Enrico Crovini
Research Analyst
Last Updated:
October 8, 2024
•
8 min read
Crypto Derivatives 8th October 2024
With less than 30 days left until the US Presidential election, the term structure of ATM implied volatility is clearly showing the same dislocation that we have observed for several months. Implied volatility levels for 30-day-tenor options have moved further up, now trading similar levels to longer-dated options. Despite the relative kink, outright volatility levels have dipped in the past week for both majors. Spot price downside volatility in early October has been reflected in derivatives sentiment, with volatility smiles skewing towards puts at pre-election expiries. While levels have since recovered for BTC OTM options, showing a preference overall for OTM calls, ETH volatility smiles still exhibit a premium assigned to puts at short tenors.
Futures Implied Yield, 1-Month Tenor
ATM Implied Volatility, 1-Month Tenor
Crypto Senti-Meter Index
BTC Sentiment
ETH Sentiment
Futures
BTC Annualised Yields
7D futures yields have oscillated significantly, resulting in a flat term structure.
ETH Annualised Yields
ETH’s futures yields term structure shows the same flattening as that of BTC but at 1 point lower at all tenors.
Perpetual Swap Funding Rates
BTC Funding Rate
BTC’s perpetual funding rate has registered consistent positive high levels.
ETH Funding Rate
ETH’s perpetual swap funding rate has showed positive values, dipping strongly negatively only once in the past week.
BTC Options
BTC SVI ATM Implied Volatility
Implied volatility levels are slightly lower than last week, but still show a dislocation for the US election on Nov 5, 2024.
BTC 25-Delta Risk Reversal
Smiles have skewed towards puts for short tenors around the recent short-lived sell-off, before recovering.
ETH Options
ETH SVI ATM Implied Volatility
Implied volatility has showed a decrease in overall levels.
ETH 25-Delta Risk Reversal
ETH’s skews have dropped for short-dated OTM options, but have not recovered as BTC’s have.
Volatility by Exchange
BTC, 1-Month Tenor, SVI Calibration
ETH, 1-Month Tenor, SVI Calibration
Put-Call Skew by Exchange
BTC, 1-Month Tenor, 25-Delta SVI Calibration
ETH, 1-Month Tenor, 25-Delta SVI Calibration
Market Composite Volatility Surface
Listed Expiry Volatility Smiles
Cross-Exchange Volatility Smiles
Constant Maturity Volatility Smiles
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Block Scholes x Bybit Crypto Derivatives February 21st 2025
Driven by fewer macroeconomic releases than in the first month of 2025, crypto’s lower-volatility environment has resulted in a sideways slog in spot prices. This has in turn had the expected impact on derivatives markets: lower implied volatility pricing, a steepening term structure and nearly unchanged levels of open interest across all instruments. ETH options markets, however, continue to price in a continuation of its more volatile spot price moves. As we’ve seen in previous instances, this sideways spot price movement includes an underperformance in altcoins, expressed most obviously in derivatives markets as a disappointing funding rate.
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DeFi Analytics 21st February 2025
This week's edition of our Crypto DeFi Analytics. Feb 17th saw Ethereum's fee generation outperform Solana's for the day with gas fees burnt per block spiking. Liquidations across Aave and Compound spike on the same date, coinciding with the brief ETH spot rally.
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Crypto Markets Daily Feb 21 2025
At-the-money volatility for BTC and ETH continue to drop across all tenors, with ETH 7-day tenor options maintaining a 50% volatility premium. Core inflation in Japan rose to its highest since June 2023, increasing the expectation for a BOJ rate hike, and growth in Europe remains sluggish. There are multiple new developments in DeFi including Franklin Templeton's new Bitcoin and Ethereum ETF.
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Crypto Markets Daily Feb 20 2025
BTC and ETH both move sideways at +0.7% and +1.5% (24hrs) respectively. Derivatives markets reflect this, with ETH’s volatility term structure flattening after a mild inversion, while BTC’s remains steep.
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Crypto Markets Daily Feb 19 2025
BTC and ETH both move sideways at +0.7% and +1.5% (24hrs) respectively. Derivatives markets reflect this, with ETH’s volatility term structure flattening after a mild inversion, while BTC’s remains steep.
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Crypto Markets Daily Feb 18 2025
SOL is down 8% on the day, coinciding with the 90% drawdown in the Solana based LIBRA memecoin token. ETH on the other hand, rallied 8% yesterday before paring its gains back, resulting in an inverted at-the-money implied volatility term structure.
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Crypto Markets Daily Feb 17 2025
Binance Smart Chain is making a comeback, with Pancake Swap processing $1T in cumulative trading volume. Abu Dhabi sovereign wealth fund Mubadala Investment Company purchased $436.9M of BlackRock's IBIT ETF in Q4 2024 and GameStop is also considering purchasing Bitcoin with its $4.6B cash reserve. The President of Argentina is facing impeachment threats following his endorsement for the LIBRA token which has lost 90% of its market-cap.
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DeFi Analytics 14th February 2025
This week's edition of our Crypto DeFi Analytics. Solana' continues to outperform Ethereum in fee generation. Hourly Average Cost to Transfer ETH (21,000 Gas) drops to the lowest levels seen this month and liquidations across Aave and Compound are negligible.
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Volatility Review January 2025
Since the start of the year, BTC and ETH weekend activity has been notably reactive, with recent sell-offs driven by macroeconomic factors such as Trump’s tariff policies, speculation about a strategic Bitcoin reserve, and competition from AI-driven disruptors like DeepSeek. Notably, BTC and ETH have acted as leading indicators for broader market movements, reacting more swiftly and sharply to economic and geopolitical developments than traditional equities.
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Crypto Markets Daily Feb 14 2025
Headline PPI in the US came in above expected, with the final demand year-over-year figure increasing to 3.5% in January. President Trump has announced his 'Fair and Reciprocal' tariff plan designed to introduce a round of bilateral reciprocal tariffs with US trade partners. In DeFi news, Trump backed World Liberty Financial continues its large-scale crypto purchases, and the Ethereum Foundation has made additional moves to bolster its on-chain DeFi activity.
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Crypto Markets Daily Feb 13 2025
US CPI exceeded economist expectations on all counts, with the YoY headline figure rising to 3.0%, against the expected 2.9% and core YoY prices increasing to 3.3%, above the expected 3.1%. Chair Powell reiterated the Fed's intention to keep rates restrictive following the CPI release. BTC initially dropped on the news, though pared back the losses through the day.
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Crypto Markets Daily Feb 12 2025
MicroStrategy resumes its Bitcoin buying, announcing its purchase of 7,633 bitcoins after a two week break. ADA has outperformed the top 10 altcoins by market-cap, bolstered on by Grayscale's ADA ETF filing. BTC and ETH skew levels have returned back to a positive territory.
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Crypto Markets Daily Feb 11 2025
MicroStrategy resumes its Bitcoin buying, announcing its purchase of 7,633 bitcoins after a two week break. ADA has outperformed the top 10 altcoins by market-cap, bolstered on by Grayscale's ADA ETF filing. BTC and ETH skew levels have returned back to a positive territory.
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Bybit x Block Scholes: The Altcoin Rotation: Why and When Altcoins Outperform Bitcoin
The elusive "altseason" phenomenon—when altcoins historically outshine Bitcoin in market cycles is one of the most anticipated moments in all historical crypto cycles. Unlike past booms, 2024 has bucked the trend, with BTC holding strong while altcoins struggle to steal the spotlight. Ethereum’s underperformance, institutional dominance via ETFs, and a pre-halving all-time-high rally may have disrupted the usual capital rotation. Yet, increasing stablecoin supply, supply-demand factors and memecoin speculation hint that a belated altseason-like frenzy could still be ignited — if the right spark catches fire.
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Crypto Markets Daily Feb 10 2025
China confirmed its retaliatory tariffs on U.S. imports including 15% levies on liquid natural gas and coal. President Trump announced some more tariffs of his own too, which coincided with a temporarily pullback in BTC's spot price. CPI in China rose more than expected, though seasonal factors likely skewed the data.
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DeFi Analytics 7th February 2025
This week's edition of our Crypto DeFi Analytics. A bittersweet week for Ethereum: network demand surges, surpassing Solana in fees, but ETH spot crashes 25%. Uniswap V3 hits a 2025 high in transaction count, while over $15M in positions are liquidated across Aave and Compound.
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Block Scholes x Bybit Crypto Derivatives February 7th 2025
Another week, another Monday crypto risk-off event that continues its recent correlation to equities. However, despite last week’s sell-off, BTC outperformed relative to the wider crypto market, experiencing a far less steep sell-off, as reflected in its derivatives markets positioning. Options markets priced short-tenor volatility higher before the inversion of the term structure resolved remarkably quickly. ETH, in contrast, saw a much sharper inversion as short-tenor options spiked significantly higher alongside realized volatility. Perpetual swap contracts lost much of their open interest in a liquidation event that some, including Bybit CEO Ben Zhou, estimated were likely as high as $10B. The sudden bearishness was reflected in funding rate data, with altcoins seeing a more persistent and negative funding rate in the days since the crash than BTC did.
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Crypto Markets Daily Feb 07 2025
Labour productivity in the U.S. ticked up at an annual rate of 2.3% between 2023 and 2024 as Dallas Fed President suggests the FOMC may need to hold interest rates at their current level for "quite some time". President Trump's Media Group announces plans to launch its Bitcoin Plus ETF. Bitcoin's implied vol term structure continues to steepen.
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Crypto Markets Daily Feb 06 2025
BlackRock announces plans for a Bitcoin ETP in Europe and Commissioner Hester Pierce announced her key goals for the Crypto Task Force. Institutions are buying the ETH dip with the third-largest single-day spot ETF inflows since launch and ETH's implied vol term structure disinverts.
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Crypto Markets Daily Feb 05 2025
The JOLTS report showed a U.S. economy still in a stable, low-hiring, low-firing state with quits and layoff rates holding steady. Bitcoin continues to range between $96K and $100K as Crypto Czar provides update on a Strategic Bitcoin Reserve. ETH's term structure remains significantly inverted compared to Bitcoin's much flatter shape.
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Crypto Markets Daily Feb 04 2025
President Trump announced a 30 day pause on his tariff program against Canada and Mexico which brought a well needed relief rally in cryptocurrencies. That didn't last long as China announced its own retaliatory measures against the U.S. ETH's implied vol term structure remains inverted, compared to BTC's flatter term structure. The $2B liquidation event of yesterday hasn't stopped ETH Spot ETF inflows however. Uniswap launches v4.
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Crypto Markets Daily Feb 03 2025
President Trump's long awaited tariff program has caused a knee-jerk reaction in crypto markets which have led the risk-off move. BTC temporarily crashed to $91K with both BTC and ETH's term structures inverting. ETH perp funding rates have dropped to -0.07%, and a basket of the Trump Trade altcoins have posted double digit losses.
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DeFi Analytics 31st January 2025
This week's edition of our Crypto DeFi Analytics. Solana continues to cement its year-to-date dominance in fee generation compared to Ethereum with a notable divergence. Ethereum's blob gas usage remains stable and Uniswap V3 sets a new January high for transaction count.
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Crypto Markets Daily Jan 31 2025
The U.S. grew by less than expected in Q4, but still recorded a robust figure that pushed 2024 yearly growth to 2.8%. President Trump once again threatened 100% tariffs on BRICS nations if they attempt to create a BRICS currency or replace the U.S. dollar. Crypto Spot ETFs are back to positive inflows, ending a disappointing week. Apollo Global Management announced a partnership with Securitize to tokenise shares of its Apollo Diversified Credit Fund on various blockchain networks. Rollman Management Digital, a private investment firm, has invested $20M into Elastos.
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Block Scholes x Bybit Crypto Derivatives January 31st 2025
Markets experienced a significant risk-off event at the beginning of this week, as DeepSeek’s LLM announcement coincided with sharp declines in major indices and across crypto markets, despite a direct and obvious impact on the value of the crypto-asset market. Although spot markets saw a volatile selloff, open interest in perpetual swaps has remained stable, with funding rates briefly flipping negative before partially recovering. Options markets saw a surge in trading volume amid the selloff, but forward-looking volatility expectations declined. However, positioning over a longer horizon remains the same — longer dated options positions indicate a bullish sentiment.
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Crypto Markets Daily Jan 30 2025
The FOMC voted unanimously to leave the FFR unchanged at 4.25-4.5% and Chair Powell highlighted that following 100bps of rate cuts since September 2024, Fed policymakers do not "need to be in a hurry to adjust" the policy stance. BTC initially fell following the press release, then rallied at Powell took to the podium. The Bank of Canada continued its 6th consecutive rate cut, citing "major uncertainty" regarding tariffs.
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Crypto Markets Daily Jan 29 2025
BTC’s rangebound movements is accompanied by slower activity in derivatives markets. Implied vol is sideways and the term structure is flat. The recent shakeout has not affected long-tenor vol smiles however, which still indicate a preference for OTM calls. Czech's Central Bank Governor announces plans to add Bitcoin to the nation's official reserves and Metaplanet has plans of its for its corporate Bitcoin treasury.
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Crypto Markets Daily Jan 28 2025
The DXY rallied on the back of President Trump's plans to tariff steel, copper, pharmaceuticals, and foreign computer chips. Nvidia fell 17% yesterday amidst a wider equities decline, but BTC has recovered above the $100K mark. Short-tenor vol smiles are put skewed and spot ETFs saw their biggest outflows since January 8, 2025. The FOMC voting committee welcomes some new members ahead of its meeting tomorrow.
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Crypto Markets Daily Jan 27 2025
BTC fell to $97K amidst a wider Trad-Fi decline. Skew levels have now dropped towards OTM puts for short-tenors with funding rate close to 0%. China's DeepSeek LLM is causing concerns about U.S. tech stock valuations. Looking ahead, the Fed and the ECB are meeting through the week amongst a slew of macro data including U.S. GDP and PCE inflation.
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DeFi Analytics 24th January 2025
This week's edition of our Crypto DeFi Analytics. Trump's inauguration week made it's mark on DeFi metrics. With the official launch of $TRUMP and $MELANIA, exclusively on the Solana network, Solana saw a spike of approximately $31M fees generated in one day. Ethereum saw a similar increase in network demand on Jan 19, reflected by a spike of gas fees pricing. Uniswap v3 paints a similar picture of increased transaction count and blob gas usage remains steady around 400k.
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Block Scholes x Bybit Crypto Derivatives January 24th 2025
Trump’s inauguration on Jan 20, 2025 was preceded by the launch of two Trump family meme coins, TRUMP and MELANIA, which quickly amassed billions of dollars in market capitalization. However, the rumors that a strategic Bitcoin reserve would be among the flurry of executive orders signed by Trump on day one of his administration are what saw derivatives markets positioning shift strongly toward a bullish outcome — inverting the term structure of volatility, raising funding rates levied on long positions and tilting short-tenor volatility smiles toward calls. When that bullish outcome wasn’t delivered, implied volatility levels fell, despite a pickup in realized volatility. However, the bullish skew toward OTM calls remained.
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DeFi Analytics 10th January 2025
This week's edition of our Crypto DeFi Analytics. Ethereum network activity surged early in January, with gas fees spiking before stabilizing at lower levels, while blob gas usage remained steady around 400k. Excess blob gas saw a sharp drawdown this week but quickly rebounded, reflecting sustained activity on the network. Uniswap V3 continues to sustain trading activity amid a volatile market.
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Block Scholes x Bybit Crypto Derivatives January 10th 2025
Bitcoin's brief climb above $100K to start the year quickly faltered as economic data cast doubt on sustained U.S. interest rate cuts, fueling inflation concerns and weighing on risk assets. Derivatives sentiment failed to support the 100k move and realized volatility collapsed amid lower trade volumes, even as open interest levels held steady. Despite the steep volatility term structure, shorter-term implied volatility is still trading at a significantly higher level than the level of realized volatility. End of December 2024 marks the largest premium of forward-looking volatility since the U.S. elections, despite no clear event risk.
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Volatility Review December 2024
Despite the largest single-day expiration events on Dec 27, 2024, the volatility of BTC, ETH and SOL spot prices has been decreasing, rather than spiking, defying expectations of a volatile event driven by a delta-hedging unwind. In our December review, we cover why this was the case, highlighting that only $65.53M of the $350M BTC options expired in-the-money (ITM), including calls with strikes far above the spot price and puts below it.
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DeFi Analytics 3rd January 2025
This week's edition of our Crypto DeFi Analytics. Ethereum gas fees spiked to $5 as demand rebounded post-holidays. Excess blob gas dipped slightly but recovered to 55M as Layer 2 activity resumed. Uniswap V3 also saw a holiday trading slowdown, now stabilising.
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Block Scholes x Bybit Crypto Derivatives January 3rd 2025
Far from the explosion in volatility expected by some commentators, December’s end-of-year options expiration event has resulted in a collapse in realized volatility levels back to the bottom of their December range. Perpetual swap open interest levels remained consistent throughout the event, suggesting that perp markets weren’t used to hedge a significant proportion of the delta of the expired options contrasts, perhaps explaining the lack of volatility that materialized as they expired.
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DeFi Analytics 20th December 2024
This week's edition of our Crypto DeFi Analytics. We highlight the stabilisation of gas fees on Ethereum's network with no significant spikes in demand. Meanwhile, blob gas usage remains elevated at 400k, revealing ongoing and sustained Layer 2 demand for data uploads. An insight into DeFi activity is marked by Uniswap V3 transaction volume on Arbitrum and liquidation activities across Aave and Compound.
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Block Scholes x Bybit Crypto Derivatives December 18th
BTC’s spot price has recorded yet another all-time high, but unlike previous records this quarter, derivatives markets haven’t reflected the same leveraged bullish positioning. This is likely a result of the reset in leverage earlier last week, which has seen funding rates return to “normal” levels across the board, a letup in the growth of futures yields and a slightly less exuberant skew toward calls in options.
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DeFi Analytics 13th December 2024
This week's edition of our Crypto DeFi Analytics. We highlight Ethereum's increased network demand and the change in hourly average gas fees burnt per block and excess blob gas fees associated with this. An insight into DeFi activity is marked by Uniswap V3 transaction volume on Arbitrum and liquidation activities across Aave and Compound.
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Block Scholes x Bybit Crypto Derivatives December 12th
BTC and ETH’s oscillating spot levels over the last week below psychological price targets have left their mark on derivatives markets. A pullback in spot price was exacerbated by a spate of liquidations of over-leveraged long positions in perpetual swaps markets. The aftermath sees a fall in open interest in the instruments, particularly in ETH markets, and a reset of previously overheated funding rates to much lower (but still positive) levels across the board.
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DeFi Analytics 6th December 2024
This week's edition of our Crypto DeFi Analytics. We highlight Ethereum's surging network activity: burnt gas fees neared 2 ETH per block alongside transfer costs peaking at $10 amid a growing ETH spot price. Excess blob gas remained elevated, exceeding 70M- a factor of consideration for Layer 2s. An insight into DeFi activity is marked by Uniswap V3 transaction volume on Arbitrum and liquidation activities across Aave and Compound.
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Block Scholes x Bybit Crypto Derivatives December 5th
Following several repeated attempts, BTC has finally breached its $100K price target. The effect on derivatives markets is a clear increase in bullish positioning on top of the resilient positive sentiment that we had commented on in the build-up to the move. Perpetual swaps and futures markets reflect a persistent desire for further upside exposure. Short-tenor implied volatility, which has repeatedly inverted the term structure in tandem with spot price rallies, has risen once again as traders rush for exposure to the rally through options.
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Volatility Review November 2024
November’s turbulent spot price movements had a pronounced impact on derivatives markets, highlighting notable trends in crypto volatility. The term structure of at-the-money implied volatility became a focal point in the weeks leading up to the election on November 5, 2024, as short-term implied volatility surged to levels approximately 25 percentage points higher than post-election expirations. This spike, coupled with bullish positioning observed in perpetual swaps and futures markets, underscored a strong demand for optionality at expirations near the election date, reflecting traders’ singular focus on the event's outcome. In the two weeks following the election, the term structure continued to oscillate between inversion and steepness, signaling a highly responsive market that rapidly adjusted to shifting sentiment and evolving conditions.
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Bybit x Block Scholes: A Journey of Growth and Milestones Toward Becoming the No. 2 Crypto Exchange
As Bybit celebrates its sixth anniversary, it stands as a powerhouse in the crypto exchange landscape, commanding a 12.21% market share and surpassing 50 million users in 2024. With daily spot trading volumes exceeding $10 billion and perpetual swaps also dominating, Bybit’s journey reflects both its growth and the evolving dynamics of crypto markets. We explore Bybit's growth story to discover trends in BTC and altcoin trading, patterns in weekly liquidity and volatility, how institutions are reshaping the space, and what this means for your next big move. Read now to stay ahead of the market!
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Block Scholes x Bybit Crypto Derivatives November 27th
A bounce-off of the key $100K price level for BTC has slowed growth in bullish positioning this week, but it hasn’t yet resulted in a sharp spate of liquidations or position closing. ETH has sustained its outperformance over the week, following the announcement of SEC Chair Gary Gensler’s January 2025 departure, and is joined in its outperformance by a swath of large-cap altcoins that had previously come under the scrutiny of the SEC under Gensler’s leadership, as reflected in bullish funding rates paid by long positions for the privilege of leveraged long exposure through the contract.
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Block Scholes x Bybit Crypto Derivatives November 20th
Spot prices have surged in the two weeks since the Nov 5, 2024 U.S. elections, sending BTC far beyond its all-time price highs, while ETH has lagged behind. The implied volatility term structure has inverted once more alongside movements in spot, but longer-dated tenors remain relatively range-bound. Derivatives market indicators have shown persistently strong positive sentiment: perpetual funding rates remain constantly positive, open interest for futures contracts is growing rapidly and options skew is stubbornly positive.
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Bybit x Block Scholes: Takeaways from the U.S. Election and What to Look for Next
Donald Trump’s election signals a pivotal shift in cryptocurrency policy, moving from skepticism to advocacy, which may redefine the regulatory landscape. The election result triggered immediate and substantial reactions in the crypto markets, particularly evident in Bitcoin's price surge, reflecting heightened investor optimism. A Republican-controlled U.S. Congress could lead to clearer and more favorable regulations for digital assets, fostering innovation and investment in the sector. As Bitcoin's dominance persists, emerging regulatory clarity may catalyze a resurgence in altcoins, particularly for platforms like Ethereum and Solana, which are poised to benefit from a pro-crypto environment.
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Crypto Derivatives 19th November 2024
Derivatives markets continue to reflect the bullish momentum of recent weeks. Spot yields are approaching the positive highs observed last week, signalling robust demand as traders are willing to pay a premium for leveraged long exposure via the futures contracts. Skew levels and perpetual contracts funding rates remain firmly positive, reinforcing the optimistic sentiment and indicating that market participants are seeking exposure to upwards price action. Meanwhile, implied volatility remains within a range-bound pattern, while the term structure remains inverted. Current levels of inversion have yet to surpass the heightened activity seen during the pre-election period, but remain closely linked to spot movements.
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DeFi Analytics 14th November 2024
This week's edition of our Crypto DeFi Analytics, This week we highlight the surging demand for blob gas, with the hourly average excess blob gas per Ethereum block reaching 60-80M. Meanwhile, the Beacon Chain deposits remained steady at 32.4M, with ongoing withdrawals and inflows balancing each other out. Ethereum’s gas fees saw a correction, aligning with the post-election rally in ETH’s spot price. The average cost to transfer ETH spiked to $3.40, with burnt gas fees returning to early October levels. An insight into DeFi activity is marked by Uniswap V3 transaction volume on Arbitrum and liquidation activities across Aave and Compound.
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Crypto Derivatives 12th November 2024
One week after the election, spot prices have shown remarkable strength, with BTC reaching new all-time highs following an explosive rise. ETH, while not yet at record levels, has also gained upward momentum, displaying a steady increase since the election date. In the derivatives market, sentiment has strengthened for both tokens: futures implied yields, perpetuals funding rates, and skew all indicate a highly positive outlook. ATM implied volatility, which initially dropped after the election event risk passed, has since surged, inverting the term structure. Both BTC and ETH now benefit from a powerful combination of spot price gains and robust bullish derivatives activity, signalling strong demand to participate in further upside potential.
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Block Scholes x Bybit Crypto Derivatives November 6th
As the outcome of the 2024 U.S. presidential election became clear, short-dated implied volatility levels dropped significantly for both BTC and ETH, with term structures flattening for BTC and evolving into a steep curve for ETH. Leveraged positions, which had unwound during pre-election spot volatility, have since rebounded, leading to a rise in open interest across both perpetuals and futures. Despite the passing of the event risk, positioning across all markets remains close to all-time highs, indicating that traders are willing to continue to pay for leveraged long exposure as BTC trades at all-time highs.
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DeFi Analytics 7th November 2024
This week's edition of our Crypto DeFi Analytics, November has seen the Beacon Chain balance drop as withdrawals have dominated, while Ethereum’s on-chain activity slowed despite an increase in it's spot price following the US election. Separately, Solana continues to near Ethereum in gas fee generation. There was an increased demand in blob gas usage on Ethereum with Hourly Average Excess Blob Gas per Ethereum Block maintaining spikes of 70-80M. DeFi activity shifted, reflected in Uniswap V3 transactions on Arbitrum and liquidations across Aave and Compound.
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Crypto Derivatives 5th November 2024
In the days leading up to the election we’ve observed a decline in both futures implied yields and perpetuals funding rates. With election-related uncertainty and recent spot price fluctuations, it’s clear that traders are now hesitant to pursue leveraged exposure in BTC and ETH as aggressively as they did last week, when the buildup of leverage was evident. This points to a reduced appetite for high-stakes directional bets, as BTC’s implied volatility remains elevated and continues to rise. Despite this, BTC’s volatility smiles keep signalling a bullish sentiment. In contrast, ETH’s implied volatility levels have slowed and moved sideways over recent days, with options’ skew reflecting a more bearish short-term sentiment. The spotlight therefore remains on BTC as the election cycle reaches its conclusion.
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Block Scholes x Bybit Crypto Derivatives October 30th
As the U.S. election approaches, short-tenor implied volatility has surged to multi-month highs, outperforming the far-end of the term structure and resulting in a significant inversion in the term structure. This indicates strong moves in positioning ahead of the election early next week, reminiscent of the same pattern observed prior to the ETF launch in January. ETH derivatives suggest that the second-largest cryptocurrency is likely to continue its long-standing trend of underperformance amid event risk, trailing BTC across all metrics and carrying a 10-point volatility premium over BTC.
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DeFi Analytics 31st October 24
This week's edition of our Crypto DeFi Analytics, October saw stable Beacon Chain balances as withdrawals matched deposits, while Ethereum’s on-chain activity slowed alongside a range-bound spot. On October 28, Solana’s gas fee generation exceeded Ethereum's, collecting $2.54M to Ethereum's $2.07M. Blob gas usage on Ethereum peaked, with excess blob gas spiking past 50M. DeFi activity shifted, reflected in Uniswap V3 transactions on Arbitrum and liquidations across Aave and Compound.
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Crypto Derivatives 29th October 2024
The bullish pre-election positioning that we saw building up earlier in October has continued with vigour over the last 3 days. Futures-implied yields, perpetual swap funding rates, and now implied volatility have risen to months-long highs, with short-tenor option expiries out-performing to invert the term structure of volatility in a similar manner to the shape we observed ahead of the ETF launch in January. ETH derivatives indicate an expectation that the second largest crypto-currency will continue its years-long trend of under-performance through the event risk, lagging BTC in all metrics and assigning a 10 point volatility premium over BTC, but echo the trend of increasing bullish sentiment that we see expressed across markets.
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Block Scholes x Bybit Crypto Derivatives October 23rd
With only two weeks left until the 2024 U.S. elections, ATM implied volatility levels have increased largely for 14-day tenor options, even as overall implied volatility levels have been trending downward, resulting in a very steep term structure. Sentiment remains bullish, as indicated by key metrics: open interest for both futures and call options is rising, and funding rates are positive for all monitored tokens, not just BTC and ETH. While the focus is primarily on majors BTC and ETH leading up to the election, traders are therefore anticipating a broader impact on the entire crypto ecosystem.
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Crypto Senti-Meter V2: A Derivatives Sentiment Index
Block Scholes' Crypto Senti-Meter aggregates several measures metrics to measure the sentiment expressed by crypto-asset derivatives markets. Our index methodology leverages 4 years of advanced derivatives analytics, and is strongly correlated with movements in spot prices. In this second iteration of the index, we measure changes in momentum in derivatives market sentiment by evaluating the most recent value against its recent history.
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Crypto Derivatives 22nd October 2024
The positive sentiment observed last week has consolidated, with bullishness reflected across key metrics for both majors. Perpetual funding rates remain positive, implied futures yields continue to show elevated levels and an inverted term structure, and the implied volatility smiles’ skew remains strongly tilted toward calls across tenors. The upcoming election is still impacting market dynamics greatly, with implied volatility for 14-day tenor options in both ETH and BTC rising, now approaching levels seen in longer-tenor options. At the same time, volatility at the far end of the term structure continues to trend sideways, only showing a slight decrease for BTC options. Notably, 7-day tenor options saw a spike in volatility last week, now having dropped sharply and sitting lower than last week.
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Block Scholes x Bybit Crypto Derivatives October 16th
Despite the recent spot price rally, the extreme dislocation between long- and short-dated implied volatility continues. Market participants are therefore positioning more around post-election expectations than to the recent bullish movements in spot prices, which have led to a rise in realized 7-day volatility that now matches implied volatility levels for 30-day-tenor options. Bullish reactions to spot price activity can be observed, especially in perpetual funding rates, which now trade positively across almost all tokens.
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Crypto Derivatives 15th October 2024
We’ve seen evidence of increasingly positive sentiment in the derivatives markets over the last week. The futures implied yields term structure has inverted, with a dramatic rise at the front end that signals increased demand for near-term long exposure. The perp swap funding rate has remained positive for both BTC and ETH, reflecting bullish sentiment as traders are willing to pay to hold long positions. Additionally, volatility smile skews have grown towards calls, reflecting the increasing appetite for upside exposure that we see in futures. At the same time, while pre-election implied volatility has remained subdued, reflecting relatively stable spot price movements, this positive market sentiment suggests expectations for a continued rise in spot prices that we have not seen in some time.
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Block Scholes x Derive How to Analyse the Volatility Smile to Understand Market Positioning
Structured products are financial instruments that use options to customize investment strategies and enhance yields based on market views. Derive's "Vaults" aim to generate higher yields but carry the risk of loss if the strategy underperforms. This report will examine the key strategies available on the Derive platform, break them down into familiar options strategies, and explain how to leverage the volatility smile to make informed decisions for maximizing yield based on market expectations.
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Block Scholes x Bybit Crypto Derivatives October 9th
The uncertainty associated with the upcoming U.S. election remains evident for the term structures of both BTC’s and ETH’s implied volatility. While implied volatility levels have been trending downward, realized volatility has been on the rise in early October, driven by recent short-lived fluctuations in spot prices. The downward trend in implied volatility levels contrasts with the buildup of positioning that we typically observe ahead of known event risks, as we saw ahead of the release of BTC Spot ETFs in January 2024.
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Crypto Derivatives 8th October 2024
With less than 30 days left until the US Presidential election, the term structure of ATM implied volatility is clearly showing the same dislocation that we have observed for several months. Implied volatility levels for 30-day-tenor options have moved further up, now trading similar levels to longer-dated options. Despite the relative kink, outright volatility levels have dipped in the past week for both majors. Spot price downside volatility in early October has been reflected in derivatives sentiment, with volatility smiles skewing towards puts at pre-election expiries. While levels have since recovered for BTC OTM options, showing a preference overall for OTM calls, ETH volatility smiles still exhibit a premium assigned to puts at short tenors.
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Block Scholes x Bybit Crypto Derivatives October 2nd
The U.S. presidential election continues to present a volatility premium for expirations later than the Nov 5, 2024 date. While longer-tenor volatility smiles have presented a consistent skew toward OTM calls, short-tenor options have recently followed suit. Derivatives markets have expressed that the pullback in spot prices at the end of September hasn’t had a significantly bearish impact on sentiment.
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Crypto Derivatives 1st October 2024
Despite a general slow down in spot price action for both majors, their derivatives markets have shown confirmation of what we first noticed last week: clear indications of a return to short-term positive sentiment and bullish trading activity. The recent skew towards OTM calls has consolidated, and we now observe a call-skew for smiles across all tenors. Perpetual swap funding rates have been strongly oscillating, but have registered high positive values throughout the week. At the same time, the front end of the term structure for ATM options’ volatility has increased substantially near to the 30-day tenor, as the US election moves closer along the term structure: this is further evidence that the date is influencing market positioning.
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Block Scholes x Bybit Crypto Derivatives September 25th
Following the Federal Reserve’s 50 bps rate cut on Sep 18, 2024, spot prices for both BTC and ETH have reacted positively. Derivatives markets are exhibiting various indications of positive sentiment: both futures and perpetual swap open interest have maintained high levels, and funding rates have traded positively overall for most tokens. BTC’s open interest for calls has slowly been on the rise, and the volatility smile has grown steadily toward calls for both BTC and ETH. While implied volatility levels for ATM short-dated options have oscillated downward, we see a growing positive outlook overall in the derivatives market for the short term.
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Crypto Derivatives 24th September 2024
Following the cut in the Fed funds interest rate on September 18, 2024 we have seen an increase in spot prices for both major coins and an overall positive sentiment in the derivatives markets. The futures implied yields term structure was largely inverted over the last week, with yields showing high levels for the short term. However, the curve has now disinverted, having returned to similar levels as of last week. Perp swaps funding rates have fully recovered for both tokens, after a long period of stagnant negative rates. While ATM implied volatility levels have been on a slight decline for both BTC and ETH options, skews have been on the rise across all tenors, indicating a general increase in preference towards calls, adding to the evidence of a growing bullish sentiment in derivatives markets after the interest rate cut.
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Bybit x Block Scholes: How to Sail Through the Rate Cuts Cycle and U.S. Election With Your Crypto Investments
Our report highlights the changing dynamics of Bitcoin in the investment landscape. Since the launch of BTC Spot ETFs in January 2024, Bitcoin has increasingly correlated with risk-on assets, particularly the S&P 500. This development suggests a growing interest from institutional investors, positioning BTC as a significant macro asset. Historically, cryptocurrencies have experienced volatility, but this newfound connection to traditional equities indicates that BTC is becoming a preferred option for investors seeking exposure to broader market trends. As Bitcoin's role evolves, it is increasingly viewed as a potential hedge against inflation and economic uncertainty, similar to gold. This shift in perception underscores the necessity for investors to reassess their strategies, and to consider Bitcoin's potential as both a traditional asset and an emerging digital currency.
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Crypto Derivatives 17th September 2024
The spot recovery we observed last week, for both tokens, has slowed down over the past days, with prices remaining within range-bound action. ETH’s futures yields have dropped for short tenors: while we can observe a flat term-structure for BTC’s yields similar to last week, ETH’s now results in a steep structure. Implied volatility levels have overall dropped similarly for both tokens, with ETH’s options remaining at a consistent volatility premium than BTC’s across all tenors. However, volatility levels for short tenors appear to be on the rise once again. Despite oscillation in implied volatility skew, sentiment has moved sideways, not expressing changes from last week across all tenors.
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Block Scholes x Bybit Crypto Derivatives September 11th
Derivatives markets continue to look forward to the US Election, pricing volatility for expiries later than the November 5 date at a significant premium to shorter-dated optionality. This is in contrast to the short term events that dominate the calendar in September, with the Federal Reserve set to join the growing global easing of interest rates after CPI figures in August confirmed that inflation is indeed falling in the US. Attention now turns to the labour market, which poses the stronger risk to the Fed’s dual mandate and may dictate the pace of their impending cutting cycle.
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Crypto Derivatives 10th September 2024
After a 12-day period of spot decline since August 26, prices for both major tokens have finally started to recover over the past few days. This rise has positively affected short tenor futures yields, which have risen significantly in the past week, resulting in a flattened term structure. Implied volatility levels for BTC and ETH short-tenor options have been rising dramatically since the beginning of the month, while short-term skews have dropped and rebounded, now being at similar levels as of last week. As a result, ETH options are consistently skewed towards puts for short-tenor options, whereas short-term sentiment for BTC is neutral again and not expressing such a strong preference.
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Block Scholes x Bybit Crypto Derivatives September 4th
After the recent drop in BTC and ETH spot prices over the last week, we can observe an overall increase in implied volatility levels across the term structure for both major tokens. The front end of the structure has been particularly affected. For example, ETH 7-day option volatility has risen to the same levels as long-tenor options. Derivative markets remain skewed toward OTM puts for both majors for short term options, showing a significant strengthening in a short-term bearish outlook as spot fails to pick up. The negative sentiment for cryptocurrencies continues with open interest for BTC options showing higher levels for puts, and total open interest for perp swaps on the decline following the most recent sell-off.
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Crypto Derivatives 3rd September 2024
Despite volatility levels having largely fluctuated for short-tenor ATM options, from the term structure we can once again observe that, as the US election approaches, volatility for options expiring after the election date is rising. We can additionally observe that skew for short-tenor options has been evolving positively in the past few days, with skew levels slightly rising similarly to what happened in mid-August, indicating a more neutral outlook despite the recent spot volatility. Concurrently, long-tenor options have consistently been pricing in higher volatility levels across the term structure, showing a stronger preference towards OTM calls.
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Block Scholes x Bybit Crypto Derivatives August 28th
Derivatives markets indicate a similar positioning after the Jackson Hole Economic Symposium to that which we saw last week. Federal Reserve Chair Jerome Powell’s confirmation of the beginning of a rate cutting cycle in the Fed’s September meeting did little to change markets’ expectations on the pace of rate cuts, as it had already priced for 100 bps of cuts across the three remaining meetings of the year. Instead, it was the spot price sell-off on August 28 that moved markets -— with indications of a spate of perpetual swap liquidations in majors, and a small but noticeable spike in short-tenor volatility levels. The term structure of volatility holds a similar shape to last week’s, pricing in a volatility premium for expirations covering the upcoming U.S. presidential election on Nov 5, 2024.
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Block Scholes x Bybit Crypto Derivatives August 22nd
Another week of low volatility, sideways price action has none-the-less provided interetsing trade activity in derivatives. The additional bearishness afforded to ETH over BTC has continued, with a more negative funding rate over the past month, at-the-money volatility premium, and stronger skews towards OTM puts, especially at short-dated expiries. Despite this, the volatility markets of both majors indicate a growing premium priced in for the November 5, 2024 U.S. Presidential election date, with an increased bullishness for expiries after the event expressed by a stronger skew towards OTM calls.
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Crypto Derivatives 20th August 24
Since recovering from the selloff in the first week of August, spot prices have largely moved sideways. This period of relative calmness has opened up a space for a divergence in sentiment between BTC and ETH, with metrics across derivatives markets indicating a stronger bearishness assigned to the latter in the short term. ETH futures-implied yields trade significantly lower, perpetual swap funding rates have moved intermittently negative, and options on ETH trade with a premium to BTC’s implied volatility across the term structure, with short-tenor OTM puts afforded an implied volatility premium over OTM calls.
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Block Scholes x Bybit Crypto Derivatives August 14th
The past week of spot price action has been relatively calm in comparison to the two that preceded it. Without an obvious catalyst to drive spot prices back to the highs lost in last week’s selloff, the recovery has floundered somewhat. Derivatives markets reflect the elevated uncertainty, with volatility levels trading at their July highs despite a resolution to the inverted shape of their term structure. Sentiment remains more bearish for ETH, which prices in a higher level of implied vol, lower funding rates, and stronger skew towards OTM puts.
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Crypto Derivatives 13th August 24
Following the market selloff and the surge in volatility we have witnessed last week, derivatives market seem to have stabilized. Volatility has dropped for both BTC and ETH at the front end of the term structure, and funding rates returned positive for BTC while slowly rising for ETH. The period of market distress we have observed after the sudden risk-off event appears to have abated for now. However, skew has confirmed the trend we highlighted last week, as longer-dated volatility smiles remain skewed towards OTM calls and shorter tenors show a preference for OTM puts. While sentiment in the long-run still remains bullish, markets still show caution in the short term.
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Bybit x Block Scholes: The Bitcoin Rally May Not Yet Be Over
In the 15 years since its inception, BTC’s price action has displayed an uncanny pattern of repetition. Looking at BTC’s historical price data, we can subdivide each of the three historical cycles of strikingly similar price action for BTC: recovery, boom and bust. The most recent bull run, which started in late 2022, is currently 624 days in. Compared to historical averages, this cycle could last another 350 days, though returns in each cycle have diminished over time. Lower disposable capital among retail traders (as indicated by the lower level of personal savings, following a period of high and persistent inflation) has thus far been expressed in the lack of the exuberance that we’ve come to expect in bull cycles. The changing intra-asset correlation structure between crypto and meme coins suggests that a different type of investor may be behind the most recent rally in prices: institutions. The renewed co-movement with equities coincides with the launch of BTC Spot ETFs in early January 2024, as well as the unlocking of a new pool of demand for crypto.
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Block Scholes x Bybit Crypto Derivatives August 6th
A week of bullish narratives for crypto at the BTC Nashville conference and the launch of ETH Spot ETFs has been followed by a starkly contrasting sell-off. Crypto has once again proved its position as a 24-hour macro indicator, as it reacted strongly to the weaker-than-expected nonfarm payroll report on Aug 2, 2024. Alongside other risky assets, the news saw a sharp sell-off across crypto assets. However, it hasn’t yet seen the same wipeout of leveraged positioning or elevated volatility levels in the way that we’ve come to expect from double-digit crashes.
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Crypto Derivatives 6th August 24
One of the largest global market selloffs since the COVID pandemic took its toll on crypto-spot prices, resulting in double-digit selloffs that were harder felt by ETH and alts than BTC. The selloff saw funding rates spike negative as accumualted long positions were likely liquidated, and the volatility term structure inverted as traders rushed to cover exposure to further downside moves in the short term. However, volatility levels did not spike above their year-to-date highs for either major, and longer-dated volatility smiles remained steadfastly skewed towards OTM calls. This indicates that while this was strong move in the short term, traders are not yet concerned about long-term performance.
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SOFA Structured Products: EARN & SURGE
Using SOFA structured products to express market views offered several advantages over taking the same exposure on offchain or centralised alternatives. Trading options positions onchain removes counterparty risk as settlement is ensured by the verifiable logic of a smart contract and full collateralisation. Trading on SOFA offers exposure to the RCH token, which is airdropped to users on a periodic schedule. These tokens are awarded to users according to the proportion of volume that they trade in each recording period. Onchain positions in SOFA structured products are tokenised using leverage the ERC-1155 token standard. This allows for custom position parameters to be stored on the token itself, allowing for a more accurate valuation of the position so that it can more easily be composed and used as collateral in other trades.
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Block Scholes x Bybit Crypto Derivatives 19th July
The dramatic events of last weekend’s assassination attempt on Donald Trump have coincided with a strong recovery in crypto spot and, consequently, derivatives markets. Traders appear to express the “Trump Trade” just one week after spot prices crashed as the Republican candidate saw the probability of his re-election soar. Futures: Yields have recovered their pre–sell-off levels, and continue to express a healthy demand for leverage using derivatives contracts. We see similar levels in both BTC and ETH, despite ETH’s impending ETF launch, while open interest levels remain consistent with pre–sell-off levels. Perpetuals: While we don’t see a recovery in the number of open contracts to pre–sell-off levels, we do see a return to a moderately healthy positive funding rate paid from longs to shorts in all markets except TON. Options: Volatility at short tenors has rallied once again in response to short-term spot moves, first compressing the term structure and then steepening as the front end falls down once again. As it has done several times during short-term price volatility, short, sudden moves in spot price haven’t been enough to meaningfully lift long-run expectations of volatility.
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Crypto Derivatives 23rd July 24
While volatility has generally been on the rise for both BTC and ETH, the term structure of volatility has changed dramatically especially at shorter tenors, now having inverted at the front end and continuing to trade at a premium for ETH options compared to BTC options. Volatility skew suggests that call options are preferred for both digital currencies. A general bullish trend is observed but more strongly for BTC, as reflected in the future implied yield chart and the perp swap funding rate, if not the skew of its volatility surface. Despite the recent approval of an ETH spot ETF, BTC is still holds a stronger bullish sentiment in derivatives space.
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Crypto Derivatives 16th July 24
Spot prices have performed a significant recovery since bouncing off the lower bound of their recent range almost one week ago. As a result, delivered volatility has stayed at its highs and has materially increased implied volatility at short-tenor options and inverted the term structure. The recovery has inspired a return to double digit yields implied by both BTC and ETH futures markets, but only the former asset sees a similar sentiment expressed by its perpetual swap funding rates. ETH still has its months-long-held volatility premium over BTC of around 10 points, but its short-tenors did not push as close to the levels at the back end of the term structure leaving its term structure slightly steeper.
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Block Scholes x Bybit Crypto Derivatives 12th July
Futures: Future-implied yields have recovered from their spike lower, but continue their downward trend over the month. Perps: Despite the recent bearish price action, we don’t see a widespread or persistently negative funding rate in perpetual swap markets except for TON. Open Interest in majors has fallen during the period of spot market volatility as traders close out positions Options: ETH volatility trades at a 10–15 point premium to BTC’s at all tenor points on the term structure, has recovered its volatility smile skew toward OTM calls much faster than BTC, and has seen incredible trade volumes in calls that far outweigh the activity in its puts. ETH derivatives markets continue to reflect different positioning when compared to BTC, which may be linked to hopes and expectations of the imminent launch of its first Spot ETFs in the U.S. However, ETH’s volatility premium above BTC is not a new phenomenon, and is also reflected in the increased realized volatility with which it has moved for much of the past month.
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Crypto Derivatives 9th July 24
The latest venture of spot prices down to the bottom of their range has seen volatility levels at short tenors spike while traders rush to protect against further downside price action. While funding rates has remained steadily positive and short tenor future-implied yields have recovered some of their lost ground, volatility smiles remain skewed towards OTM puts and short tenor volatility has not fallen back from the levels of longer dated tenors. ETH retains its 10 vol point premium over BTC volatility at equivalent tenors and its term structure trades much flatter, continuing a trend that we have seen several times over the past month of range-bound price action.
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Crypto Derivatives 2nd July 24
As spot prices trade at their lowest levels since early May, we see a stark divergence in the sentiment priced in by BTC and ETH options markets. ETH continues to trade with a 10-15 volatility premium across the term structure, and the most recent move lower in spot prices has seen BTC vol smile skew turned decidedly bearish at short tenors while ETH smiles skew neutral or towards calls at all tenors. While the fall in future-implied yields has recovered to last weeks levels, funding rates in the two majors have repeatedly charged short positions since the 9th June -- a phenomenon that we observe across perpetual-swap markets.
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Crypto Derivatives 25th June 24
As spot prices trade at their lowest levels since early May, we see a stark divergence in the sentiment priced in by BTC and ETH options markets. ETH continues to trade with a 10-15 volatility premium across the term structure, and the most recent move lower in spot prices has seen BTC vol smile skew turned decidedly bearish at short tenors while ETH smiles skew neutral or towards calls at all tenors. While the fall in future-implied yields has recovered to last weeks levels, funding rates in the two majors have repeatedly charged short positions since the 9th June -- a phenomenon that we observe across perpetual-swap markets.
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DeFi Analytics 19th June 24
This week's edition of our DeFi Analytics report.
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Crypto Derivatives 18th June 24
Yields implied by futures prices have declined over the past week, steepening term structures that have experienced several inversions in the past month. The reduction in leverage has been more pronounced for BTC compared to ETH, as ETH's perpetual swap funding rate remains active but below the levels observed at the end of May. Volatility expectations are trending slightly upward, in line with the increased market choppiness over the last week, and ETH volatility markets continue to command a premium. Reflecting their futures markets, ETH's skew indicates slightly more bullish positioning than BTC's, with both vol smiles moving closer to neutral for shorter-dated expiries.
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DeFi Analytics 12th June 24
This week's edition of our DeFi Analytics report.
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Crypto Derivatives 11th June 24
With BTC failing once again to break range highs, implied vol at the front-end of the term structure for both majors has increased over the last week, whilst vol at the back-end has either drifted lower, or continues to trade sideways. This had led to a more compressed term structure. The vol smile skew for BTC has largely traded sideways, and still remains skewed towards OTM calls. However, ETH is skewed towards OTM puts at short-dated tenors as implied vol for OTM puts has risen approximately 8% over the last week. In addition, demand for leveraged long exposure has fallen as investors look to exercise caution following BTC’s inability to break range highs. Annualised yields have fallen across the term structure, and funding rates continue to trade close to zero.
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Crypto Derivatives 4th June 24
With few macro and crypto-specific events on the immediate horizon, volatility has largely continued to trade sideways in both majors over the past week as spot prices trade near range highs of $68.9K and $3.8K. The vol smile skew for BTC and ETH at short-dated tenors has increased from previous neutral levels, as implied vol for OTM puts has fallen. Over the past month, demand for leveraged long exposure in both majors has increased as futures yields have risen consistently, indicating that investors are willing to pay a premium above spot price in order to gain exposure to the underlying asset. Over a shorter lookback period of a few days, yields at short-dated tenors have fallen in both majors, although the long term trend remains intact.
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Crypto Senti-Meter: A Derivatives Sentiment Index
Block Scholes' Crypto Senti-Meter aggregates several measures metrics to measure the sentiment expressed by crypto-asset derivatives markets. Our index methodology leverages 4 years of advanced derivatives analytics, and is strongly correlated with movements in spot prices.
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Crypto Derivatives 28th May 24
Volatility has fallen across the term structure in both majors over the past week as they continue to trade near range highs of $68.9K and $3.9K. Following the news of an upgrade in the probability of an Ethereum ETF, implied vol spiked at the front-end, inverting the term structure. This inversion has since corrected itself, with implied vol at the front-end falling. BTC’s vol smile skew has fallen to more neutral levels as implied vol for OTM calls falls, indicating reduced short-term bullish sentiment. However, ETH is heavily skewed towards calls due to implied vol for OTM puts falling, as investors reposition themselves due to the recent ETF news. Demand for leveraged long exposure, which is stronger in ETH, fell at the start of the week, as indicated by spot yields, before rising again at the front-end.
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Ethereum’s New Gas Market Paradigm
In our report ahead of the Dencun upgrade in March, we forecast a swift migration of L2 transaction data to the new, dedicated blob space. We also expected the swift recovery in gas usage to the 15 million unit per block target, but at a much lower base fee due to the lower usage by L2s. While we were correct to predict a fall in the base fee burned, the impact on the net supply dynamics of ETH has been swifter than we expected. The new supply of ETH minted on the Beacon chain now outweighs the burned supply for the first time since the Merge, removing a potential tailwind that failed to support ETH against BTC during the last 18 months of under-performance.
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Crypto Derivatives 21st May 24
Volatility has continued to gradually rise across the term structure, with ETH spiking at all tenors over the last day following an upgrade in the probability of an Ethereum spot ETF being approved. With implied volatility spiking particularly at the front-end, the term structure has become inverted. Implied volatility for ETH options now sits at levels not seen since April. The vol smile skew also recovered towards calls over the past week, but has since sold off at the front-end as investors rush to purchase OTM puts for downside protection as spot price reaches range highs of $71K and a $3.7K. Leverage in futures markets has increased, particularly at short-dated tenors which have risen beyond longer-dated tenors, indicating a demand for leveraged long exposure that is stronger for ETH.
