For the first time in nearly two years, cryptocurrency options traders see Bitcoin (BTC), the largest cryptocurrency, in second place with more volatility than the native token of the Ethereum blockchain, Ethereum (ETH). I’m watching it grow.
This is unusual as Ethereum and related coins generally tend to be more volatile than Bitcoin and reflects a market affected by macroeconomic issues.
Spreads between Ethereum (ETH DVOL) and Bitcoin (BTC DVOL) in the dominant crypto options exchange Deribit’s 30-day Implied Volatility (IV) Index fell over the weekend, according to Amberdata. Dropping below zero, a phenomenon not seen since May 2021.
Implied volatility is the range of price movements expected by the options market over a specified period of time. An option is a derivative contract that provides the purchaser with the right (but not the obligation) to buy or sell the underlying asset at a predetermined price on or before a specified date.
Jeff Anderson, chief investment officer at liquidity provider Folkvang, said: “Bitcoin is back in the limelight amid cracks in the fractional reserve banking system and growing mistrust of the fiat currency system. There are.” “Bitcoin’s dominance has reached new highs this month as the market scrambles to protect against hard money and impending fiat supply inflation.”
Multiple US bank failures this month have complicated the Federal Reserve’s (Fed) fight against inflation, boosting demand for Bitcoin as a safe haven. Bitcoin has surged more than 20% since the beginning of March, surpassing Ethereum’s 11%, according to CoinDesk data.
According to data from charting platform TradingView, bitcoin’s dominance (share of the total cryptocurrency market) has risen from 42% to nearly 48%. Ethereum’s dominance, on the other hand, has fallen by about a percentage point over the past week to 19%.
Bitcoin and Ethereum are said to be competitors, but Bitcoin has a history of benefiting from problems in the banking sector and has evolved over the past three years as a macro asset, attracting the most attention from institutional investors. On the other hand, Ethereum continues to attract attention in the market as an indication of the development potential of crypto-assets as a whole, rather than a haven investment.
“A negative spread means the two assets are similar,” said Patrick Chu, director of institutional sales and trading at Paradigm, an institutional liquidity network for crypto derivatives traders. Both markets are much deeper and more liquid than other coins with well-established use cases. high,” he said.
Possibility of mean reversion
Implied volatility is mean-reverting and tends to return to the mean over time.
Therefore, sophisticated traders buy options and volatility futures when implied volatility is abnormally low and sell options and volatility futures when implied volatility is abnormally high. Implied volatility has a positive impact on option prices.
This means that the implied volatility spread between Ethereum and Bitcoin could bounce positive, increasing the value of Ethereum options to Bitcoin.
“I think there is real value in targeting Ethereum price volatility with the Shanghai upgrade,” said Anderson. “That event risk is underestimated and the options look cheap.”
｜Translation: coindesk JAPAN
｜Editing: Toshihiko Inoue
｜Original: Crypto Market Witnesses Odd Relationship Between Bitcoin, Ether Volatility Metrics