Block Scholes x Bybit Crypto Derivatives October 23rd

Key Insights

Futures: Futures open interest has slightly increased, with a notable recovery after a slight drop. Trading volumes have dipped from last week but remain higher than the lowest levels in the month.

Perpetuals: Perpetual swaps contract open interest has risen compared to last week but has mostly remained steady in recent days, while trading volumes have decreased from last week.

Options: Implied volatility shows a notable rise in 14-day tenors amidst a general downtrend across other tenors. Open interest for options are increasing, with calls gaining strength over puts.

‍

‍

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 Policy Decision — Oct 17, 2024 — The European Central Bank cut rates by 25 basis points in line with market expectations, following a rate cut in September.
• IMF World Economic Outlook — Oct 22, 2024 — IMF’s global growth expectation is projected to remain “stable yet underwhelming” at 3.2% in 2024 and 2025.‍
• U.S. Treasury Yields — Oct 23, 2024 — The U.S. 10Y Treasury yield rose above 4.2%, its highest level since July, driven by higher fiscal debt in the U.S. and due to the market expecting fewer interest rate cuts by the Fed.
• Federal Reserve’s Beige Book — Oct 23, 2024 — The Fed’s Beige Book report, published eight times a year, contains information on the health of the U.S. economy by Federal Reserve districts.
• U.S. Initial Jobless Claims — Oct 24, 2024 — Initial jobless claims in the U.S. are expected to come in at 245K, following the previous figure of 241K. This will give further insight into the health of the U.S. economy.

BTC Price vs. Presidential Probabilities — The divergence between Trump’s election odds and Harris’s has increased. BTC’s spot price was increasing in line with Trump’s election odds, but has reported a pullback over the past few days.

Trending News

• BTC Spot ETFs continue to surge with inflows of over $2B since October 11, 2024, and a minimum daily inflow above $250M.
• Payment processing platform Stripe has finalized a $1.1B deal to purchase the stablecoin platform Bridge, further advancing the integration of blockchain technology with traditional finance (TradFi).

Futures Open Interest Increases

Futures open interest has seen a slight increase compared to last week. While showing general sideways movement, there has been a drop in open interest, specifically for longer tenors. Levels have quickly recovered and even surpassed previous values, caused by an increase in open interest for the November 29, 2024 expiration date for BTC futures. Trading volumes at the start of this week have been lower than last week’s, but remain above their lowest levels observed earlier in the month. This suggests a recovery in market activity despite some fluctuations in both open interest and trading volumes.

Bybit Futures Swap Open Interest

Bybit Futures Trading Volumes

Perp Open Interest Slows Down

While there has been a clear upward trend in open interest in recent weeks, this momentum has recently slowed. Trading volumes at the start of this week are notably lower than corresponding days last week, indicating a temporary cooling in market activity. Despite the overall growth in open interest, the current pause in both volume and momentum suggests that participants may be awaiting new catalysts before making significant moves — spot prices have pulled back slightly, but that hasn’t resulted in perp open interest dropping. This indicates longer-term positioning ahead of the election on Nov 5, 2024.

Bybit Perp BTC & ETH Open Interest — Open interest fluctuated toward the end of last week, and has moved sideways for the past few days.

‍

Bybit Perp Trading Volumes — Trade volumes are lower compared to last week’s levels as bullish spot action has slowed.

All Tokens Show Strong Funding Rates

All tokens are displaying a consistently strong and positive funding rate for perpetual contracts, signaling a clear build-up of bullish sentiment across the crypto ecosystem. The accumulation of long positions seeking leveraged exposure is a key trend to monitor. This is the first clear indication that traders are holding pre-election positioning. Despite spot prices retracing the early October rally, traders are expressing an appetite for leveraged long exposure in spite of the funding rate fee.

BTC Options

BTC call options are dominating the open positions, a further indication of bullish sentiment ahead of the election. This event remains an obvious driving factor for implied volatility: 14-day tenor options have experienced a notable increase in levels compared to the previous week. Alongside this rise, implied volatility levels have generally been on a downtrend across other tenors. Most notably, 7-day implied volatility has experienced strong fluctuations, leading to overall lower levels and a notably steep term structure. With only two weeks left until the election, market participants are focusing more on the potential impact of this event rather than on near term movements.

BYBIT BTC OPTIONS VOLUMES

BYBIT BTC OPTIONS OPEN INTEREST

Volatility Term Structure Steepens

BYBIT BTC & ETH Volatility Term Structure — Volatility has increased, particularly around 14-day tenors, while it’s slightly decreased for longer tenors.

BYBIT BTC SVI ATM IMPLIED VOLATILITY — We highlight how 14-day tenor implied volatility is approaching longer-tenor levels, while the 7-day tenor is dropping.

BYBIT BTC IMPLIED AND REALIZED VOLATILITY — 7-day realized volatility has fallen as the sharp moves of early October weren’t sustained.

ETH Options

ETH options’ volatility have exhibited behavior similar to that of BTC, with implied volatility levels rising for 14-day tenors as the election approaches. The dislocation we've been monitoring is further highlighted by a recent drop in implied volatility for 7-day tenors and an overall slight decrease in levels, which have contributed to a very steep term structure. As reflected by ETH’s slow spot movements, short-dated realized volatility remains quite low and has sharply declined over the past day. The emphasis on the derivatives market ahead of the election is highlighted significantly by open interest in ETH options: open positions have continued to grow over the past week, and are largely dominated by calls over puts.

BYBIT ETH OPTIONS VOLUMES

BYBIT ETH OPTIONS OPEN INTEREST

ETH Implied Volatility Mirrors BTC’s

BYBIT ETH VOLATILITY TERM STRUCTURE — Volatility at a 14-day tenor has risen as the U.S. election premium moves forward along the term structure.

BYBIT ETH SVI ATM IMPLIED VOLATILITY — 14-day tenor implied volatility is converging with longer tenors, while all tenors show a downward trend.

BYBIT ETH IMPLIED AND REALIZED VOLATILITY —Realized volatility has failed to deliver on early October moves, similar to BTC’s spot price.

Volatility by Exchange

BTC, 1-Month Tenor, SVI Calibration

ETH, 1-Month Tenor, SVI Calibration

Bybit Volatility Surface

Listed Expiry Volatility Smiles