Block Scholes x Bybit Crypto Derivatives March 5th 2025

Key Insights

Crypto price action continues to be driven by US President Trump’s policies. Several SEC cases against crypto-native firms have been dropped over the past month, positive news for the industry that was followed up by Trump’s weekend announcement of the inclusion of BTC, ETH, XRP, SOL and ADA in a US strategic reserve. However, a persistently bearish sentiment for risk-on assets that has seen the S&P 500 index fall by more than 5% from its February all-time high (ATH) has weighed heavily on crypto assets. The resulting volatility from the buffeting tailwinds and headwinds has inverted BTC’s and ETH’s term structures of at-the-money implied volatility to their strongest levels in 2025, as short-term protective puts see strong demand.

Perpetuals: Funding rates have been more consistently positive than in previous weeks, without reflecting the strong volatility in spot prices over the weekend. 

Options: Term structures are strongly inverted, as short-tenor put options see strong demand during the volatile swings in spot.

Block Scholes BTC Senti-Meter Index

Block Scholes ETH Senti-Meter Index

Block Scholes’s 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

• US Manufacturing PMI — Mar 3, 2025 — The US Manufacturing ISM Purchasing Managers’ Index (PMI) fell in February to 50.3 from 50.9 in January, below the expected level of 50.8.

• Euro Area Inflation — Mar 3, 2025 — According to Eurostat's flash estimates, annual inflation in the euro area for February is expected to be 2.4%, down from 2.5% in January. Core CPI is expected to be down to 2.6% from 2.7%.

• China Two Sessions Meeting — Mar 4, 2025 — Policymakers in China from the Chinese People’s Political Consultative Conference (CPPCC) and National People’s Congress (NPC) will discuss key economic priorities for the year. The growth target for 2025 has been set at “about 5%.”

• European Central Bank (ECB) Monetary Policy Meeting — Mar 6, 2025 — The ECB is expected to cut the benchmark deposit rate by 25 bps, from 2.75% to 2.5%, amid growth concerns from President Trump’s tariff programs.

• US Nonfarm Payrolls (NFP) — Mar 7, 2025 — Total NFP employment is expected to rise by 160K in February vs. 143K in January. The unemployment rate is expected to stay flat at 4.0%.

US Crypto Reserve — On March 2, Donald Trump issued an Executive Order on Digital Assets to advance a Crypto Strategic Reserve that includes XRP, SOL, ADA, BTC and ETH.

Trending News

• Ethereum's Pectra upgrade was successfully deployed on the Sepolia testnet on Mar 5. However, developers may delay the mainnet launch due to unresolved issues from a previous failure on the Holesky testnet.
• Mastercard has entered a new partnership with Ondo Finance that will see it bring Ondo’s Short-Term US Government Treasuries Fund (OUSG) to its Multi-token Network, in turn allowing businesses to earn a daily yield through the tokenized assets.

Funding Rates Positive, but Not Extreme

Key Insights

President Trump’s weekend announcement on Mar 2, 2025 of a US crypto reserve specifically named BTC, ETH, SOL, XRP and ADA for inclusion. However, the funding rates of these tokens didn’t reflect the sharp and immediate rally in their spot prices. Instead, funding rates across tokens have been relatively subdued (compared to the highs they traded with the last time that a strategic reserve was a dominant narrative, ahead of President Trump’s inauguration on Jan 20, 2025). However, the past week of trading has seen a far more consistently positive rate paid by long positions for all coins, indicating a lack of strong demand to short, if not a strong demand for long positions.

BTC Options

Key Insights

Open interest in BTC options hasn’t yet recovered from the expiration of contracts at the end of February 2025. Since then, growth in open put positions has outpaced growth in calls. This follows the spike higher in realized volatility to the highest levels seen in over three months, causing the inversion of the at-the-money implied volatility term structure to reach its deepest levels since December 2024 alongside those for ETH, reversing the downward trend in volatility expectations that marked much of February 2025. Longer-dated volatility smiles remain skewed toward OTM calls, but short-dated put options are firmly in demand.

BYBIT BTC OPTIONS VOLUMES

BYBIT BTC OPTIONS OPEN INTEREST

Volatility Trend Reversed as Realized Volatility Peaks

BYBIT BTC ATM TERM STRUCTURE — The inversion of the term structure has reached its deepest levels since December 2024.

BYBIT BTC SVI ATM IMPLIED VOLATILITY — Over the past week, volatility expectations have reversed a previously downward trend to trade at their highest levels in over a month.

BYBIT BTC IMPLIED AND REALIZED VOLATILITY — Realized volatility has spiked sharply upward to the highest levels seen in over three months, but remains below the 130% recorded for ETH.

ETH Options

Key Insights

The immediate rally in spot price as a result of Trump’s weekend announcement that a US crypto reserve would include ETH (among others cryptos) was followed by an almost immediate reversal of those gains, as Trump’s continued tariff pledges added to a bearish sentiment felt across risk-on assets. These moves have caused realized volatility to rise back above the levels implied by options prices (over the next month) to their monthly highs, resulting in a sharp and sustained increase in demand for short-term optionality. The term structure of volatility has inverted, and short-tenor volatility smiles have skewed back toward puts as traders seek protection against further downside.

‍

BYBIT ETH OPTIONS VOLUMES

BYBIT ETH OPTIONS OPEN INTEREST

High Realized Volatility Sees Term Structure Invert

BYBIT ETH VOLATILITY TERM STRUCTURE — Demand for optionality is far higher at shorter tenors.

BYBIT ETH SVI ATM IMPLIED VOLATILITY — Volatile moves in spot prices have seen a severe and sustained inversion of the term structure.

BYBIT ETH IMPLIED AND REALIZED VOLATILITY — Realized volatility has reached 130% for the second time this month.

SOL Named In Reserve

Key Insights

Open interest in Solana options fell at the end of February, as over $5M in calls and more than $3M in puts expired. The vast majority of those options positions weren’t rolled over into new positions, but despite SOL spot trading 44% lower than its January ATH, the majority of new positions have been taken in calls. However, the new positioning in SOL is disappointingly weak, considering its inclusion in a list of tokens to be included in a crypto reserve (per Trump’s weekend announcement) alongside BTC, ETH, XRP and ADA.

‍

BYBIT SOL OPTIONS VOLUMES

BYBIT SOL OPTIONS OPEN INTEREST

Volatility by Exchange

BTC, 1-MONTH TENOR, SVI CALIBRATION

ETH, 1-MONTH TENOR, SVI CALIBRATION

Bybit Volatility Surface

Constant Maturity Smile

Data & Methodology

Data Acquisition, Composition & Timeline

Open interest and trading volume data are sourced “as is” from the Bybit exchange platform API exclusively, and as such do not represent a comprehensive picture of the sum of trading activity across all derivatives markets or exchanges. The data visualized in this report consists of hourly and daily snapshots, recorded over the previous 30 days. Daily (hourly) snapshots of trade volume record the total sum of the notional value of trades recorded in the 24H (1 hour) period, beginning with the snapshot timestamp.

‍

If not explicitly labeled as derived from another exchange, the input instrument prices to all derivatives analytics metrics in this report are sourced from the appropriate endpoints of Bybit’s public exchange platform API. In the event that data is labeled or referred to as representing the market on another exchange source, that data is sourced from the appropriate endpoint of each respective exchange’s public API.

‍

Macroeconomic charts and data are sourced “as is” from the Bloomberg Terminal. Exchange data is sourced “as is” from publicly available exchange APIs. Block Scholes makes no claims about the veracity of public third-party data.

‍

Open Interest & Volume Dollar Denomination

After acquisition of underlying-denominated raw data for open interest and trading volume on the Bybit exchange platform from Bybit’s API endpoint, equivalent dollar-denominated figures are calculated using the concurrent value of Block Scholes’s Spot Index for the relevant underlying asset.

Block Scholes’s Spot Index represents the aggregate Spot mid-price for a given currency across the top five CEXs by volume (with USD-quoted markets). It considers the proportion of total volume in the instrument on the exchange, as well as the deviation of a data point from those on other exchanges.

‍

Block Scholes–Derived Analytics Metrics

Futures prices are used for Block Scholes’s futures-implied yields calculation services in order to derive the constant-tenor annualized yields displayed in the Futures section of this report.

‍

Options prices are used for Block Scholes’s implied volatility calculation services in order to calibrate volatility surfaces, from which all derivatives volatility analytics displayed in the BTC Options and ETH Options sections of this report are calculated. Volatility smiles are constructed by calibrating to mid-market prices observed in Bybit options markets. As part of the calibration process, prices go through rigorous filtration and cleaning steps, which ensures that the resulting volatility surface is arbitrage-free and has exceptional fit to the market observables.

‍