Key Insights:

• Volatility remains reactive: Implied volatility continued to spike sharply in response to spot price moves, with repeated inversions in the term structure driven more by macro shocks than by pre-positioning ahead of known events. US president Donald Trump’s series of tariff announcements and walkbacks created whipsawing price action, with crypto volatility peaking after major policy moves — and collapsing just as quickly in periods of calm.

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• Realized volatility hits both extremes: BTC’s 7-day realized volatility reached its highest level since the August 2024 yen-carry crash, and (weeks later) bounced off a multi-month floor of 30% that it’s held since September 2023. Even during low realized volatility, however, short-tenor implied volatility remained above 40%.

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• Put skew signals bearish turn: For the first time since before the 2024 US elections, longer-dated volatility smiles skewed toward out-of-the-money puts, marking a shift in sentiment toward downside protection over a longer horizon. Short-dated volatility smiles skewed strongly toward puts several times, largely in reaction to downside moves in the spot market.

Tariff volatility

At the beginning of the year, we shared our view of several bullish fundamentals that could drive crypto asset prices in 2025. These included positive supply-and-demand factors, the most constructive regulatory stance in the US in history and the acceleration of institutional adoption of the crypto asset class.

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However, macroeconomic headwinds have proved to be the strongest driver factor by far in 2025. Against a backdrop of lingering inflation, continuing concerns regarding the health of the US economy accelerated in late March and early April as a result of President Trump’s ignition of a global tariff war and its subsequent pauses, repeals and escalations. As a result, volatility in March continued the pattern of sharp, sudden and reactive moves in options markets that had dominated markets in February.

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Inversion, disinversion and more inversion

Options prices reflect the volatility that the market expects the underlying spot price to move with (in this case, BTC or ETH) over the lifetime of the option. The term structure of implied volatility shows the level of volatility that the market expects to be delivered over each length of time into the future — much like the way an interest rate curve expresses the interest rate charged to a borrower for loans over different maturities.

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We’re used to seeing short-dated options trade at a lower implied volatility than for longer-dated options. Intuitively, it’s because the volatility we see in the short term is likely to continue at the level where it’s been in the recent past, while the outlook over a longer period is less certain and therefore demands a higher volatility premium. However, short-dated implied volatility can trade higher than longer-dated implied volatility (“inverting” the term structure of implied volatility) for two main reasons:

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1. Expectations of a volatile event in the near future
2. High demand for short-dated options, often in response to a sharp market move

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We’ve seen the former case several times in the recent past — ahead of the launch of Spot BTC ETFs in January 2024; the US presidential election on Nov 5, 2024; and, most recently, before President Trump’s inauguration on Jan 20, 2025. However, over the past two months, we’ve seen the term structure invert quickly, strongly and frequently in response to volatile moves in the underlying market. We see this in the chart below, which shows the volatility implied by options at several constant tenors in 2025.

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By plotting the actual volatility of BTC’s spot price over the same period (using rolling lookback windows of several lengths to calculate the annualized standard deviation of log returns), we can see that the increase in short-dated implied volatility came as a result of sharp spot moves.

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This isn’t the first time that derivatives markets have been largely reactive to moves in spot price, rather than expressing positioning ahead of an upcoming event. However, this month wasn’t without known event risks — such as the Apr 2, 2025 “Liberation Day” tariff announcement of near-unilateral tariffs on imports to the US, which appear to have held less of a clear premium in short-dated volatility ahead of the event. We can see this in the chart below, which normalizes implied volatility expectations over several forward-looking tenors by the actual volatility that was realized over the previous 30 days.

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Compare the spikes in February and March to those on Nov 5, 2024 and Jan 20, 2025. The latest two inversions, each one the result of increasingly uncertain market conditions and repeatedly collapsing spot prices, increased more gradually, and led to a lower premium over recently realized volatility. In contrast, the election and subsequent inauguration’s event risk caused an inversion that resolved almost immediately after the event risk had passed.

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The event risk of Trump’s Apr 2, 2025 Rose Garden announcement barely registers on this chart, despite the first mention of reciprocal tariffs occurring on Feb 13, 2025. On this date, Trump signed a directive instructing his commerce secretary, Howard Lutnick, to look into reciprocal tariffs. On that same date, Lutnick said: "Our studies should be all complete by April 1. So we will hand the president the opportunity to start on April 2 if he wants." Trump confirmed Apr 2, 2025 as the key date as early as Feb 27, 2025.

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Either the market hadn’t accurately digested the risks of what was to come, or was too preoccupied with latent volatility for even near-term event risks to have time to leave their mark on the data.

March sees volatility hit both its upper and lower bounds

On Mar 8, 2025, BTC’s realized volatility rose to the same levels as the similarly macroeconomic-inspired crash that resulted from the unwinding of the yen carry trade in early August 2024. This extreme was itself the highest level of volatility to be delivered over a 7-day period since the crash of the FTX exchange in November of 2022.

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This followed the Mar 7, 2025 signing by Trump of yet another executive order (EO) pivoting away from his 25% tariffs on Canada and Mexico, exempting all goods under USMCA. Trump stated at the time that he was “not even looking at the markets,” and that on “April 2, it becomes all reciprocal. What they charge us, we charge them.”

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However, March marked another extreme for volatility — in the seven days ending on Mar 28, 2025, BTC realized volatility hit its month’s lower bound, just as it did between twin peaks of volatility spikes in February. BTC’s 7-day realized volatility has refused to cross below this level since September 2023, and has bounced off of that level around 10 times since. Three of these bounces have come in 2025.

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This phenomenon highlights how volatile volatility itself has been during this period. Such market conditions are distinguished by extended periods of calm, punctuated by sudden, near-stepwise moves up or down in price — exactly the type that we’ve seen from BTC and ETH (among other cryptocurrencies) in March.

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It’s no wonder, then, that despite realized volatility collapsing as low as 30%, short-tenor implied volatility levels never traded below 40% — and option sellers have continued to demand a premium above realized levels as compensation for taking on the risk that volatility could return suddenly (and without warning). We see this in the chart below, which highlights that while March’s floor in realized volatility was at the same 30% as in mid-February, the March floor in implied volatility was much higher at 40%.

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In such market conditions, with high volatility of volatility, we expect to see a steeper volatility smile. This occurs when, relative to options with at-the-money strikes, options that are deeper out-the-money trade at a higher premium. Intuitively, this is because the market grows wise to the step-by-step moves in the spot market — and begins to price in a higher probability of larger swings in spot price. As a result, calls with higher strikes become more attractive (as well as puts with lower strikes).

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However, the steepness of the 30-day volatility smile (measured as the average distance in implied volatility terms between the 25-delta put and call, and the at-the-money implied volatility level) isn’t yet at the extremes we’ve seen over the past two years (in both puts and calls at the same time). 

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Instead, March’s demand for out-the-money optionality has been decidedly unidirectional toward puts.

Longer-dated put skew turns bearish

The skew of volatility smiles toward puts or calls is a key indicator of directional sentiment expressed by options markets, which measures the relative demand for calls or puts. The skew of BTC’s volatility smiles has oscillated swiftly from calls to puts (and back) several times in the months before the tariff tumult, and since the US election on Nov 5, 2024. This has been particularly true for options close to expiration, which we expect to see react more sensitively to short-term market moves.

To demonstrate this phenomenon, the chart below shows the volatility smile skew for the 7-day and 180-day tenors on Nov 6, 2024 (the day that President Trump was announced the winner of the US election), as well as on Jan 20, 2025, a day before the his presidential inauguration (when many market participants expected the announcement of a Bitcoin strategic reserve). Both these events were marked by a strong skew toward calls across the term structure.

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March, however, marked the first time since well before the recent US elections that longer-dated volatility smiles skewed toward OTM puts — a strong expression of bearish sentiment. We can see this from the 90-day tenor skew charted below. 

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March was also characterized by a significant jump in put skew at the 7-day tenor. In the charts below, we’ve plotted BTC’s spot price on the right-hand axis, and on the left-hand axis, we’ve plotted the implied volatility of 25-delta call options relative to the IV of at-the-money call options for the 90-day tenor. A similar calculation is done for puts at the same tenor in red.

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This chart below represents the steepness of out-the-money calls and puts in blue and red, respectively. When the call wing ratio is greater than 1, traders are pricing in the 25 delta IV for calls or puts above the level of volatility implied by options struck at-the-money.

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The jump in demand for put options began after markets reversed a strong “Truth Social–inspired” rally on Mar 2, 2025, which was followed the next day by an announcement that both Canada and Mexico had failed to earn an extension on the one-month tariff pause that was put in place on Feb 3, 2025. This was the period that marked a decisive shift in demand for downside protection that has remained higher since.

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The steepness of the two curves above paints an interesting story, too. The relative demand for calls didn’t suddenly fall, but rather drifted down throughout the month. Near the end of the month, implied volatility for puts relative to ATM was around 10% higher than the steepness in calls, having spiked up to its higher level on Mar 2, 2025. This may in part have been a reflection of the market becoming less hopeful of a delay, reversal or pause of the Apr 2, 2025 reciprocal tariffs.

Conclusion

March’s crypto volatility market was shaped less by organic market positioning and more by rapid-fire developments in global trade. The ignition and subsequent escalation of a tit-for-tat tariff war led to extreme and reactive volatility dynamics across the crypto derivatives landscape. Short-dated implied volatility levels continued to exhibit the sharp and sudden spikes they delivered in February, resulting in nearly continuous inversions of the term structure of at-the-money implied volatility.

However, despite the barrage of market-relevant headlines, realized volatility once again hit a floor of 30%, a lower bound that it has already bounced from repeatedly several times in 2025. With it, implied volatility continued to bounce off its own, slightly higher, floor of 40%, reflecting an unwillingness by the market to price in a lower level of realized volatility over any meaningful period of time.

Despite Trump’s telegraphing of Apr 2, 2025 as “Liberation Day,” markets showed little sign of pricing in the magnitude of the event (clearer in hindsight), with the same inversion of the term structure that we’d already seen ahead of the US election and inauguration day.

March also heralded the switch of longer-dated volatility smiles away from skewing toward OTM calls, and instead toward OTM puts. This is a significant expression of bearish sentiment over the long term, and marks the first time since well before the recent US election that markets have priced in a premium to downside protection over a longer horizon.