Crypto Derivatives 13th Feb 24

Key Insights

The consistent trend upward in volatility has been followed by each indicator of sentiment. Volatility smiles across the term structure have skewed strongly towards OTM calls, future-implied yields climbed to their values since before the ETF announcement date in mid-January. However, the larger-than-expected CPI print for January has seen a collapse in yields in the last 24 hours and a slight pause in the trending skew towards OTM calls. This has served to moderate the building bullish sentiment, highlighting how tentative market conditions can be under such strong expectations.

‍Futures

Yields are caluclated by taking constant maturity futures prices (e.g. 30d) implied from the market-traded prices of futures with listed expiries. That price is divided by the current spot to produce a yield, which is then annulalised by multiplying by the number of periods in one year (e.g. 365 / 30 for a 30d tenor option). Positive yields indicate that futures prices are above spot prices, and that traders are willing to pay a premium above spot price in order to gain exposure to the underlying. Negative yields indicate that futures prices are below spot price, and traders are (implicitly) willing to pay a premium for short exposure.

BTC Annualised Yields

BTC yields rose to their highest rates since the strong bullish sentiment ahead of the ETF, before collapsing post-CPI print

ETH Annualised Yields

ETH's yields have spiked above the levels of BTC’s, but more suddenly and with less of a collapse following the CPI print

Perpetual Swap Funding Rate

To keep the market price of a perpetual swap contract close to that of the underlying, traders exchange a periodic (sometimes "continuous") funding rate, exchanged between long and short positions (the exchange takes no cut). When the perpetual swap trades above the price of the underlying asset that it is designed to track, the funding rate is paid by long positions to short positions, incentivising them to close long positions and open short positions, applying downward pressure to the perpetual swap price. Conversely, when the perpetual swap trades cheaper than the underlying, the funding rate is paid by short positions to longs in order to apply upward pressure to the perpetual swap price.

When the funding rate is consistently positive, it indicates that traders are willing to pay a fee for the leveraged long exposure that the perpetual swap contract offers.

BTC Funding Rate

BTC funding rates have spiked to their highest levels since December last year during the rally in spot to levels above $50K

ETH Funding Rate

ETH's funding rate has climbed at a sharper pace to levels similar to BTC’s, indicating continued and strong demand for long exposure

BTC Options

BTC SABR ATM Implied Volatility

BTC vols have increased consistently over the last week to trade at their highest levels in over a month

BTC 25-Delta Risk Reversal

BTC's risk reversal has followed vol in its trend upward, showing that the strong demand for optionality is expressing a bullish view

ETH Options

ETH SABR ATM IMPLIED VOLATILITY

Like BTC's, trades at the top of its monthly range after climbing consistently over the last week alongside BTC’s

ETH 25-Delta Risk Reversal

ETH's volatility smile skew shows strong demand for upside participation, with a stronger tilt towards OTM calls in 90D tenor smiles

Volatility Surfaces

BTC IMPLIED VOL SURFACE

BTC's surface has seen volatility increase across the whole surface, with short-to-mid-dated OTM calls rising the most

ETH IMPLIED VOL SURFACE

ETH's surface mirrors BTC’s rise across the surface, but at a less pronounced rate relative to its recent history

Z-Score calculated with respect to the distribution of implied volatility of an option at a given delta and tenor over the previous 30-days of hourly data, timestamp 11:00 UTC, SABR smile calibration

Volatility Smiles

Volatility smiles are calibrated to the implied volatilties of bid and ask prices at listed strikes at listed expiries using both the SABR and SVI models. Here, we show the listed expiry whose tenor is closest to 30 days.

BTC Smile Calibrations

ETH Smile Calibrations

Historical SABR Volatility Smiles

We show the SABR calibration at a constant, 30-day tenor at the latest snapshot and at a snapshot one week prior.

BTC SABR CALIBRATION

ETH SABR CALIBRATION