Block Scholes x Bybit Crypto Derivatives February 7th 2025

Key Insights

Another week, another Monday crypto risk-off event that continues its recent correlation to equities. However, despite last week’s sell-off, BTC outperformed relative to the wider crypto market, experiencing a far less steep sell-off, as reflected in its derivatives markets positioning. Options markets priced short-tenor volatility higher before the inversion of the term structure resolved remarkably quickly. ETH, in contrast, saw a much sharper inversion as short-tenor options spiked significantly higher alongside realized volatility. Perpetual swap contracts lost much of their open interest in a liquidation event that some, including Bybit CEO Ben Zhou, estimated were likely as high as $10B. The sudden bearishness was reflected in funding rate data, with altcoins seeing a more persistent and negative funding rate in the days since the crash than BTC did.

Perpetuals: Open interest levels collapsed across major tokens during the sell-off, and funding rates flipped negative. BTC perpetuals were the exception, corresponding to Bitcoin’s relatively minor spot price sell-off.

Options: ETH’s realized volatility spiked above 140%, its highest levels in over three months. The term structure of implied volatility spiked higher at the front end, resulting in an inversion that’s still persisting several days after the crash.

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

• ECB Monetary Meeting — Jan 30, 2025 — The ECB cut its benchmark interest rates to 2.75%, a few hours after the Eurostat data showed the Eurozone economy had 0% growth in Q4 2024.

• U.S. PCE Inflation — Jan 31, 2025 — The Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) price index, rose to 2.6% year-over-year in December 2024, up from 2.4% in November 2024.

• Euro Area Inflation — Feb 3, 2025 — Euro area annual inflation rose to 2.5% in January 2025, meeting expectations and up 0.1% from 2.4% in December 2024.

• U.S. JOLTS Report — Feb 4, 2025 — Job openings for December fell to 7.6M, down from 8.098M in November and short of market expectations for 7.9M jobs.

• BoE Monetary Policy Meeting — Feb 6, 2025 — Markets expect the Bank of England (BoE) to cut interest rates by 25 bps to 4.5%.

• U.S. Nonfarm Payroll — Feb 7, 2025 — The U.S. economy is expected to add 170K jobs in January, down from the 256K added in December.

Crypto Market Drops — ETH, BTC, XRP and SOL all dropped alongside the macro market on Feb 3, 2025 as Trump announced a 25% tariff policy on imports from Mexico and Canada and an additional 10% on imports from China.

Trending News

• U.S. president Trump passed an executive order to enforce 25% tariffs on imports from Mexico and Canada, before agreeing to a 30-day pause shortly after, following talks with both parties. Separately, an additional 10% tariff has been applied to imports from China, excluding oil.
• Cboe® EDGX Equities Exchange (EDGX) has announced plans to introduce 24-hour weekday trading for U.S. equities, subject to regulatory review. This step aims to meet the growing global demand for extended market access, similar to crypto markets' 24-hour trading.

Open Interest Falls During Painful Liquidation Event

Another Monday sell-off, once again in tandem with a fall in U.S. equities and other risk-on asset classes in response to Trump tariff fears, has led to a fall in perpetual swap positioning. As the first chart below shows, almost $3.1B in open interest was wiped out from BTC, ETH, XRP and SOL’s perpetual swap markets alone after the late-Friday high. The fall in open interest was likely the result of leveraged positions being liquidated as the incredibly swift move in spot prices saw traders miss margin calls. Some observers, including Bybit CEO Ben Zhou, stated that the true notional value of liquidated positions across markets could have been “between $8 billion and $10 billion.” The sell-off saw the largest spike in trading volumes in over a month, as $31.1B worth of perpetual swap contracts changed hands on Feb 2, 2025 across the four major tokens’ markets.

Bybit Perp Open Interest — Open interest remains focused on majors BTC and ETH.

Bybit Perp Trading Volumes — Monday’s selloff caused trading volumes to spike across all tokens tracked.

Altcoin Funding Rates Negative‍

A second successive Monday morning sell-off has kept perpetual swap funding rates low and negative. While this is a clear sign of excess demand for leveraged short exposure through the instrument, it’s likely also a lingering result of the liquidation of long positions that resulted from the sharp and steep correction in spot prices. That much is particularly clear in the funding rates of altcoins since Feb 3, 2024, which have recorded more consistent values than BTC’s, corresponding with their steeper decline in spot prices.

BTC Options

BTC’s open interest didn’t fall in the same way that we observed in perpetual swap markets. This suggests that there was neither a significant notional value of options open interest liquidated in the spot sell-off, nor did the sell-off result in a significant spike in trade volumes at the beginning of the month. In fact, this corresponds with the relatively underwhelming response in BTC options markets: the early-week inversion of the term structure was limited in size, and has already been resolved. As a result, the volatility of options with short tenors has continued its downward trend. Realized volatility, while spiking higher early this week, didn’t beat the spike it recorded in last week’s Monday sell-off.

BYBIT BTC OPTIONS VOLUMES

BYBIT BTC OPTIONS OPEN INTEREST

BTC Volatility Spiked By Less

BYBIT BTC ATM TERM STRUCTURE — Volatility levels are lower than at the same time one week ago, as both snapshots indicate a recovery from a Monday spot crash.

BYBIT BTC SVI ATM IMPLIED VOLATILITY — Despite inverting at the moment of the selloff, BTC’s front-end volatility has trended back down to 50%.

BYBIT BTC IMPLIED AND REALIZED VOLATILITY — The selloff was far less volatile for BTC than for other assets, as reflected in its lower realized volatility levels at just 60%.

ETH Options

ETH’s spot price saw a deeper correction than BTC’s in Monday’s sell-off, plunging below $2.5K. Surprisingly, options market trading activity hasn’t reflected this — possibly as a result of a lower level of at-risk, leveraged long positions to be liquidated — and open interest levels have remained firm. However, the spot move saw realized volatility spike close to 140%, and options markets priced in an extreme level of volatility term-structure inversion that hasn’t yet resolved several days later. ETH’s implied volatility levels remain close to 15 points above BTC’s at equivalent tenors, a signal that traders are pricing for ETH’s more volatile moves in spot price to continue.

BYBIT ETH OPTIONS VOLUMES

BYBIT ETH OPTIONS OPEN INTEREST

ETH Saw Much Higher Volatility

BYBIT ETH VOLATILITY TERM STRUCTURE — Front-end volatility spiked above 90%, before settling closer to 70% in the days since.

BYBIT ETH SVI ATM IMPLIED VOLATILITY — The term structure inverted during the selloff and has stayed inverted, with front-end volatility still at a premium.

BYBIT ETH IMPLIED AND REALIZED VOLATILITY — Realized volatility spiked to nearly 140% during the sell-off below a price of $2.5K.

Traders Opened SOL Calls and Puts

After notching a new all-time high as recently as Jan 18, 2025, SOL began the week with a precipitous fall of nearly 18%. Trading volumes in put options spiked higher during the move on Feb 2, 2025, which soon led to a growth in open puts positions. However, the impact on Solana’s options market positioning wasn’t as clear-cut. Open positions in call options grew in a similar manner just one day later, resulting in a comparably large spike in call option trading volume. In the aftermath, call options remain the dominant contract by open interest, with the end-of-February expiration holding the lion’s share of traders' attention.

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