Block Scholes x Bybit Crypto Derivatives February 21st 2025

Key Insights

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.

Perpetuals: Altcoin funding rates have reported more bearish positioning than for BTC and ETH, without a significant and broad-based spike into the negative.

‍Options: ETH’s term structure remains flat, repeatedly threatening to invert. This leaves its front-end volatility nearly 20 points above BTC options at a similar tenor.

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. Fed Minutes — Feb 19, 2025 — Minutes of the United States Federal Reserve’s January FOMC meeting are to be released.
• UK CPI — Feb 19, 2025 — The Consumer Prices Index (CPI) rose to 3.0% year-over-year for January 2025, above the expectation of 2.8%, and up from 2.5% in December 2024.
• U.S. Initial Jobless Claims — Feb 20, 2025 — Initial jobless claims for the week are expected to increase slightly to 215,000 from a previous figure of 213,000. 
• Japan CPI — Feb 21, 2025 — Japan’s Consumer Price Index (CPI) is expected to increase to 4.0% for January from a previous 3.6%, reflecting the increase in food prices across the region. ‍
• U.S. PCE index — Feb 28, 2025 — The U.S. Personal Consumption Expenditure figure is expected to drop 0.2% to 2.6%.

Crypto Spot Normalized Returns — Spot returns normalized from Jan 19, 2025 show a drop across the four majors. However, BTC continues to outperform.

Trending News

• Solana fell more than 15% from its weekly high, coinciding with the LIBRA meme coin rug pull. The Solana-based token, promoted by Argentinian president Javier Milei, lost 90% of its value just hours after reaching a $4.5B market cap. According to various sources, insiders behind the LIBRA token sold over $87M worth of the token before it peaked in price.

• Mubadala Investment Company, Abu Dhabi's state-owned investment firm, bought $436.9M of BlackRock’s Bitcoin (IBIT) ETF in Q4 2024, according to an SEC filing.

Perpetuals See Few Drivers

Without any obvious narratives or volatile moves in spot prices to drive new positioning, open interest in perpetual swap contracts has trended sideways over the past two weeks. Trade volumes have been similarly subdued, as we may expect from a lower-volatility environment. However, it’s interesting that SOL Perpetual positioning hasn’t changed drastically, despite its spot price trading 35% below the all-time high (ATH) it recorded in late January.

Bybit Perp Open Interest — Open interest has been trending sideways, with few narratives to drive new positioning over the past week.

Bybit Perp Trading Volumes — So far, last week’s subdued trading activity has been repeated this week, matching the lower-volatility environment in spot markets.

Altcoin Funding Rates Underperform

BTC’s sideways price action over the past fortnight has been underperformed by the majority of altcoins, resulting in an increase in Bitcoin dominance. While BTC’s funding rate indicates that this outperformance has been felt in perpetuals too, the funding rates of altcoin perpetuals have reflected a cautiously optimistic positioning throughout the same period.

There’s no clear evidence of sharp liquidation spikes, nor consistent excess demand for short exposure via the perpetual contract. However, ATOM is a clear exception over the past week — as is SOL, which reflects its painful underperformance in an environment with a dearth of new bullish news.

BTC Options

BTC’s options market has responded as expected to the lower-volatility environment. In contrast to ETH spot, BTC has traded sideways over the past two weeks, with little realized volatility. As a result, the term structure of volatility has steepened substantially, with short-dated optionality trading almost 15 volatility points lower than longer-dated expirations, and 20 points below ETH options at an equivalent tenor. This indicates low demand for optionality in the near term, a phenomenon we’ve seen repeatedly in periods of slow moving, sideways BTC spot price action

BYBIT BTC OPTIONS VOLUMES

BYBIT BTC OPTIONS OPEN INTEREST

Term Structure Steepens as Realized Volatility Collapses

BYBIT BTC ATM TERM STRUCTURE — The term structure has retained its steep shape, with 7-day options trading nearly 15 volatility points below the back end.

BYBIT BTC SVI ATM IMPLIED VOLATILITY — The term structure of volatility has steepened over the past week as a result of a fall in short-tenor volatility.

BYBIT BTC IMPLIED AND REALIZED VOLATILITY — Realized volatility has collapsed over the past week, but hasn’t been followed lower by implied volatility.

ETH Options

ETH’s spot price rallied 6% on Monday (February 17) in contrast to the disappointingly sideways price action in other crypto assets, before reversing almost all of those gains in the 24 hours that followed. The result in derivatives markets was a higher level of realized volatility and a far flatter term structure of volatility than in BTC’s markets. This indicates that traders are continuing to price short-dated optionality at a premium, above even the premium that had already been assigned to ETH volatility above that of BTC for a much longer period. The extra activity also caused a spike in ETH’s option trade volumes, as calls spiked to $0.25B on Feb 15, 2024.

BYBIT ETH OPTIONS VOLUMES

BYBIT ETH OPTIONS OPEN INTEREST

ETH Volatility Realizes Higher Than BTC

BYBIT ETH VOLATILITY TERM STRUCTURE — Longer-dated optionality, particularly that at a 6-month tenor, is trading above the front end.

BYBIT ETH SVI ATM IMPLIED VOLATILITY — The term structure is historically flat after steepening slightly earlier in the week.

BYBIT ETH IMPLIED AND REALIZED VOLATILITY — ETH’s realized volatility has been much higher than BTC’s over the past week, remaining close to the level of volatility implied by 30-day at-the-money (ATM) tenor options.

SOL Options Activity is Low

Solana’s spot price has continued to leak lower after recording its ATH in late January 2025. Options markets thus remain muted, with relatively low activity recorded not only in calls, but in puts, too. The resulting open interest is balanced between both upside and downside. Open exposure is focused on longer-dated positions, an indication of low interest in short-term positioning that aligns with the disappointing activity in spot markets.

BYBIT SOL OPTIONS VOLUMES

BYBIT SOL OPTIONS OPEN INTEREST

Volatility by Exchange

BTC, 1-MONTH TENOR, SVI CALIBRATION

ETH, 1-MONTH TENOR, SVI CALIBRATION

Bybit Volatility Surfaces

Constant Maturity Smiles