Research Summary

This report discusses the observed trends in the options markets for Bitcoin (BTC) and Ethereum (ETH), focusing on their implied volatility levels, skew towards out-of-the-money (OTM) puts, and the impact of economic headlines. It highlights the higher volatility expectations for BTC compared to ETH, despite similar levels of price fluctuations. The report also notes a shift in the crypto-asset derivative markets’ positioning ahead of Federal Open Market Committee (FOMC) meetings.

Key Takeaways

Implied Volatility Levels

  • Higher Volatility Expectations for BTC: Despite similar levels of price fluctuations, BTC’s options markets continue to price for higher volatility expectations than ETH’s. This trend has been observed since September of the previous year.
  • ETH Volatility Below BTC’s: ETH’s volatility remains 5-6 points below BTC’s across all tenors in the term structure, contrasting their relative realised volatility levels, which have been fairly close to each other.
  • Significantly Lower Volatility Forecast for ETH: The trend of ETH’s volatility at all tenors trending down relative to the implied volatility of equivalent options written on BTC has passed the parity level, forecasting significantly lower volatility in ETH’s spot price.

Skew Towards OTM Puts

  • Similar Skew for Both Assets: Both BTC and ETH now price for a similar skew towards OTM puts, with a moderate recovery trend from a sharp skew towards OTM puts stabilising in the last week.
  • Directional Sentiment: Despite the distinct difference in outright volatility levels, the directional sentiment appears similarly priced for both assets, but traders expect BTC to move with much higher volatility.

Impact of Economic Headlines

  • Increased Correlation to Equities: Both BTC and ETH have increased their correlation to equities in recent weeks, suggesting that they will likely react similarly to economic headlines due this week.
  • Change in Positioning Ahead of FOMC Meetings: A low, neutral volatility smile suggests that crypto-asset derivative markets are not adjusting their positioning ahead of FOMC meetings in the same way they did 12 months ago.

Actionable Insights

  • Monitor Volatility Trends: Given the higher volatility expectations for BTC and the forecast of significantly lower volatility for ETH, it would be prudent to closely monitor these trends for potential implications on investment strategies.
  • Consider Skew Towards OTM Puts: The similar skew towards OTM puts for both BTC and ETH, despite the distinct difference in outright volatility levels, could provide insights into market sentiment and potential trading opportunities.
  • Assess Impact of Economic Headlines: With the increased correlation of BTC and ETH to equities, it would be beneficial to assess the potential impact of upcoming economic headlines on these crypto-assets.

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