilt towards OTM calls.
Volatility Surface and Smiles
- Volatility Surface: The BTC and ETH implied volatility surfaces have seen an increase across the whole surface, with short-to-mid-dated OTM calls rising the most.
- Volatility Smiles: The BTC and ETH smile calibrations show a skew towards OTM calls, indicating a bullish market sentiment.
Actionable Insights
- Monitor Volatility Trends: Given the consistent upward trend in volatility and its correlation with market sentiment, investors should closely monitor these trends for potential market shifts.
- Consider Impact of Macro-Economic Indicators: The impact of the CPI print on the crypto derivatives market highlights the importance of considering macro-economic indicators in investment decisions.
- Assess Demand for Long Exposure: The spike in the perpetual swap funding rate for BTC and ETH indicates a strong demand for long exposure, which could present opportunities for investors seeking to capitalize on bullish market sentiment.
- Examine Options Market: The consistent increase in BTC and ETH options, particularly the SABR ATM implied volatility and 25-Delta Risk Reversal, suggests a strong demand for upside participation. Investors should examine these trends for potential investment strategies.
