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Last week witnessed significant volatility in BTC's price movements. The crypto market initially experienced a major downturn, with BTC dropping from $37,500 to $35,300 and ETH sliding from $2,100 to $1,930 within a single day. However, this decline was short-lived, as a swift and substantial upward move quickly followed. At its lowest point, increased volume propelled BTC back to $38,000, and ETH briefly touched $2,100 again. Towards the end of the week, prices took another sharp dip to $36,000, only to gradually recover over the weekend, reaching $37,400. In contrast, S&P futures maintained a steady upward trajectory throughout the week. The S&P rose from $4,420 to $4,510, sustaining this level with low volatility until the week's close. Notably, two key observations can be made: 1) cryptocurrency volatility is heightened in these price ranges, and 2) the correlation between crypto and traditional financial markets appears minimal.
Bitcoin ATM implied volatilities surged to 55-60 but retraced to approximately 45 over the weekend. ETH ATM volatilities fluctuated between 55 and 65 initially, settling at 47 but remaining above BTC volatilities. The previous regime of depressed ETH volatility compared to BTC is over, as ETH volatilities consistently stay a few points higher. Examining the term structure of ATM volatilities in BTC reveals an increase from 50 to 58 until the January 26th expiry, followed by a significant flattening, with later expiries priced at 60 vol. ETH displays a similar term structure, rising from 55 to 61 by the March 29th expiry before stabilizing at 61. This suggests that BTC volatilities peak faster than those of ETH, aligning with events such as ETF deadlines and halving.
In terms of 25-delta volatility skew, BTC holds an advantage with an average skew of 7.5 compared to ETH's 6.5. However, ETH smiles exhibit higher convexity on average. While BTC smiles show more inclination towards the call side, ETH smiles experience a faster increase in volatility towards the wings. Traders seeking to capitalize on this trend may consider selling iron butterflies or condors, given the current relatively expensive nature of these portfolios.
Digging Deeper - Volume Analytics
Call spreads continue to dominate combo spread volume in both BTC and ETH. This is not surprising given the current demand for bullish exposure, and the heightened call - side skew. High skew makes it advantageous to buy call spreads since they give the same (or somewhat similar) exposure to an outright, but are now much cheaper since the short call of higher strike will yield more premium than usual as it is being priced at a heightened volatility. BTC Deribit block trade data shows that the biggest volumes were in call spreads, put spreads, and strangles / straddles. Ethereum shows the highest volumes in call spreads, strangles / straddles, and put spreads.
BTC Combo Spread Volumes:
ETH Combo Spread Volumes:
***Data and insights as of November 20th, 2023 12:00:00 UTC
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