Block Scholes x Bybit Crypto Derivatives February 28th 2025

Key Insights

Macro headwinds are once again in the driver’s seat for crypto, as a sell-off that began over the weekend has deepened throughout the early part of this week. Following a period of dismal sideways price action, BTC, ETH and almost all altcoins have followed the lower trajectory of equities, gold and treasury yields. Derivatives markets, however, only began to show signs of significant bearish sentiment and a material increase in volatility expectations on Wednesday afternoon as the selloff deepened.

Perpetuals: In an apparent reset of positioning, perpetual contracts are recording their most consistently positive rates in the past month across most markets.

‍Options: ETH retains its volatility premium over BTC in both realized and implied levels, but its term structure hasn’t inverted as sharply as earlier this month in previous sell-offs.

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

• Euro Area Inflation — Feb 24, 2025 — Headline inflation in the euro area rose 2.5% in January 2025 year-over-year, with services contributing 1.77 percentage points to the headline figure.

• U.S. Conference Board Survey — Feb 25, 2025 — The U.S. Conference Board Consumer Confidence Index fell by 7 points, to 98, in February, the largest single-month decline since August 2021.

• U.S. Second GDP Estimate — Feb 27, 2025 — Second estimates for annualized Q4 2024 growth in the U.S. is 2.3%, down from 3.1% in Q3, but still a robust figure.

• Japan Tokyo CPI — Feb 27, 2025 — Headline Tokyo CPI for February 2025 is expected to increase by 3.2% year-over-year, with core inflation expected to fall from 2.5% to 2.3%.

• U.S. PCE Index — Feb 28, 2025 — The Fed’s preferred inflation gauge, the PCE Price Index, is expected to show headline price inflation falling from 2.6% to 2.5% year-over-year, while core PCE is expected to drop from 2.8% to 2.6%.

Trump Trades Faltering? — Some of the so-called Trump Trades (risk-on assets, such as BTC and the S&P 500) have underperformed since the beginning of the year. Gold has rallied to new highs, though its price has also fallen during this week’s sell-off.

Trending News

• The SEC has officially acknowledged Grayscale’s Cardano Spot ETF proposal. This starts a 240-day review process, as a result of which the SEC will decide whether to approve or reject the spot ETF listing.

• Ethereum’s much-anticipated Pectra upgrade, designed to improve staking options and increase gas payment flexibility, officially went live on the Ethereum “Holesky” testnet on Feb 25, 2025.

Funding Rates Positive In Selloff

Despite the risk-off move in sentiment seen across asset classes over the weekend (and the early part of this week), USDT-denominated perpetual contracts recorded their most consistently positive funding rates over the past month. While not a return to the exuberantly bullish rates recorded in the early part of December 2024, most rates returned to a neutral level of 0.01%, indicating a reset in positioning as a result of this week’s moves. However, majors BTC and ETH recorded negative rates as the sell-off eventually deepened on Wednesday afternoon, suggesting a fear of further downside spot moves as sentiment becomes more bearish.

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

Tuesday’s deepening of the risk-off–inspired sell-off saw a significant spike in the trade volume of BTC puts, as traders looked to hedge against further downside price action. In contrast to ETH’s more bullish tilt toward calls, BTC’s open interest remains balanced between both upside and downside protection. After remaining flat in the early part of this week, the term structure of volatility has finally inverted alongside ETH’s. This, along with the increased trade volume in put options seen over the past three days, indicates that traders are using options markets to hedge against fears of further downside.

BYBIT BTC OPTIONS VOLUMES

BYBIT BTC OPTIONS OPEN INTEREST

Flat Term Structure, Lower Volatility

BYBIT BTC ATM TERM STRUCTURE — Despite lagging behind ETH’s, BTC’s term structure is now distinctly inverted.

BYBIT BTC SVI ATM IMPLIED VOLATILITY — Volatility has risen in the crash, with short-tenors rising towards the highs of the past month.

BYBIT BTC IMPLIED AND REALIZED VOLATILITY — BTC’s realized volatility has spiked back up to the levels implied by options, but remains distinctly below the level of ETH’s realized volatility.

ETH Options

As the sell-off across risk-on assets has deepened throughout the early part of this week, ETH has actually outperformed BTC. Sentiment in ETH derivatives markets appears to support this view, as trade volumes in calls are reflecting far higher demand for upside positioning than puts, as indicated by the relative levels of open interest in the two contracts. However, ETH’s volatility term structure has inverted in the same way that it has in almost every large market move since last November (2024), and front-end volatility levels remain 15 points above those of BTC options with a similar tenor. While realized volatility has risen close to 85% at an annualised rate, this is still below the highs of the previous three spikes in the past month.

BYBIT ETH OPTIONS VOLUMES

BYBIT ETH OPTIONS OPEN INTEREST

Realized Volatility Spikes in Risk-Off Sell-Off

BYBIT ETH VOLATILITY TERM STRUCTURE — While steepening over the past week, the front end of the term structure is trading 15 points above BTC’s.

BYBIT ETH SVI ATM IMPLIED VOLATILITY — The term structure volatility is slightly inverted at the front end, as short-tenor volatility rises towards month highs.

BYBIT ETH IMPLIED AND REALIZED VOLATILITY — ETH’s realized volatility has risen sharply in the most recent sell-off, back once again above the level implied by options prices.

SOL Positioning Unchanged

Having underperformed the two major coins, BTC and ETH, in the sell-off alongside a raft of other altcoins, Solana’s further slide below its January 2025 all-time high has seen a pickup in trade volumes at the beginning of the week. Call options actually saw more activity, and open interest in call options still outweighs that for puts. However, the lack of new positioning being taken in calls indicates a lack of new bullish sentiment — and the lack of new positioning being taken in puts suggests a lack of long positions in other instruments that need to be hedged with protective put buying.

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