Volatility Review January 2025

Key Insights

• Macro Factors Driving Crypto Sentiment: BTC and ETH’s turbulent weekend sell-offs were largely influenced by macro events, including Trump’s tariff policies, expectations surrounding a potential strategic Bitcoin reserve and disruptions from AI competitors like DeepSeek.
• Crypto’s Leading Indicator Role: BTC and ETH reacted earlier and more sharply than traditional equities markets to economic and geopolitical events during January 2025, serving as a leading indicator for Monday market movements. The unwinding of the yen carry trade in August 2024 was an earlier example of this.
• Ethereum’s Increasing Volatility: ETH’s spot underperformed BTC’s consistently during market downturns in January 2025. However, options markets currently price for a lower forward-looking implied volatility premium for ETH than we would expect from the cross-currency ratio of their recently delivered volatility levels.

Crypto’s Wild Weekends

If December and November 2024 were the peak of crypto’s bullish sentiment for Trump’s second term, January was an ice-cold wake-up call to the volatility that could be in store for markets over the next four years. Far from the relatively quiet Christmas period that preceded it, the first month of 2025 was marked by intense volatility across multiple asset classes, largely in reaction to whipsaws in the market's response to Trump’s unpredictable tariff policies and buffeting macro headwinds.

Crypto was no exception to that market volatility, as it reacted sharper and earlier to many of the same events that moved equities markets. These moves were particularly strong on several weekends in January, ahead of the open of traditional finance markets each Monday morning. This pattern began clearly on Jan 13, 2025, when the crypto market sold off in the early hours (UTC time zone) of Monday morning, as the hawkish tone set by Federal Reserve Chair Jerome Powell at the FOMC’s December 2024 meeting was validated by stronger-than-expected labor market data released the Friday before. Equities soon followed crypto south in European and U.S. sessions before recovering over the the week that followed.

‍

The following weekend saw the launch of two Trump-family meme coins in the 48 hours before the inauguration on Jan 20, 2025. These events added to a bullish crypto sentiment that was already buoyed by expectations of a mention of a potential strategic Bitcoin reserve in Trump’s inauguration speech. However, these expectations were overshadowed by conflicting reports of the immediacy and strength of Trump’s promised program of tariffs against close trading partners, which saw crypto assets whipsaw around on Sunday evening and early Monday morning. Once again, crypto spot prices recovered and spent the week trading sideways.

‍

Compounding Trump’s early-term turbulence, the following week saw the release of AI competitor DeepSeek introduce a fresh layer of uncertainty to equities markets. Although this had no obvious direct impact on the value of crypto assets, crypto’s strong correlation with equities valuations saw crypto assets report a crash similar to equities as markets digested the implications of a cheaper LLM with comparable performance to U.S. products.

The fourth weekend in a row saw the announcement (and later repeal) of a significant program of tariffs against Canada and Mexico, with ETH strongly underperforming the rest of the market late into the Sunday evening.

However, Bitcoin’s price action is no stranger to preceding macro-driven Monday-morning sell-offs after the weekend. We last saw crypto respond in this way to significant macro events during the collapse of the yen carry trade in early August 2024. At that time, the strengthening in the Japanese yen saw risk-on assets suffer as cheap capital. However, the early warning signs were in crypto, which sold off on the Sunday evening before the market opened (since it trades around the clock).

‍

Monday Morning Volatility

While manifesting most obviously in late-weekend sell offs on Jan 13, 20 and 27, 2025, each of the previous five weekends have shown a significant uptick in volatility that isn’t necessarily directional. The most extreme case this month occurred on Jan 13, 2025, when an outsized RV spike to 150% highlighted the market's sensitivity to weekend catalysts. Compared to median levels over the whole history of price movements, recent weekend activity has been considerably more volatile.

‍

We demonstrate this phenomenon below by plotting the realized volatility (of 10-minute returns) for BTC in each week since the U.S. election on Nov 5, 2024. The x-axis represents the days of the week (Monday to Sunday), with each line showing how spot price volatility evolved throughout the week. We also show the median and 10% and 90% quantiles of IV for each timestamp from intraday BTC spot price data since July 2023. Percentiles are shown on the same chart (in thicker white lines) to show the typical range of behavior across the week.

‍

The resulting chart reveals several things. First, we see clear periodicity during the western work week of Monday–Friday: realized volatility is highest during the peak of market trading hours on traditional finance venues in Europe and the U.S. Secondly, we see spot volatility collapse from market close on Friday through the weekend. Finally, we see a consistent spike in realized volatility in the median week, which grows into the market’s open on Monday morning.

The first two points align with a long-held trading truism — that volatility clusters around trade volume. When traders are most active, spot price moves more often and by larger amounts. That the realized volatility correlates strongly with market trading hours in the U.S. and Europe indicates that weekly trade volumes are driven strongly by institutional traders in these regions — or at least by traders who are awake at these times.

The final point is the most interesting for our weekend-event investigation: the volatile moves that we’ve highlighted over the previous five weekends are merely extreme examples of a longer-held trend of increased crypto market volatility late in the weekend, and ahead of traditional market open hours in Europe and the U.S. However, when considered against the median path of realized volatility throughout the week, the repetition of a familiar pattern of increased volatility on Sunday evenings likely reflects the earlier open hours of the Asia session.

What has distinguished the pattern of weekends in January (and indeed since the U.S. election) from the usual week has been the repeated inversions of the at-the-money (ATM) implied volatility term structure that they’ve caused. Spikes in short-dated implied volatility have extended into Monday trading sessions.

As with realized volatility, we can further highlight the extreme behavior on each of the weekends of interest in January 2025 by comparing the weekly traces of the 7-day constant tenor, ATM implied volatility level with its 10th and 90th percentiles (relative to the distribution of all weeks since 2023).

First, the median pattern of behavior of implied volatility is consistent with that of realized volatility, as notable spikes occur late on Sunday evenings and early on Monday mornings with a drop-off in volatility expectations throughout the work week. One-week–tenor options are priced at the lowest levels of implied volatility around midday on Saturday, indicating that crypto options contracts don’t price in the weekend risk premium that traditional assets — such as equities — may do to cover the spot movements over the weekend. Volatility expectations rise into the beginning of the week late on Sunday evenings.

A closer examination of these two trends reveals a feedback loop between realized and implied volatility. When realized volatility spikes over the weekend, it often triggers a reaction in implied volatility, particularly in shorter-dated options, as traders anticipate continued turbulence in the near term. This can be observed in the Monday IV spikes, whereby options markets price in heightened uncertainty following extreme realized moves.

‍

If Bitcoin’s a Breeze, Then ETH Is a Hurricane

Bitcoin has reacted strongly to changing macro headwinds on weekends, and has ended the first month of this year in much the same place that it started it. However, January marked a particularly poor month for ETH, with underperformance (relative to BTC) recorded during each move, suggesting that spikes in volatility have correlated with underperformance by ETH.

‍

But this is not a new phenomenon — for much of its history, ETH’s returns have been larger than BTC’s in both directions (except for an unusual period in the summer of 2023, when all crypto assets were trading with an unusually low level of volatility). This has been true since April 2024, following the local peak of the post–Spot ETF rally in BTC and ETH. To visualize that difference, we plot the ratio of ETH’s 90-day realized volatility to BTC’s over the same period.

‍

The resulting chart shows that ETH’s extra volatility has been increasing relative to BTC’s. BTC may be known to traditional finance traders as a high-volatility asset, but ETH generally trades with much higher levels of realized volatility. That fact is growing ever more true, and reached an extreme in January 2025.

‍

Unsurprisingly, then, options markets have consistently priced for ETH to deliver a higher level of volatility than BTC throughout this period. This manifests itself as a sizable premium assigned to the volatility that is implied by ETH options at the same expiration and strike. ETH options price in a higher expected level of volatility, and so they trade at a relatively higher premium when compared to equivalent BTC options. 

‍

We can visualize this in the same way by plotting the ratio of the volatility implied by a constant 30-day tenor, ATM option. In doing so, we see that the ratio of ETH’s implied volatility levels have been growing alongside the ratio in realized volatility.

‍

However, another fact stands out: while ETH’s spot price has been moving with a realized volatility level that’s nearly 50% higher than BTC’s over the past 90 days, options markets are pricing in only a 30% premium to ETH’s implied volatility. While still pricing in a premium, this data shows that ETH has most recently been moving with more volatility (in excess of Bitcoin’s) than markets are expecting over the next month.

‍

Conclusion

January 2025 hinted at crypto’s new place in the macroeconomic basket of asset classes, pricing-in weekend news and hinting at the subsequent Monday volatility. Price action was driven (particularly over weekends) by a slew of macro headlines — from Trump’s rapidly evolving tariff announcements to emerging tech disruptors like Deep Seek.

Though an uptick in volatility toward the start of the workweek is common, the intensity of January’s swings—seen most vividly on January 13, 20, and 27—stands out. Realized volatility spiked to levels well above historical norms, and implied volatility followed suit, especially over shorter tenors.

Beneath these headline-grabbing weekend whipsaws lies an equally interesting trend: Ethereum’s escalating volatility premium relative to Bitcoin. Long known as the more turbulent of the two, ETH widened that gap in January, underperforming BTC on each downswing and echoing its longstanding pattern of generating bigger percentage moves in both directions. While options markets have priced a higher implied volatility for ETH compared to BTC, the premium they price-in does not match the higher level of realized volatility delivered by ETH since the U.S. election.