Block Scholes x Bybit Crypto Derivatives December 5th

Key Insights

Futures: November’s end-of-month expiration saw a significant proportion of BTC open interest expire without rollover. Trading activity was muted in correspondence with the lower level of realized volatility.

Perpetuals: Funding rates remain at their extreme highs, while open interest reflected a rotation of exposure into ETH contracts during the halt in BTC’s charge to a level above $100K.

Options: BTC’s term structure of volatility returns to its inverted shape. ETH continues the inversion it held before the move, and both markets reflect the strong bullish sentiment expressed by perpetual markets.

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 methodology article here.

Macro, Tech & Regs

Macro Calendar & Recent Events ‍

• Euro Zone Inflation — Nov 29, 2024 — Euro zone headline inflation rose from 2% in October to 2.3% in November 2024, according to flash data from Eurostat. The ECB is widely expected to cut rates by 25 bps at its December meeting.

• S&P Global U.S. Manufacturing PMI — Dec 2, 2024 — The U.S. Purchasing Manager’s Index (PMI) rose to 49.7 in November from 48.5 in October. While still below the 50 mark, it exceeded expectations and signals improved business confidence.

• U.S. JOLTS — Dec 03, 2024 — The U.S. Job Openings and Labor Turnover Survey (JOLTS) data came in above expectations, with job openings for October increasing to 7.74M against an expected 7.52M. The overall trend of the data shows the U.S. economy isn’t overheating or deteriorating.

• Jerome Powell Speech — Dec 4, 2024 — Federal Reserve Chair Jerome Powell was due to speak on Wednesday on the health of the U.S. economy and potentially provide further forward guidance on the final Federal Open Market Committee (FOMC) meeting of 2024.

• U.S. Nonfarm Payroll — Dec 6, 2024 — NFP data is expected to show 200K jobs added in November, and will be a crucial data point scrutinized by the FOMC in deciding on the outlook for its policy path.

French 10Y OATs — The spread between yields on 10Y French Treasury government bonds (OATs) and 10Y German Bunds have risen to their highest levels since the 2012 eurozone (EZ) crisis.

Trending News

• XRP overtook SOL and USDT to become the third-largest cryptocurrency by market cap. Part of its recent rally has been attributed to news surrounding the imminent launch of a Ripple Labs–issued stablecoin, RLUSD, which will be pegged to the U.S. dollar.
• Approximately 19,800 BTC confiscated by the U.S. government were moved to Coinbase on Dec 2, 2024. It’s as yet unknown whether the government is looking to sell the bitcoins, or is simply moving funds between wallets.

Perp Traders Shift to ETH Exposure

BTC’s triumphant break-through of the $100K barrier has been met with a noticeable (if muted) return of perpetual swap markets to all-time high levels of open interest. Earlier in the week we saw perpetual swap markets shift focus to ETH following BTC’s repeated failed attempts to breach the $100K barrier. While funding rates on both derivative contracts remained large and positive, open interest in ETH contracts increased at the expense of BTC positions before BTC broke its upper barrier. Similarly, trade volumes in ETH have made up a much larger proportion of the market total than we’ve come to expect.

Bybit Perp BTC & ETH Open Interest — Open interest in BTC perpetuals increased significantly overnight, indicating strong support for the spot move.

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Bybit Perp Trading Volumes — The move higher in spot prices has not yet been met by the same exuberant trading volumes that we saw in mid-November.

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Positive Funding Rates Across All Markets

Funding rates across all markets that we’re tracking are positive, including a continuation of BTC’s and ETH’s rates, as well as across altcoins (meme coins, and tokens with ecosystems). This indicates a strong and persistent willingness on the part of traders to pay up the 8-hourly funding rate to maintain their leveraged long exposure to upside price action across the markets. This was true even during periods of pullbacks in majors BTC and ETH that have been reflected with more volatile swings in altcoins, funding rates that remained stubbornly positive have been vindicated by the move overnight.

BTC Options

The sudden spike higher in spot has seen a similarly sharp increase in demand for short-tenor optionality as traders rush to gain exposure to the move higher. BTC’s term structure inversion has seen short-tenor implied volatility levels lift further above the level of realized volatility. Implied volatility levels are lower than in ETH, and open interest data indicates that the move did not see the same flood of call open interest as in ETH markets. However, the skew of BTC’s volatility smiles remains strongly bullish.

BYBIT BTC OPTIONS VOLUMES

BYBIT BTC OPTIONS OPEN INTEREST

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BTC Term Structure Re-inverts

BYBIT BTC & ETH Volatility Term Structure — BTC’s term structure has re-inverted as short tenor options see the bulk of activity in the move above $100K.

BYBIT BTC SVI ATM IMPLIED VOLATILITY — The return to an inverted term structure was drastically quick overnight as traders rushed to take bullish positions.

BYBIT BTC IMPLIED AND REALIZED VOLATILITY — BTC realized volatility spikes higher in the move, but remains below the increased level of short-tenor implied volatility.

ETH Options

ETH’s options market exhibited the most bullish positioning ahead of the overnight spot move, while the perpetual swap markets of both major cryptocurrencies indicated equally stubborn positive sentiment. Open interest is strongly tilted toward OTM calls, indicating a resilient preference for upside exposure as realized volatility finally begins to rise up to implied volatility levels. Upside exposure is thus similarly in demand for both major tokens, a fact highlighted by ETH’s incredible surge in call option open interest over the last 24 hours.

BYBIT ETH OPTIONS VOLUMES

BYBIT ETH OPTIONS OPEN INTEREST

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ETH Implied Volatility Above Realized Volatility

BYBIT ETH VOLATILITY TERM STRUCTURE — The term structure remains inverted as BTC’s re-inverts during the spot move higher.

BYBIT ETH SVI ATM IMPLIED VOLATILITY — ETH’s implied volatility levels remain elevated above BTC’s, with a similarly strong inversion of the term structure.

BYBIT ETH IMPLIED AND REALIZED VOLATILITY — ETH’s realized volatility has rallied overnight following BTC’s breach of $100K, but remains below implied.

November Futures Expire Without Rollover

The open interest of BTC and ETH futures contracts fell, as over $25M worth of contracts expired at the end of November 2024, with almost all of the expired exposure concentrated in BTC contracts. Those contracts weren’t rolled over into new positions, indicating that their holders were happy to let the contracts expire, either to take profit or exit their positions entirely. Since the expiration date, open interest in both BTC and ETH contracts has remained stable with only a small increase during the overnight spot rally. Trading activity in futures markets remains below its mid-November highs, with activity in both major assets diminished in line with the lower level of realized volatility by spot.

Bybit Futures Swap Open Interest

Bybit Futures Trading Volumes

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Volatility by Exchange

BTC, 1-Month Tenor, SVI Calibration

ETH, 1-Month Tenor, SVI Calibration

Bybit Volatility Surface

Listed Expiry Volatility Smiles

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