Volatility Markets - Overview

We enter this week amid the continuation of a brutal sell-off. Bitcoin has been on a steady downtrend since Friday, June 7th. While larger continuation moves typically occur on Mondays and Wednesdays, last week the trend persisted on Friday, with BTC dropping from $66,000 to $63,500. Early this morning, the sell-off continued violently, plummeting the price further to $61,000. Currently, BTC seems poised to break $60,000. ETH holders are feeling the pain too, as ETH has dropped from previous highs of around $4,000 down to $3,250. Meanwhile, equities markets continue to tread higher, consistently pushing past previous all-time highs. NVDA’s parabolic movement has seemingly paused (opening at $124), but S&P still shows strength opening today at $5,460 and steadily pushing higher.

Funding and basis rates are compressing as markets tread lower. We currently observe a rising term structure of annualized basis rates, with the front end of the curve sitting at around 4% and rising up to 11% by the March 2025 expiry. ETH’s forward curve exhibits a similar structure but sits slightly lower for each expiry than BTC’s. Interestingly, the case is reversed when it comes to implied volatility. BTC’s and ETH’s at-the-money implied volatilities differ by roughly 16 points at the front end of the curve and 10 points at the back end (furthest expiry).

Another interesting point to note is that while super short-dated vols reacted dramatically to price action, most of the implied volatility structure has remained the same since last week, indicating that much of this move was “priced in.” Apart from the large differential currently observed in ETH and BTC vols, another notable aspect is the steepness in BTC’s term structure. From the closest to the furthest expiry, the difference in implied volatility is almost 16 points. Both of these features will undoubtedly play key roles in shaping derivatives volume over the coming week.

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***Data and insights as of June 24th, 2024 12:00:00 UTC

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