Block Scholes x Bybit Crypto Derivatives September 11th

Key Insights

Futures: Futures markets did not react significantly to the spot price volatility recorded at the beginning of September, but instead appear to show a preference for longer-term positioning.

‍Perpetuals: While open interest did not waver strongly during the spot price volatility, funding rates tracked the changing sentiment closely. The resilient open interest levels indicates a much lower level of leverage than in previous selloffs in August.  

‍Options: The term structure of ATM implied volatility indicates a strong demand for exposure to volatility in expiries after the US Presidential Election, which appears to dominate longer-term positioning in options markets.

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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. Nonfarm Payrolls Report — September 6, 2024 — The number of jobs added for August came in lower than the 165k expected at just 142k, with an additional downward revision of 89k for the previous two months’ figures.

• UK Growth — September, 11, 2024 — UK economy showed no growth for the second consecutive month. This was below expectations of a 0.2% MoM growth.

• Consumer Price Index — September 11, 2024 — CPI increased 2.5% in the year to August, on par with expectations.

• ECB Meeting — September 12, 2024 — The ECB is expected to continue its program of cuts to interest rates following a pause at their last meeting.

• FOMC Meeting — September 18, 2024 — The Fed is expected to cut rates by 25bps after the CPI release for August showed that inflation has continued to fall.

US CPI — Core goods continue to show deflation YoY as the headline figure of 2.5% in August does little to change market expectations for cuts on September 18, 2024.

Trending News

• US Consumer Price Index (CPI) report resulted in CME Fed Funds to price out larger 50bps cuts. Currently, target rate probabilities for a 25bps and 50bps cut are 87.0% and 13.0%, respectively.
• The Harris-vs.-Trump debate, Sept 10, 2024, had no mention of cryptocurrencies and resulted in Trump’s Polymarket odds of winning falling by 52% to 49% in the immediate aftermath.

Futures Activity Remains Muted

Trade volumes remained lacklustre during the spot price volatility at the beginning of September for both BTC and ETH. The consistent levels of open interest across the end of August expiry on August 30 show that traders hold positions largely in longer dated expiries, reflecting the focus that we see in options markets on expiries after the US Presidential Election on November 5. ETH has increased its market share somewhat, despite the last week of trading being dominated by BTC contracts.

Bybit Futures Swap Open Interest

Bybit Futures Trading Volumes

Perp Open Interest is Resilient

Perpetual swap open interest did not see the same level of contract closure during the spot price slump in early September that we had saw in the previous two market crashes in August. While this is partly explained by the less drastic selloff, it also indicates a lower level of leverage among traders, which would otherwise have resulted in a slew of liquidations that act to drive spot prices lower. In addition, trade volumes in perpetual swaps continue to dominate the futures market despite the funding rate paid from longs to shorts over the last week.

Bybit Perp BTC & ETH Open Interest — Open interest has ranged sideways since the end of summer and into September, and has been unchanged by the early-September volatility.

Bybit Perp Trading Volumes — Trade volumes in the perpetual swap contract spiked to their highest in the last month during the spot slump on September 6.

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SOL Sees Negative Funding Rates Reverse

The consistently negative funding rates in SOL have reversed, with several days of positive rates recorded since mid-August that coincide with the arrest of telegram CEO Paval Duran. Funding rates in majors BTC and ETH have broadly tracked spot prices, turning negative during the early-September spot slump and flipping positive during the recovery. Other alt-coins report a mixed bag of rates, reflecting the end-of-Summer volatility and express an unclear sentiment in the short term.

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BTC Options

BTC options markets recorded a spike in call option trade volume that was split across longer-dated tenors. This corresponds with the stronger skew towards upside exposure that we have consistently observed in expiries following the US Presidential Election, indicating a move for bullish positioning longer-term. Despite the volumes in calls, open interest in options remains dominated by shorter tenor OTM puts which indicates that, while bullish long term, traders brace against short-term downside volatility. We continue to see the same event impact the term structure of ATM volatility, with a noticeable dislocation in volatility pricing around the November 5 date.

BYBIT BTC OPTIONS VOLUMES

BYBIT BTC OPTIONS OPEN INTEREST

US Election Dislocation in Volatility Grows

BYBIT BTC & ETH Volatility Term Structure — Longer tenor volatility ranges higher above the front-end as the term structure steepens.

BYBIT BTC SVI ATM IMPLIED VOLATILITY — A rally in short tenor volatility towards the levels held by longer-dated expiries has reversed, steepening the term structure once again.

BYBIT BTC IMPLIED AND REALIZED VOLATILITY — Both realized and implied volatility climbed slowly higher alongside the spot moves in early September.

ETH Options

In contrast to the put-dominated positioning we see in BTC, ETH options markets currently record a larger number of outstanding call contracts. However, upside exposure is lower than before the August 30 expiry. We see the same kink in the term structure, albeit at a premium to BTC volatility at all tenors with ETH implied volatility tracking tthe level of recently realized volatility closely. As with BTC’s term structure, we see ETH’s steepen significantly as short-tenor volatility has reversed its early-September rally. Apart from pricing in a slightly higher level of volatility, markets reflect similar positioning in ETH and BTC for the upcoming macroeconomic uncertainty.

BYBIT ETH OPTIONS VOLUMES

BYBIT ETH OPTIONS OPEN INTEREST

ETH Retains its Volatility Premium

BYBIT ETH VOLATILITY TERM STRUCTURE — A fall in short-tenor implied volatility has accentuated the dislocation near to the date of the US election.

BYBIT ETH SVI ATM IMPLIED VOLATILITY — Implied volatility levels have followed the trajectory of BTC’s during the spot price movement in the beginning of September.

BYBIT ETH IMPLIED AND REALIZED VOLATILITY — The higher level of implied volatility above that of BTC is explained by ETH’s increased levels of realized volatility.

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