BTC and ETH Derivatives Sentiment

BTC Derivatives Sentiment Analysis

The BTC annualized yield curve has inverted slightly at the shorter end, signaling a cautious outlook from investors in the near term. This inversion, especially as it approaches the election period, reflects a potential hedge against anticipated volatility. The decreasing yields suggest that traders may be less inclined to engage in high-leverage positions, opting instead for a risk-averse stance amid potential market fluctuations.

ETH Derivatives Sentiment Analysis

ETH’s yield curve mirrors BTC’s recent movements, though with a slightly less pronounced decline at the front end. This re-steepening shape in ETH’s term structure implies a balanced sentiment, with traders possibly hedging against downside risks while remaining open to long-term bullish potential. The market’s appetite for ETH appears steadier compared to BTC, hinting at relative stability in ETH derivatives ahead of the election cycle.

BTC and ETH Funding Rates

Combined Funding Rate Analysis for BTC and ETH

In the days leading up to the election, both BTC and ETH funding rates have shown signs of decline, though the trends diverge in intensity. BTC’s funding rate notably dipped into negative territory, signaling that short sellers are paying a premium to long positions. This shift suggests a heightened bearish sentiment, as traders are increasingly hedging against potential downside risk. The movement from a previously bullish rate into negative territory indicates a strong defensive stance in anticipation of potential market volatility related to election outcomes. This could reflect a broader uncertainty within the market, with traders viewing BTC as particularly sensitive to political and economic fluctuations.

ETH’s funding rate, while also experiencing a decline, has remained largely neutral and avoided dipping negative. This relative stability points to a more balanced market sentiment towards ETH, indicating that while traders are cautious, they do not exhibit the same bearish inclination as seen in BTC. ETH’s neutral funding rate may imply that the market perceives it as somewhat insulated from immediate election-related risk or views its price dynamics as steadier.

Market Sentiment Implications

The divergence in BTC and ETH funding rates highlights differing market perspectives on these assets: BTC appears more susceptible to short-term bearish sentiment driven by external events, while ETH maintains a comparatively stable outlook. Traders may see BTC as a more volatile asset under current conditions, opting to hedge more aggressively, whereas ETH’s funding rate neutrality suggests a view of resilience in the face of uncertainty.

BTC and ETH Options: Implied Volatility and Risk Reversal

BTC Options Analysis

The BTC options market shows a pronounced inverted volatility term structure, with rising implied volatility, especially at the shorter end of the curve. This inversion suggests that traders are expecting significant short-term volatility, potentially tied to the election or other near-term events. Additionally, BTC’s 25-Delta Risk Reversal skew levels are positive across all tenors, reflecting a strong bullish sentiment over the long term. The demand for call options over put options at these levels indicates that, despite short-term volatility concerns, there is a prevailing belief in BTC’s upside potential among option traders.

ETH Options Analysis

ETH’s options volatility term structure also exhibits inversion, though the increase in implied volatility is less aggressive compared to BTC. This indicates that traders expect some short-term volatility for ETH but perceive it as less intense than BTC’s. The 25-Delta Risk Reversal for ETH shows a more complex picture: shorter tenors indicate a demand for downside protection, reflecting bearish sentiment in the near term. However, the skew remains positive in the longer term, suggesting that traders expect ETH to recover or appreciate over a more extended period, albeit with some caution.

Comparative Analysis and Market Sentiment

The combined data from BTC and ETH options markets reveal a split in market sentiment between the two assets:

• Short-Term Outlook: Both BTC and ETH exhibit high implied volatility in the short term, with BTC facing a stronger bullish sentiment and ETH showing a more cautious approach, as traders hedge against potential downside in the near term.
• Long-Term Outlook: For both assets, positive skews in the long-term tenors suggest that the market generally anticipates growth or stability, with BTC showing a more robust bullish expectation than ETH.

Volatility by Exchange and Put-Call Skew by Exchange

Volatility by Exchange (1-Month Tenor)

Across major exchanges, both BTC and ETH display notable differences in implied volatility levels. For BTC, the 1-month tenor shows heightened implied volatility, particularly on exchanges with higher trading volumes, reflecting strong demand for protective options ahead of potentially volatile events like the election. This variation suggests that different exchanges may experience varying degrees of hedging activity, possibly due to regional differences in trader sentiment or liquidity levels.

In contrast, ETH’s 1-month volatility calibration remains relatively consistent across exchanges, with implied volatility levels not as pronounced as BTC. This consistency indicates that ETH is perceived as slightly more stable or predictable in the near term, with fewer exchange-specific fluctuations in trader sentiment. ETH’s more uniform volatility across exchanges could also point to a lower level of speculative trading activity compared to BTC, reinforcing its relatively steady outlook.

Put-Call Skew by Exchange (1-Month Tenor, 25-Delta)

For BTC, the 1-month, 25-Delta put-call skew remains positive across exchanges, signaling that call options (bullish bets) are priced higher than put options, reflecting sustained bullish sentiment across markets. However, there are subtle differences in skew levels among exchanges, suggesting that while overall sentiment is bullish, some exchanges show stronger conviction. This disparity may stem from regional demand variations or institutional versus retail trader preferences on certain exchanges.

For ETH, the 1-month put-call skew also varies slightly by exchange, though it leans towards neutrality, indicating a balanced outlook with minimal demand for either call or put options. This neutral skew across exchanges suggests that traders do not have a pronounced directional bias for ETH in the near term, aligning with ETH’s relatively stable funding rates and volatility structure observed in prior analyses.

Overall Insights

The volatility and put-call skew data by exchange provide insight into how trader sentiment diverges between BTC and ETH:

• BTC shows both higher volatility and a positive skew, indicating strong bullish sentiment tempered by near-term volatility expectations. This sentiment is reinforced by variances across exchanges, pointing to pockets of particularly active hedging.
• ETH, on the other hand, presents a more consistent sentiment across exchanges, with balanced skew levels and stable volatility, reflecting a cautious but steady outlook.

Volatility Surface and Volatility Smiles Across Different Maturities and Exchanges

Market Composite Volatility Surface

The market composite volatility surface for both BTC and ETH highlights expected volatility variations across different strike prices and maturities. For BTC, the surface shows elevated implied volatility for near-term, at-the-money strikes, suggesting that traders anticipate substantial price movement in the short term. This reflects heightened caution, especially around the election period, where immediate price swings are more likely. The surface gradually flattens for longer-dated options, indicating that while there is short-term uncertainty, long-term volatility expectations are more tempered.

In contrast, ETH’s volatility surface remains relatively flat, with less variation across strike prices and maturities. This flatness suggests that ETH traders expect lower price volatility in both the short and long term compared to BTC. The steadier surface for ETH implies a market perception of stability, likely driven by its recent funding rate and volatility data showing less dramatic fluctuations.

Cross-Exchange Volatility Smiles The cross-exchange volatility smiles for BTC and ETH exhibit distinct profiles. BTC’s volatility smile is notably pronounced, especially in shorter tenors, indicating strong demand for both out-of-the-money calls and puts. This shape suggests that traders are hedging for both upward and downward price moves, preparing for potential price extremes. The pronounced smile also indicates a mixed sentiment with heightened anticipation of sharp price changes, as traders use options to manage risks from unexpected market shifts.

ETH’s volatility smile, however, is less steep, indicating a more balanced demand for calls and puts and a less polarized market sentiment. This gentler curve suggests that ETH traders are less concerned about extreme price movements and that the options market expects a more predictable price trajectory for ETH, even in shorter tenors. The flatter smile across exchanges reinforces ETH’s stable market perception compared to BTC.

Constant Maturity Volatility Smiles

Examining the constant maturity volatility smiles provides further insight into the assets’ perceived risks over different time frames. For BTC, the smile remains elevated for short-term maturities, confirming a high level of caution for immediate price fluctuations. The consistent, elevated shape across maturities implies that BTC is viewed as vulnerable to near-term events but may stabilize in the longer term.

ETH’s constant maturity smile, on the other hand, shows less elevation and a flatter shape across tenors. This reinforces the earlier observation that ETH is perceived as more stable and that market participants are not as concerned about sharp price deviations, even over shorter periods.

Summary of Insights

The analysis of volatility surfaces and smiles for BTC and ETH reveals a divergence in market expectations:

• BTC: Elevated and steep volatility surfaces and smiles, particularly in the near term, point to a market preparing for significant volatility. This aligns with a cautious outlook around the election and possible macroeconomic impacts.
• ETH: Flatter volatility surfaces and gentler smiles suggest a more stable outlook, with lower anticipated volatility across both short and long terms. ETH appears to be viewed as more resilient to immediate events, with traders expecting steadier performance.

Conclusion

The current analysis across BTC and ETH derivatives reflects a market preparing for heightened short-term volatility with a cautious but optimistic outlook for the long term. Leading up to the election, BTC and ETH derivatives exhibit contrasting trends that underscore differing market perceptions regarding each asset’s immediate stability and long-term potential.

Short-Term Sentiment: BTC’s funding rates turning negative, alongside a steeply inverted volatility term structure, suggests that traders are actively hedging against near-term price drops. This defensive positioning highlights an expectation of elevated price swings, likely tied to the election and its potential market impacts. BTC’s demand for downside protection shows in both funding rates and options markets, where a pronounced volatility smile signals that traders are bracing for substantial price movement in either direction. Meanwhile, ETH’s funding rates, though lower, remain neutral, reflecting a steadier sentiment. The flatter volatility surface for ETH implies lower expected volatility, suggesting that while ETH may see fluctuations, the market views it as less sensitive to immediate shocks compared to BTC.

Long-Term Outlook: Despite the near-term caution, both BTC and ETH exhibit signs of bullish sentiment over the longer term, with positive risk reversals indicating a bias toward upward price potential. BTC’s positive skew across options tenors suggests that traders ultimately expect the asset to appreciate over time, albeit following a volatile period. ETH’s flatter term structure and consistently neutral funding rates reflect a more balanced and resilient market view, reinforcing ETH as a stable asset with steady growth prospects. The steadier skew in ETH options further supports the notion that traders see ETH as fundamentally robust, with less exposure to extreme downside risk.

Overall Market Trend: The market is in a defensive posture in the short term, with traders favoring hedges against volatility, especially in BTC. However, the positive long-term skews and comparatively stable sentiment toward ETH indicate an underlying confidence in the market’s recovery post-election. The divergence between BTC’s high short-term caution and ETH’s stable positioning reflects a broader trend where the market is preparing for turbulence but ultimately leans towards a positive trajectory in the long run. This mixed sentiment suggests a market primed for short-term caution but optimistic about growth potential, particularly once immediate uncertainties resolve.


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