Block Scholes x Bybit Crypto Derivatives August 14th

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

• FOMC Meeting — Jul 31, 2024 — The Fed held rates steady at the 5.25–5.50% target range, resulting in markets strongly pricing in a 0.5% September cut.

• U.S. Non-Farm Payrolls Report — Aug 2, 2024 — Employment figures were much weaker than expected, with unemployment rising to 4.3% and new jobs added at just 114K, compared to a median expectation of 175K, raising fears that the Fed has waited too long to cut rates.

• Bank of Japan — Jul 31, 2024 — The Bank of Japan hiked interest rates by 25bps, setting in motion the historically fast unwinding of global carry trades and a major spike in the VIX.

• U.S. Presidential Election — Aug 2, 2024 — Kamala Harris has officially passed the threshold of 2,350 votes required to secure the Democratic presidential nomination in the 2024 virtual roll call.

• US CPI YoY — Aug 14, 2024 — July Inflation numbers came in at 2.9% YoY, below expectations of 3.0%.

• Jackson Hole Economic Symposium — Aug 22–24, 2024 — The symposium will be closely watched for the Fed’s reaction to the market’s response to weak employment numbers on August 2, 2024.

USD/JPY  Volatility — The swift unwinding of the yen carry trade caused ripples across gobal risky assets, including in crypto

Institutional Adoption

• Ripple has entered a $10 million partnership with OpenEden aiming to bring Tokenised U.S. Treasury Bonds onto the blockchain marking a development within the Real-World Assets (RWA) market  (Aug 1, 2024)
• PayPal has launched its own dollar-pegged Stablecoin, PYUSD which has gained traction on the Solana blockchain. (Aug 7,2024)

Futures Open Interest Remains Stable; Investors Less Bullish on ETH

While open interest in futures contracts has grown steadily over the last week for both BTC and ETH, trade volumes have been much lower than the extremes observed during the selloff in early August 2024. Then, we saw trade volumes in ETH contracts dwarf those of BTC’s as the former coin strongly under-performed during the bearish price action, selling off harder and faster. In the days since, despite futures yields pricing a lower bullishness for ETH than BTC in the short term, ETH contracts have traded with just a fraction of the trade volumes.

Bybit Futures Swap Open Interest

Bybit Futures Trading Volumes

Perps Do Not Recover Open Interest Highs

As with futures markets, we see perpetual swap markets trade with relatively subdued activity since the crash-and-partial-recovery at the beginning of August 2024. Open interest has climbed slowly since the selloff likely saw a bout of liquidations, but have still not recovered the highs seen in late July. Trade volumes have remained consistent with pre-selloff levels, reflecting the lacklustre interest in recovering the price levels lost in spot prices.

Bybit Perp BTC & ETH Open Interest — Open interest in futures has risen slowly since the selloff, but remains below late-July highs.

Bybit Perp Trading Volumes — Trade volumes spiked during the crash, and have traded at regular levels since.

Volatility Inversion Recovers, But Levels Remain High

The strong inversion of the term structure of volatility that resulted from a rush of traders covering their exposure in options has since corrected to a flat shape. However, volatility levels have not yet returned to the lower end of their range and still trade at the highs that we saw at the end of July. During the selloff, we noted that implied volatility levels had not rocketed higher , that pricing has thus far been validated as the selloff has not yet continued past its initial leg down, and neither has it seen a sharp recovery back to previous levels.

BYBIT BTC OPTIONS VOLUMES

BYBIT BTC OPTIONS OPEN INTEREST

BTC Term Structure Flattens; Implied Volatility Remains Stable

BYBIT BTC & ETH Volatility Term Structure — The inversion observed during the selloff has reverted to a flat term structure shape as the front end has fallen.

BYBIT BTC SVI ATM IMPLIED VOLATILITY — While the inversion at the front end has corrected, volatility levels have not yet returned to the lower end of their range.

BYBIT BTC IMPLIED AND REALIZED VOLATILITY — Realized volatility spiked high during the selloff, but the market did not price implied volatility at the same extremes.

ETH Options

ETH’s stark underperformance during the selloff was reflected in the higher spike in realized volatility. Although ETH’s implied volatility reflects the stronger moves up and down in comparison to BTC, it too did not follow realized volatility levels to the same extremes. ETH’s term structure has also shown a sharper correction from inversion to steep shape over the last few days than has BTC’s,  and trade volumes and open interest remain lower for for ETH.

BYBIT ETH OPTIONS VOLUMES

BYBIT ETH OPTIONS OPEN INTEREST

ETH Term Structure Disinverts

BYBIT ETH VOLATILITY TERM STRUCTURE — ETH’s term structure has shown a sharper correction from inversion to steep shape over the last few days.

BYBIT ETH SVI ATM IMPLIED VOLATILITY — Like BTC, ETH’s volatility levels have returned to those levels last seen in late July.

BYBIT ETH IMPLIED AND REALIZED VOLATILITY — ETH’s realized volatility spiked much higher during the selloff, reflecting its stark underperformance during the move.

Volatility by Exchange

BTC, 1-Month Tenor, SVI Calibration

ETH, 1-Month Tenor, SVI Calibration

Bybit Volatility Surface

Listed Expiry Volatility Smiles