Block Scholes x Bybit Crypto Derivatives 12th July

Block Scholes BTC Senti-Meter Index

Block Scholes ETH Senti-Meter Index

Block Scholes’ Senti-Meter index aggregates the funding rate, future-implied yield,and volatility smile skew into a single expression of sentiment in derivatives markets — see more in the methdology article here.

Macro, Tech & Regs

Macro Calendar & Recent Events

• US PCE — June 28, 2024 — The Fed’s preferred gauge of inflation showed a rate of 0.0% for the month of May after remaining persistently sticky in the first two quarters of the year.

• EU HICP — July 2, 2024 — Inflation in Euro area down, at 2.5% YoY.

• France Legislative Elections — Le Pen’s National Rally fail to secure majority, and French government bonds retain much of their yield spread above German bunds.

• U.S. Presidential Election — President Biden faces renewed pressure to drop out of his re-election bid following his debate performance last month.

• U.S. CPI — July 11, 2024 — The final inflation read ahead of the Fed’s July meeting came in below analysts’ expectations at 3.0% YoY, prompting a fall in short-term bond yields.

• Federal Reserve Meeting — July 31, 2024 — Expected to hold rates steady at 5–5.25% target range.

U.S. CPI — Headline YoY inflation rate falls below 3% for the first time this year as core goods remain deflationary

Blockchain Tech Updates

• Ethereum Pectra upgrade — Q4 2024/Q1 2025
  • EIP-7002 — Allows validators to initiate withdrawals from execution layer withdrawal address. This is currently limited to the Beacon Chain address only.
  • EIP-7251 — Increases the maximum effective balance of Beacon Chain balances on the Beacon Chain network from 32 ETH to 2,048.

Futures Volumes Rise During Spot Volatility

While annualized yields slipped lower during the selloff in Spot prices earlier in the week, both BTC and ETH futures have since recovered, although now trade at slightly lower levels. We also see a steeper term structure of yields in both markets as short-tenor futures trade much closer to Spot, while longer-tenor futures trade higher.

The expiration of June’s futures on June 28, 2024 didn’t see an explosive increase in trade volumes, but since then we’ve seen open interest has increased faster for ETH than for BTC, indicating a stronger narrative that’s focused on the launch of its ETF.

Bybit Futures Swap Open Interest

Bybit Futures Trading Volumes

Futures Yields Trade Lower

BYBIT BTC & ETH ANNUALIZED YIELDS — BTC yields are slightly inverted at the front end

BYBIT BTC ANNUALIZED YIELDS — Have recovered back above 8% across the term structure after the bearish move earlier in the week

BYBIT ETH ANNUALIZED YIELDS — reflect a steeper term structure than BTC’s in the aftermath of the crash earlier in the week

Perp Open Interest Tanks

The crypto-wide spot sell-off coincided with the largest single-day trade volume in perpetual swaps over the past month as traders rushed to cover exposure. The corresponding fall in open interest indicates that the much of the trade volume can be explained by long position holders closing out long positions in the perpetual swap contract. The larger trade volume activity in ETH suggests that traders were caught in long positions in greater magnitude, possibly due to positioning ahead of a expected ETF start-of-trading date.

Bybit Perp BTC & ETH Open Interest - Open interest falls in both majors during the spot market rout as traders close positions

Bybit Perp Trading Volumes - Both BTC and ETH see a spike in trade volumes, but ETH outperforms its recent history by more

Volatility (Finally) Delivers

The sharp sell-off in Spot prices at the beginning of the week and subsequent recovery means that the volatility realized by Spot moves has been higher than implied volatility expectations.

As a result, we see a sharp divergence in the comparison charts below for both BTC and ETH. The difference in each token’s realized volatility matches the difference in their implied volatility: ETH trades with an implied volatility premium that has so far been justified by its larger moves in comparison with BTC.

BYBIT BTC IMPLIED AND REALIZED VOLATILITY — delivered far exceeds implied at a 30D tenor

BYBIT ETH IMPLIED AND REALIZED VOLATILITY — delivered far exceeds implied at a 30D tenor

BTC Options

Options markets have had a relatively tame response to the most recent sell-off, with volatility levels rising at the front end to meet longer-dated levels. They’ve failed to meaningfully invert the term structure as we’ve seen them do in previous Spot price crashes. However, BTC’s volatility smile skewed further toward OTM puts at shorter tenors, indicating that markets are seeking protection against further downside price action.

BYBIT BTC OPTIONS VOLUMES

BYBIT BTC OPTIONS OPEN INTEREST — The open interest in calls outweighs the open interest in puts, despite a vol smile skew toward the latter

Uncertainty Ahead in a Tumultuous Summer

BYBIT BTC & ETH Volatility Term Structure — remain at similar levels to last week’s

BYBIT BTC SVI ATM IMPLIED VOLATILITY — has traded at stable levels since rising at the end of June 2024

BYBIT BTC 25-Delta Risk Reversal — we see a stark divergence in sentiment between short and long tenors, as near-dated volatility smiles skew further toward OTM puts

ETH Options

The open interest in ETH calls is notably higher than puts following the June 28, 2024 expiration date. This corresponds with a high trade volume in calls that began around the beginning of the month, and has continued until today. It’s reflected in the more bullish skew toward OTM calls, which is in stark contrast to the bearish positioning seen in BTC’s markets.

ETH retains its volatility premium above BTC options, as all eyes turn to the launch announcement of several U.S. Spot ETFs.

BYBIT ETH OPTIONS VOLUMES

BYBIT ETH OPTIONS OPEN INTEREST

ETH Vol Premium, Calls Recover

BYBIT BTC & ETH VOLATILITY TERM STRUCTURE — report a steep term structure that trades 10–15 points above BTC’s

BYBIT ETH SVI ATM IMPLIED VOLATILITY — ETH’s volatility remains elevated above that of BTC’s across the term structures, albeit with the same steepening in shape that contrasts its brief inversion at the end of May 2024

BYBIT ETH 25-Delta Risk Reversal — ETH’s skew remains slightly more bullish across the term structure than BTC’s, reflecting persistently more positive positioning

Volatility by Exchange

BTC, 1-Month Tenor, SVI Calibration

ETH, 1-Month Tenor, SVI Calibration

Bybit Volatility Surface

Listed Expiry Volatility Smiles