Volatility Markets - Overview

Price action shows signs of consolidation after last week’s July 4th meltdown. A violent break of $60,000 ensued on Thursday after the German government began unloading pieces of its $2B BTC holdings, ultimately causing a selloff which stopped at $54,000. ETH followed suit, breaking $3,000 support and spiraling down to $2,800. While price action indicates a temporary slowing of selling momentum, the German government allegedly still has close to another billion to unload, making some market participants wary of catching longs just yet.

Forward curves also adjusted during last week’s move, with short-medium term annualized basis rates now below 10% for both ETH and BTC, while longer-dated futures remain at a 10% annualized premium to spot. Implied volatilities bounced back from the low 40 range, pushing front-end vols back above 50 and further-dated vols up a few points as well. Interestingly, twenty-five delta skew still exhibits an upward-sloping term structure, barely moving during recent price action.

While short-term price action is quite uncertain, arguments can be made for buying either upside or downside vol. Paired with the steeply rising term structure, one can utilize long calendar-type structures to buy cheap short-dated vol and capitalize on a flattening of the volatility term structure.

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***Data and insights as of July 9th, 2024 12:00:00 UTC

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