FUTURES IMPLIED YIELD, 1 - MONTH TENOR

ATM IMPLIED VOLATILITY, 1 - MONTH TENOR

Crypto Senti-Meter

BTC DERIVATIVES SENTIMENT

BTC has faced a setback in short-term sentiment following its failure to breach the $100K mark. Despite a generally bullish long-term outlook in the futures market, the options market reflects increased caution. This is evident in the rise in demand for out-of-the-money (OTM) puts, signaling a defensive posture among traders. The flat ATM implied volatility term structure further supports the view that short-term bullish enthusiasm has diminished. This combination of tempered confidence and defensive positioning highlights a market recalibrating its expectations for BTC in the near term.

ETH DERIVATIVES SENTIMENT

ETH has momentarily overtaken BTC in sentiment following the resignation of Gary Gensler, triggering a surge in both implied volatility and market activity. The heavily inverted ATM volatility term structure suggests traders anticipate significant short-term price movements. However, recent declines in ETH’s skew levels indicate diminishing bullish bias for shorter tenors, as traders adjust their positions post-event. Overall, ETH continues to show stronger short-term sentiment relative to BTC, though the momentum appears to be stabilizing.

Futures

BTC ANNUALISED YIELDS

The inversion of the yield term structure has deepened, reflecting increasing leveraged long positioning ahead.

ETH ANNUALISED YIELDS

Futures yields invert, albeit to lower levels than BTC, reflecting bullish- but- not- that- bullish positioning ahead of the election.

Perpetual Swap Funding Rate

BTC FUNDING RATE

Intense and sustained positive funding rates reflect a willingness to pay for leveraged long exposure into next week’s event risk.

ETH FUNDING RATE

ETH’s funding rate reflects the same conclusion as its futures yields - bullish positioning but without the same exuberance as BTC.

BTC Options

BTC SVI ATM IMPLIED VOLATILITY

The inversion of the yield term structure has deepened, reflecting increasing leveraged long positioning ahead.

BTC 25 - Delta Risk Reversal

A brief reversal of short- dated sentiment over the last 2 days has resolved with a return to a bullish skew towards OTM calls.

ETH Options

ETH SVI ATM IMPLIED VOLATILITY

ETH’s term structure has inverted heavily at short- dated tenors, indicating a rush into pre- election positioning.

ETH 25 - Delta Risk Reversal

Despite lagging BTC’s bullishness in futures and perps, ETH’s vol smiles are similarly skewed towards upside exposure.

Option

Funding Rate Analysis for BTC and ETH

The options markets for BTC and ETH exhibit contrasting dynamics, reflecting diverging trader sentiment and expectations for these assets in the current market environment.

BTC Options:

BTC’s implied volatility term structure has flattened, indicating reduced short-term volatility expectations despite recent price drops. This flattening suggests that the market has adjusted to current price levels and no longer anticipates significant immediate fluctuations. However, the BTC 25-Delta Risk Reversal reveals a notable divergence across tenors: front-end skew levels have dropped, indicating increased demand for put options, while long-term tenors remain strongly positive, reflecting continued bullish sentiment over the longer horizon.

ETH Options:

ETH’s implied volatility term structure remains sharply inverted, demonstrating heightened near-term volatility expectations, particularly after Gary Gensler’s resignation. This contrasts with BTC’s flatter structure, highlighting ETH’s sensitivity to recent events. Additionally, the ETH 25-Delta Risk Reversal shows that shorter-tenor smiles have lost their bullish skew in the last 24 hours, suggesting a temporary cooling in upside sentiment. However, demand for longer-dated calls remains robust, aligning with ETH’s bullish narrative in the futures and funding markets.

Market Sentiment Implications

BTC and ETH options markets reveal a clear divergence in sentiment and market positioning:

BTC: Flattened implied volatility and reduced front-end skew reflect a cautious outlook in the short term. Traders appear hesitant to aggressively position for immediate upside but maintain long-term confidence, as evidenced by positive long-term skew levels.

ETH: The heavily inverted volatility structure and recent shifts in skew reflect a more dynamic sentiment. ETH traders anticipate higher price movements in the near term, with bullish sentiment moderating slightly but remaining dominant for longer tenors.

Put-Call Skew by Exchange

BTC, 1 - MONTH TENOR, 25 - DELTA, SVI CALIBRATION

ETH, 1 - MONTH TENOR, 25 - DELTA, SVI CALIBRATION

Volatility by Exchange (1-Month Tenor)

BTC Volatility:

BTC’s implied volatility, calibrated at the 1-month tenor, shows relatively consistent levels across exchanges. This uniformity suggests that traders maintain similar expectations for BTC price stability, regardless of the trading platform. The flat term structure of BTC’s volatility observed earlier is reflected here, indicating that traders are not expecting significant short-term deviations in BTC’s price movements across different markets.

ETH Volatility:

ETH’s implied volatility displays a more pronounced variation across exchanges. The higher levels of volatility at some exchanges underscore the impact of localized or platform-specific demand, possibly linked to speculative activity following Gary Gensler’s resignation. ETH’s inverted term structure is evident here, reflecting traders’ anticipation of sharp short-term price movements, with volatility levels higher than BTC across most platforms.

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

BTC Put-Call Skew:

BTC’s 1-month, 25-delta put-call skew shows positive levels across most exchanges, consistent with a broadly bullish market sentiment. However, skew levels are slightly lower on some exchanges, hinting at increased demand for OTM puts as traders hedge against short-term downside risks. This pattern reflects a mix of optimism and caution among BTC traders, with variations in sentiment influenced by exchange-specific market dynamics.

ETH Put-Call Skew:

ETH’s 1-month, 25-delta put-call skew presents a more volatile picture. While most exchanges show positive skew levels, indicating bullish sentiment, some have witnessed recent declines, especially in short-tenor skew. This decline aligns with the earlier observed cooling of bullish activity in ETH options markets. Nonetheless, ETH retains a generally positive sentiment bias, with longer-tenor skew levels reflecting strong demand for calls over puts.

Overall Insights

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

BTC continues to demonstrate steadiness across exchanges, with consistent sentiment and volatility trends. ETH, on the other hand, exhibits platform-specific variations in sentiment and volatility, emphasizing its role as the more event-driven and speculative asset in the current market environment.

Market Composite Volatility Surface

Listed Expiry Volatility Smiles

Market Composite Volatility Surface

The volatility surfaces for BTC and ETH reveal a distinct divergence in short-term sentiment while maintaining some alignment in long-term expectations.

Short-Term Volatility:

ETH’s volatility surface is steeply inverted, with significantly higher implied volatility at shorter maturities. This indicates that traders are bracing for substantial price swings in the near term, driven by recent regulatory developments, such as Gary Gensler’s resignation. Conversely, BTC’s surface remains much flatter, reflecting a more stabilized outlook with lower expectations for immediate price volatility. This contrast highlights ETH’s current role as the more speculative and event-sensitive asset compared to BTC’s steadier profile.

Long-Term Volatility:

For both BTC and ETH, implied volatility rises gradually across longer maturities. This pattern reflects traders’ acknowledgment of potential price uncertainties in the medium to long term. While the slope is more pronounced for ETH, indicating greater perceived uncertainty, BTC’s consistent rise suggests a cautious optimism for growth over time. The convergence in long-term volatility indicates shared market confidence in both assets’ bullish potential.

Market Sentiment Implications

The volatility surfaces suggest a market split between short-term speculation and long-term growth expectations:

ETH: The inverted structure signals heightened trader activity and a focus on capitalizing on or hedging against short-term volatility.

BTC: The flatter structure represents a calmer market positioning, where traders anticipate less dramatic near-term fluctuations but remain optimistic for long-term price appreciation.

Cross-Exchange Volatility Smiles

Constant Maturity Volatility Smiles

Combined Volatility Smile Analysis

The volatility smiles for BTC and ETH further emphasize the differing short-term dynamics and longer-term alignments observed in their volatility surfaces.

Short-Term Smile Dynamics:

ETH exhibits a pronounced and steep smile, particularly at shorter maturities. This indicates heightened demand for out-of-the-money (OTM) calls and puts, suggesting that traders are positioning for extreme price movements in both directions. This aligns with the speculative sentiment observed in ETH’s inverted volatility surface, driven by its reaction to recent regulatory events. In contrast, BTC’s smile is much shallower, reflecting more balanced demand for OTM options. Traders are less inclined to speculate on sharp price swings for BTC in the short term, consistent with its flatter short-term volatility surface.

Long-Term Smile Trends:

Both BTC and ETH show more moderate smile curves for longer maturities, indicating reduced polarization in trader sentiment. This trend suggests that market participants are less concerned about extreme price movements over extended periods and are instead aligning with the overall bullish expectations for both assets. ETH’s smile remains slightly steeper than BTC’s, reflecting lingering uncertainty, but the gap narrows as maturity increases.

Market Sentiment Implications

The volatility smiles reinforce the narrative of ETH as a speculative asset in the short term, with traders actively hedging or seeking opportunities for significant price moves. BTC’s more measured smile curve highlights its role as a less volatile and more stable asset in the immediate term, while its long-term sentiment aligns closely with ETH.


Disclaimer
Investing in the cryptocurrency market involves high risk, and it is recommended that users conduct independent research and fully understand the nature of the assets and products they are purchasing before making any investment decisions. Gate.io is not responsible for any losses or damages caused by such investment decisions.

• • The data and charts are primarily sourced from a third-party organization - Black Scholes.
• The information is not intended to be and does not constitute financial advice or any other recommendation of any sort offered or endorsed by Gate.io.
• This article may not be reproduced, transmitted or copied without referencing Gate.io. Contravention is an infringement of Copyright Act and may be subject to legal action.*