Research Summary
The report provides a comprehensive analysis of the crypto derivatives market, focusing on futures-implied yields, perpetual swap funding rates, and volatility levels. It highlights the performance of major cryptocurrencies, Bitcoin (BTC) and Ethereum (ETH), and their respective options and futures markets.
Key Takeaways
Rising Futures-Implied Yields and Perpetual Swap Funding Rates
- Increased Futures-Implied Yields: The report notes a significant rise in futures-implied yields, reaching levels last seen before the ETF announcement in early January. This suggests a potential increase in the cost of holding futures contracts.
- High Perpetual Swap Funding Rates: Both BTC and ETH have seen their perpetual swap funding rates rise, indicating a strong demand for leveraged long exposure. This could imply a bullish sentiment among traders.
Volatility Levels and Skewness
- Increased Volatility Levels: The report highlights an increase in volatility levels for both BTC and ETH. This could suggest a higher level of uncertainty or risk in the market.
- Skewness Towards OTM Puts: Despite the rally, the skew towards out-of-the-money (OTM) puts for both BTC and ETH remains either neutral or put-skewed at short tenors, indicating a cautious market sentiment.
Performance of BTC and ETH Options
- BTC Options: The report notes that the volatility term structure for BTC options has compressed, with short-tenor vols leading the rise to levels above 60%. The skew of BTC’s vol smiles remains towards OTM calls at a 3-month tenor only, with shorter tenors neutral.
- ETH Options: ETH’s ATM vols have risen near-monotonically, with vols across the term structure trading at similar levels. Volatility smiles remain slightly put-skewed at shorter tenors, with the 3-month tenor pricing more decisively bullish.
Volatility Surface and Smile Calibrations
- Volatility Surface: The report highlights the compression of the term structure over the last 24 hours, with ETH’s surface remaining higher than BTC’s. This could suggest a higher level of risk or uncertainty in the ETH market.
- Smile Calibrations: The report provides detailed smile calibrations for both BTC and ETH, which can be useful for traders in understanding the market sentiment and pricing options.
Actionable Insights
- Monitor Futures-Implied Yields and Perpetual Swap Funding Rates: Given the significant rise in these rates, investors should closely monitor these metrics as they could indicate changes in market sentiment and potential investment risks.
- Assess Volatility Levels: The increased volatility levels for both BTC and ETH suggest a higher level of risk in the market. Investors should consider this when making investment decisions.
- Consider Skewness in Options Trading: The skewness towards OTM puts for both BTC and ETH could provide valuable insights for options traders. It could indicate potential trading strategies and risk management approaches.
