Block Scholes x Bybit Crypto Derivatives October 16th

Key Insights

Futures: On the whole, futures open interest has risen slightly amid a BTC and ETH rally. Trade volumes have risen significantly in response to the market movements.

Perpetuals: Perpetual swap open interest has surged to its highest levels in a month, driven by bullish price action and increased trading activity, with traders favoring BTC over ETH.

Options: The U.S. presidential election continues to be a key focus in options’ market narratives, with ETH and BTC implied volatility moving largely sideways while realized volatility is on the rise.

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Block Scholes BTC Senti-Meter Index

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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. CPI — Oct 10, 2024 — The U.S. headline year-over-year CPI rose to 2.4%, the lowest 12-month increase since February 2021, but above the median expectation of 2.3%.
• U.K. Wage Growth — Oct 15, 2024 — U.K. wage growth was 4.9% in June to August, below the 5.1% growth in the previous three months, signaling that wage pressures are easing.
• U.K. CPI — Oct 16, 2024 — Annual CPI inflation in the U.K. fell to 1.7% in September from 2.2% in August, below expectations of 1.9%, giving the Bank of England space for a potential rate cut in November.
• ECB — Oct 17, 2024 — The European Central Bank is expected to cut rates by 25 basis points, given the September inflation rate of 1.8% (below the 2% goal for the first time since June 2021).
• U.S. Retail Sales — Oct 17, 2024 — U.S. retail sales came in at 0.4% month-over-month compared to the prior figure of 0.1%, reflecting that consumer sentiment is still positive.

Market Implied Path for the Federal Funds Rate — The market has priced out some of its previous aggressive rate cuts, following a higher-than-expected CPI inflation report and an NFP report that showed the strongest job growth in six months.

Trending News

• BTC Spot ETFs showed strong net inflows of $926.9M this week, potentially contributing to the current rally in spot prices.
• The U.S. Supreme Court declined to hear Battle Born Investments’ case regarding ownership of 69,370 bitcoins seized from the dark web marketplace Silk Road. This means the U.S. government can proceed to sell the $4B worth of BTC on the market.

Futures Trade Volumes Increase

Over the past week, futures open interest has seen only a slight increase. Despite a significant spot price rally pushing BTC back to the top of its range, this rise wasn’t accompanied by an equivalent surge in futures open positions, and current levels have yet to recover to their pre-option expiration state of late September. Meanwhile, ETH open interest has declined slightly over the past few days. However, the spot rally has led to higher trade volumes, particularly in the early part of this week, with a notable surge in activity compared to last week as traders reacted to the price movements.

Bybit Futures Swap Open Interest

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Bybit Futures Trading Volumes

Perp Open Interest Spikes During Spot Price Rally

In contrast to the futures market, perpetual swap open interest has increased alongside the bullish price action early this week, with a significant rise that has pushed open interest to its highest levels in the past month. As with the futures markets, Monday and Tuesday saw a sharp spike in trading activity as the spot price rally drove higher volumes, implying that the surge in bullish sentiment has led to increased participation in perpetual contracts. The market remains heavily dominated by BTC, with traders showing a clear preference toward Bitcoin over Ethereum in their positioning.

Bybit Perp BTC & ETH Open Interest — Open interest has risen alongside each spot price rally.

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Bybit Perp Trading Volumes — Trade volumes close to their monthly highs have been recorded in the early-week spot rally.

Tokens Show Positive Funding Rates

Over the past week, BTC, ETH and most other tokens have shown positive funding rates in perpetual contracts reflecting the recent bullish spot price action. These rates indicate that traders with long positions are willing to pay fees to hold their leveraged positions in the short term, suggesting that market participants are increasing their exposure ahead of the November 5, 2024 U.S. election, with long positions driving the bullish momentum.

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BTC Options

In the past week, the front end of the implied volatility term structure has remained relatively pinned, maintaining the extreme dislocation between long- and short-dated options marked by the upcoming U.S. election. Hence, the derivatives market is reacting more to post-election expectations than the recent spot price bullish movements that caused realized volatility to finally rise, matching the levels of implied volatility. Spot price activity has also seen a rise in open positions, similar to trends observed in futures and perpetuals. However, this increase has not been matched by a spike in trade volumes, with growth in positioning being more gradual.

BYBIT BTC OPTIONS VOLUMES

BYBIT BTC OPTIONS OPEN INTEREST

Volatility Trends Down

BYBIT BTC & ETH Volatility Term Structure — Volatility at the front end of the term structure has increased slightly, while it remains flat following the election.

BYBIT BTC SVI ATM IMPLIED VOLATILITY — Implied volatility for short-dated options has risen again after a fall during the past week.

BYBIT BTC IMPLIED AND REALIZED VOLATILITY — Spot price volatility in the early part of this week has risen to match levels implied at a 30-day tenor.

ETH Options

ETH implied volatility term structure has remained mostly unchanged from last week, though shorter-tenor options have fluctuated over this period. Like BTC, ETH has seen a rise in realized volatility due to the recent spot price rally, bringing it to levels that now match the 30-day implied volatility. However, shorter-tenor implied volatility remains pinned ahead of the U.S. election, continuing to trade below realized volatility, much like BTC. The flatness of the term structure beyond the election date is also notable, mirroring the extreme dislocation seen in BTC options markets. This further suggests that traders are focused on post-election expectations, with the market showing little anticipation of significant shifts in the immediate term.

BYBIT ETH OPTIONS VOLUMES

BYBIT ETH OPTIONS OPEN INTEREST

Volatility Lower in Early October

BYBIT ETH VOLATILITY TERM STRUCTURE — The term structure is almost unchanged from last week, despite a strong bullish move in spot price.

BYBIT ETH SVI ATM IMPLIED VOLATILITY — Implied volatility levels fell, then rose over the past several days, remaining at similar levels to last week.

BYBIT ETH IMPLIED AND REALIZED VOLATILITY — 7-day realized volatility has matched the level at a 30-day tenor, highlighting the low levels at shorter tenors.

Volatility by Exchange

BTC, 1-Month Tenor, SVI Calibration

ETH, 1-Month Tenor, SVI Calibration

Bybit Volatility Surface

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Listed Expiry Volatility Smiles