Block Scholes x Bybit Crypto Derivatives December 18th

Key Insights

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.

Futures: Exposure remains concentrated in December’s end-of-year BTC contracts, without strong growth during the rally higher in spot.

Perpetuals: Funding rates have returned to default levels after a significant period of over-leveraged extremes.

Options: Volatility at the front end has fallen, steepening the term structure despite the rally. Realized volatility has collapsed relative to the implied volatility as spot ranges higher.

Block Scholes BTC Senti-Meter Index

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 ‍

• U.S. Consumer Price Index — Dec 11, 2024 — CPI data for November came in at expectations on all counts — core CPI was 3.3% in November, as it has been for the past four months, and the headline year-over-year figure ticked up to 2.7% from 2.6% in October.

• Bank of Japan interest-rate decision — Dec 18, 2024 — BoJ is expected to hold the rate steady at around 0.25 percent.

• Federal Open Market Committee interest-rate decision — Dec 18, 2024 — The FOMC cut rates by 25 bps at its December meeting as was widely expected , bringing the target range for the Federal Funds Rate to 4.25–4.5%. This comes alongside Fed Chair Jerome Powell’s press conference (Dec 18, 2024) at 7PM UTC, which provided more hawkish forward guidance on the outlook for 2025.

• Initial jobless claims — Dec 19, 2024 — Jobless claims data show the number of Americans filing new applications for unemployment benefits is expected to come in at 230,000, compared to the unexpected spike up to 242,000 for the week ending Dec 7, 2024, above the 220,000 forecast.

• Bank of England interest-rate decision — Dec 19, 2024 — BoE is also expected to keep rates unchanged as U.K. CPI increased to 2.6% (for Nov, 2024), confirming persistently sticky inflation.

Crypto Market Capitalization — The market capitalization of all cryptocurrencies surpasses $4T, but BTC still contributes over 50% of that figure, and altcoins are outperforming ETH’s share of the growth.

Trending News

• Ripple announced the launch of their widely anticipated stablecoin RLUSD, available from Dec 17, 2024. XRP rallied +13% (24H) following the announcement, with the new stablecoin to be recorded on the XRP Ledger and Ethereum blockchain.
• MicroStrategy reaffirmed its Bitcoin accumulation strategy with a substantial purchase of 15,350 coins between Dec 9–15, 2024 (at an average price of $100,386), announced in a filing on Dec 18, 2024. This brings the corporation's total holdings to 439,000 BTC, or around 2.1% of Bitcoin’s total supply.

Futures See Less Volume, Less LeverageBTC has seen the lion’s share of trading volumes since the reset in leveraged positions early last week. However, this masks the fact that despite notching yet another record-high spot price, trading volumes have been trending down since Dec 9, 2024. Open interest in BTC contracts remains focused on December’s end-of-year contract, which alone carries a higher open interest than all ETH contracts combined. The resulting picture is of a far more cautious market than before the spate of liquidations, indicating that the bullish rally in spot prices has arisen alongside a healthier amount of leverage in derivatives markets.

Bybit Futures Swap Open Interest

Bybit Futures Trading Volumes

Perp Exposure Steadfast

Unusually, the break higher in BTC spot prices to new all-time highs this week has seen a fall in the open interest of BTC and ETH perpetual swap contracts alike. This indicates that, despite the fall in funding rates, traders still express demand for exposure via the contract. Over the past few days, ETH has borne the brunt of the decrease, with BTC open interest oscillating less frequently. This broadly aligns with the difference in the performance of their spot prices: as BTC has pushed higher, ETH has remained comparatively range-bound, failing to break through but remaining above the psychological barrier of $4K.

Bybit Perp BTC & ETH Open Interest — Open interest has fallen lower during spot’s sideways movement, mainly as a result of the closure of ETH positions.

Bybit Perp Trading Volumes — Trading volume in ETH contracts is still high, despite being dominated by BTC contract activity.

Funding Rates Reset

The spate of liquidations that exacerbated the correction in BTC spot prices early last week appears to have had a lasting effect on perpetual swap markets. We no longer see the same signs of overleveraged long positions causing an overheated level of funding rates, as all tokens are reporting a stable (but not negative) funding rate close to 0.01%. While funding rates indicate that demand for long positions is balanced by a supply of short positions, spot prices have nonetheless climbed to new ATHs for BTC.

BTC Options

BTC’s spot price has notched several new all-time highs since our last analysis, but these records haven’t spurred an inversion in the term structure of implied volatility. In almost every rally higher since the U.S. elections on Nov 5, 2024, short-tenor implied volatility levels had spiked above the level implied by longer-dated tenors in a signal of exuberant demand for long exposure. However, since the liquidation-inspired pullback early last week, we’ve seen neither a return to this behavior in options markets nor the same signs of over-leverage in perps. While this supports a more healthy derivatives landscape for prices to range higher, as corrections will not be exacerbated by significant liquidations, any further skew towards OTM puts would be a bearish signal.

BYBIT BTC OPTIONS VOLUMES

BYBIT BTC OPTIONS OPEN INTEREST

No Inversion During the Rally

BYBIT BTC & ETH VOLATILITY TERM STRUCTURE — While spot price has rallied higher, the term structure of volatility hasn’t inverted with them as we’d come to expect.

BYBIT BTC SVI ATM IMPLIED VOLATILITY — The volatility of short-tenor options has fallen, resulting in a steeper term structure shape, despite a rally higher in spot.

BYBIT BTC IMPLIED AND REALIZED VOLATILITY — Realized volatility has collapsed over the past week as implied volatility levels remain steadfast at 55%.

ETH Options

Open interest in call options is still far higher than that of OTM puts, suggesting that traders haven’t yet been shaken out of bullish ETH positioning in options. While the open interest of ETH options is dominated by OTM calls at several tenors, longer-dated OTM puts have seen a significantly large trading volume over the past 10 days. This hasn’t been reflected in an increase in open put options, suggesting no significant increase in demand for downside protection, as may have been expected.

BYBIT ETH OPTIONS VOLUMES

BYBIT ETH OPTIONS OPEN INTEREST

ETH Realized Volatility Collapses

BYBIT ETH VOLATILITY TERM STRUCTURE — The term structure of volatility has steepened as a result of a fall in the volatility priced in at short-dated tenors.

BYBIT ETH VOLATILITY TERM STRUCTURE — Volatility expectations have traded largely sideways, steepening the term structure as spot appears stuck below $4K.

BYBIT ETH IMPLIED AND REALIZED VOLATILITY — Implied volatility has traded sideways, while realized volatility has plummeted lower.

Volatility by Exchange

BTC, 1-MONTH TENOR, SVI CALIBRATION

ETH, 1-MONTH TENOR, SVI CALIBRATION

Bybit Volatility Surface