Block Scholes x Bybit Crypto Derivatives October 9th

Key Insights

Futures: Futures trading volumes have noticeably declined since late September, with recent volatility prompting some increased activity. Open interest remains stagnant, with levels still lower following the September expiration.

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Perpetuals: Open interest has remained stable. Last week's surge in trading volumes, driven by spot price volatility, underscores the typical relation between market turbulence and increased activity.

Options: The U.S. presidential election remains a central theme in market narratives and positioning, as ETH and BTC implied volatility is declining while realized volatility is trending upward.

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Block Scholes BTC Senti-Meter Index

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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 ‍

• Employment Situation Report — Oct 4, 2024 — A blowout jobs report showed the U.S. economy added 254,000 jobs in September, well above the median expectation of 150,000, while the unemployment rate fell to 4.1%.

• U.K. Gilts — Oct 8, 2024 — Borrowing costs in the U.K. hit their highest rates in over a year amid fears of financing related to the October budget. 

• U.S. CPI — Oct 10, 2024 — The Consumer Price Index report is expected to show core consumer prices easing to 0.2% in the month to September, after a 0.3% rise in August year-over-year. Meanwhile, the CPI is expected to ease from 2.5% to 2.3%. 

• U.S. PPI — Oct 11, 2024 — Month-over-month, the Producer Price Index is expected to drop to 0.1% in September, compared to the previous value of 0.2%. This is reflected in an expected year-over-year drop from 1.7% to 1.6%. 

• ECB — Oct 17, 2024 — The European Central Bank is expected to cut rates again, given an expected September inflation rate of 1.8% (below the 2% goal for the first time since June 2021).

Gold and Bitcoin — Gold has continued its upward trend, hitting new ATHs, while BTC has largely traded range-bound amid growing global tensions.

Trending News

• Collapsed crypto exchange FTX’s restructuring plan has been approved, and creditors could receive repayments as soon as December.
• Crypto exchange Crypto.com has filed a lawsuit against the SEC, after receiving a Wells notice that it claims to be “unauthorized overreach,” in a bid to “protect the future of the crypto industry in the U.S."

Futures Trade Volumes Fall Significantly

Futures trading volumes have shown notable movements over the past few weeks. Activity remains noticeably lower on weekends, but there’s been a gradual reduction in overall activity since the spike in trading that occurred in late September. Despite this downward trend, futures markets experienced a positive response to the heightened volatility observed at the beginning of October, showing relatively enhanced activity. However, the levels of open interest lost during the September expiration haven’t yet been regained, and are exhibiting sideways movement that indicates a lingering impact from that period.

Bybit Futures Swap Open Interest

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Bybit Futures Trading Volumes

Perps Positioning Unchanged by October Volatility

Open interest in perpetual swaps has remained stable, with BTC continuing to dominate the landscape. This is a typical trend, reflecting a similar positioning in options markets, in which BTC exposure remains the focus. Last week we saw a significant outlier in trading volumes, particularly with BTC. This surge corresponds with the spike in spot price volatility observed at the start of October, reinforcing the usual relationship between volatility and trading volumes that we see across various instruments, as increased market turbulence tends to correlate with more activity.

Bybit Perp BTC & ETH Open Interest — Despite extra trade volumes in BTC last week, we haven’t seen a significant change in open interest levels.

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Bybit Perp Trading Volumes — Weekend trade volumes continue to underperform weekday trading, with increased trading in BTC perpetuals over the past week.

Persistently Bullish Funding Rates End

BTC has maintained a bullish, positive funding rate over the past week, while ETH has experienced negative rates several times. This contrasts with the bullish trend seen in September. Meanwhile, TON has returned to positive funding after nearly a week of persistent rates for long positions. Other altcoins are showing mixed signals in response to lackluster spot performance, particularly DOGE, whose funding rate has declined from its late September highs as its spot price has reversed much of its gains.

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BTC Options

BTC's realized volatility has risen once again, alongside a decrease in implied volatility that has led to a narrowing of the ratio between implied and realized levels (compared to recent levels since late September). This situation is unusual, given that the U.S. election kink in the volatility term structure is still present, now just below a 30-day tenor. Typically, we would expect short-tenor volatility levels to increase in anticipation of known event risks. Recently, we observed the largest trade volumes in call options in over a month, which has contributed to a recovery in open interest for calls, regaining the levels lost after the September expiration.

BYBIT BTC OPTIONS VOLUMES

BYBIT BTC OPTIONS OPEN INTEREST

Volatility Trends Down

BYBIT BTC & ETH Volatility Term Structure — The volatility spike caused by the U.S. election has shifted along the term structure, while slightly dipping across tenors.

BYBIT BTC SVI ATM IMPLIED VOLATILITY — A downtrend in implied volatility can be observed for all tenors. 

BYBIT BTC IMPLIED AND REALIZED VOLATILITY —  The 7-day realized volatility has experienced a strong rise, and has now stabilized closer to implied volatility levels.

ETH Options

ETH's implied volatility has declined across the term structure, mirroring a downward trend that began in early September and similarly to BTC’s. The unpredictability associated with the U.S. election remains present, but hasn’t expanded as expected. This is unusual, considering the typical market behavior ahead of known event risks, such as the January BTC Spot ETF decision. While open interest for call options remains higher, it hasn’t yet recovered to the levels observed just before the September expiration. This indicates a cautious sentiment among traders regarding potential price movements. In contrast, trade volumes in put options have outweighed those of calls over the past week.

BYBIT ETH OPTIONS VOLUMES

BYBIT ETH OPTIONS OPEN INTEREST

Volatility Lower in Early October

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BYBIT ETH VOLATILITY TERM STRUCTURE — While we’ve observed the dislocation for options expiring after the elections, outright volatility levels have dropped.

BYBIT ETH SVI ATM IMPLIED VOLATILITY — Implied volatility levels have fallen downward significantly in the past several days, similar to BTC’s movements.

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BYBIT ETH IMPLIED AND REALIZED VOLATILITY —  The 7-day realized volatility has risen, and is now moving at the same levels as 30-day-tenor implied volatility. 

Volatility by Exchange

BTC, 1-Month Tenor, SVI Calibration

ETH, 1-Month Tenor, SVI Calibration

Bybit Volatility Surface

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Listed Expiry Volatility Smiles

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