Block Scholes x Bybit April Volatility Review

‍Key Insights:

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• Short tenor volatility collapses despite tariff chaos — April began with some of 2025’s sharpest spot market drawdowns for BTC — yet options markets quickly reversed course. Implied volatility at the 7-day tenor spiked above 75% in early April but collapsed to 35% within a week, marking the lowest level since early March, despite persistent tariff uncertainty. And despite a reactive front end, the back-end of BTC’s term structure of volatility ends the month with higher expectations for volatility in the mid-term.

• Seasonal patterns re-emerge — Realized volatility in April 2025 fell to levels below the five-year seasonal average, echoing the same late-month lull seen in 2023 and 2024. In recent years, this period has marked the start of a summer volatility slowdown.

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• $100K is no longer the target — BTC’s break back above the $100K level was met with a shrug from derivatives markets. Unlike the first time it reached that level in December 2024, skew is maintaining a only slight bias to OTM calls, funding rates are flat and implied volatility is mostly unresponsive — suggesting that, without fresh catalysts, traders no longer view $100K as a meaningful inflection point.

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• All eyes on Ethereum — Ethereum's rally outperformed all other majors, up 23% overnight, a magnitude of 4x BTC’s humble 5%, on the back of the US reaching its first trade deal with a major trade partner. Derivatives market responded, driving front-end volatility up over 20 points in a day, inverting the term structure, and sharply increasing demand for short-dated calls—signaling renewed bullish conviction despite ETH still trading well below its all-time high.

Uncertainty high, volatility low

After months of foreshadowing, on Apr 2, 2025, US President Donald Trump announced a series of steep “reciprocal” tariffs on most of the country’s trading partners — rewriting global trade policy in the US to extremes last seen in the 1930s. As a consequence, April was characterized by another wave of volatility across crypto, equities and fixed-income, not only in response to a deluge of changing tariff headlines and narratives, but in anticipation of further revisions and repeals.

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In response to the chaotic tariff announcements, US equities experienced some of their worst single-day losses on record in early April. However, despite a simultaneous sell-off of the US dollar, US risk-on stocks and even US Treasuries (traditionally a safe-haven asset), BTC’s price initially held firm. That indicated the first signs of a decoupling from its relationship as a high-beta tech stock. Eventually however, on the evening of April 6 (the weekend before the tariffs would officially come into effect), BTC succumbed to the same fate, dropping from $88K to $75K. ETH fared even worse, falling 17% with the opening of Asian equities markets the following day. 

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Those dramatic moves down in spot prices were accompanied by sharp moves up in implied volatility, as the 7-day constant tenor at-the-money (ATM) implied volatility rocketed above 75% — a direct result of the high demand for short-dated puts as protection against further downside moves. Volatility expectations at longer-dated tenors rose at a slower pace to 60%, causing the most recent inversion of the term structure of volatility (when short-dated options trade with higher volatility than their longer-dated counterparts), but not the first of 2025.

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The term structure inversion deepened further as Trump confirmed that the US would apply an additional 50% tariff on Chinese imports, bringing the total tariff rate to 104%. That resulted in the second almost–twin peak in front-end implied volatility for April (blue line) seen below. 

However, less than a week later, Trump U-turned on his policy, announcing a 90-day tariff pause. Following the moderation in tariffs, implied volatility began to collapse, and by mid-April, options markets had priced in their lowest levels of implied volatility in over a month as the 7-day tenor dropped close to 35%. 

Such a major drop in short-tenor volatility expectations is surprising: while the reciprocal tariff rates were indeed moderated, the uncertainty that clouded the macro environment was not. Trump had still imposed a 10% global tariff rate, a rate of over 100% charged on Chinese goods (which later rose to 145% and 125% on Chinese and US goods, respectively) and a slew of sector-specific tariffs from February and March. 

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First of all, the chart below shows implied volatility for the 7-day tenor has dropped sharply to 35%, the lowest level from which it’s repeatedly bounced over the past 18 months. Additionally, the chart illustrates the volatility of volatility — in April alone, implied volatility made sudden bounces between its two extremes of 75% and 35%. 

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Secondly, BTC has traded at a volatility premium to US equities throughout most of their shared history. Trump's onslaught of tariffs resulted in a dramatic tick up in the S&P 500 (SPX) and BTC volatility alike, albeit a far smaller spike in the latter than we would expect. As such, we saw this long-held relationship reverse in April too, as BTC’s 10-day realized volatility briefly traded below SPX realized volatility. 

Finally, the premium of ATM implied volatility above the level of the recently realized volatility ratio appears to have reached its own local floor of around 0.6. At the end of April, implied volatility was 0.6x less than what had been delivered suddenly and without warning just two weeks before.

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In sum, markets were certainly not short of uncertainty. However, short-tenor volatility expectations still tailed off. Nevertheless, longer-dated tenors remain elevated at the end of the month, indicating that, despite lower realized volatility in the short term, the market hasn’t fully reversed the extra uncertainty priced in over the long term.

Summer volatility lull — sell in May and walk away?

If this April’s volatility seems to be low, given the wider macro hangover from tariffs uncertainty, are there seasonal patterns in volatility that may explain late April’s lull? The chart below goes some way toward answering this question. Since 2023 (at least), realized volatility has often traded close to the lower end of its yearly range.

However, even for a historically low-volatility month, April 2025 saw the lowest level of realized volatility relative to the previous five years that came before it. Historically, during these months realized volatility often rebounded at the end of the month and into May before moving sideways through the summer — a bounce we have yet to see this time around. 

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Will we see a similar pattern this time around, given that, now more than ever, BTC and crypto are becoming increasingly sensitive to the same drivers that move equities? One pattern to watch for is that of the age-old adage, “Sell in May and walk away,” reflecting the lack of action in traditional financial asset classes — particularly in equities — that’s said to characterize the summer months. 

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Is BTC subject to that phenomenon already? In the chart below, we plot BTC’s YTD spot performance over the past five years. In some (though not all) cases, BTC has often sold off in April before rebounding into May and moving largely flat through the summer. Since 2023, we also find that, following the sideways slog of price action in the summer period, BTC has rallied later in the year — with the key exception of 2022’s notoriously bearish year-end with the collapse of FTX in November.

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However, the trend is clearest in the historical moves in ATM implied volatility. Though we have fewer data points for this than for its realized volatility (given that Bybit introduced options markets for BTC in 2022), the median level of 30-day ATM volatility has been far lower than for the first three months of the year, settling at a lower range of 40%–50% between May and September.

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Note that, despite the introduction of 2022’s data late in the year (causing an artificial jump in the median in early September), there’s a clear rise in median volatility toward the end of the year of 15–20 points from the mid-summer lows of 40%.

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The chart also contextualizes 2025’s April levels — lower than the median level, but not outside of the historical range, and repeating the same fall in volatility toward the end of the month that we’ve seen over the previous three years.

BTC is back above $100k, but skew is not at extremes – been there, done that?

BTC began to lead the rebound in risk-on assets from the middle of April. Compared to the mere rebound in US equities from their lows, BTC has recovered from the Liberation Day tariff selloff and more, rallying 20% above its level on Apr 2, 2025. That rally has extended into May, and BTC has finally moved back above the psychological barrier of $100K – a level last seen at the beginning of February. However, while options markets have backed the rally, their reaction has been far quieter than the first time BTC broke $100K perhaps suggesting that the round figure is no longer the psychological point of nirvana it once was just four months ago.

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The first time BTC broke those levels was back in early December. Chair Jerome Powell likened BTC to gold that day, stating it is “just like gold, only it’s digital”. Around the same time, President Putin argued that “no one” can prohibit Bitcoin. Derivatives markets completed the triumvirate of BTC appreciators, as the 25-delta put-call skew (the difference between the IV of a 25 delta put and that of a 25 delta call) surged as high as 9.31% towards OTM call options. Other measures of directional sentiment backed the move, including perpetual funding rates which jumped to equally extreme highs of 0.11% (at an 8-hourly rate).

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However, this time around, while those same measures did jump meaningfully, they didn’t reach the same extremes: the 25delta skew currently holds a 3% bias towards out-of-the-money calls while funding rates jumped up briefly to 0.024% – last reached in mid-Feb, though quickly dropped back down, now close to a neutral 0%, and Chair Powell neglected to mention crypto at all in May 7, 2025’s FOMC presser. This isn’t the first time that derivatives markets have signalled that they no longer view $100K as a catalytic event for volatility or further rallies either. We have observed this on various occasions in the past – that suggests traders might only begin to demand a meaningful volatility premium in response to spot price action at price levels closer to its January 2025 all-time high of $109K.  

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However, while skew has not reacted to spot moves quite as exuberantly on the way up, the reverse is less true. The chart above is a time series of the one-month tenor 25-delta put-call skew over the past three years with the median put-call skew over that same time period. What we find is following the Apr 2 tariff announcement, BTC volatility smiles held their strongest skew towards OTM puts since the US banking crisis back in March 2023, dropping to -16%. 

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The historical precedent of the relationship between spot price and skew shows that we are not wrong to expect more of a response from derivatives markets. The chart below shows that, at least locally, there is a strong linear relationship between the BTC spot price level and the premium that options markets assign to upside (calls) or downside (puts) options.

However, the chart also confirms that this linear relationship holds only locally, and that several legs higher in BTC spot price have been unsupported by an increase in skew of the magnitude predicted by that relationship. Once spot has settled at that higher “new normal”, the relationship resumes, and moves higher in spot result in a stronger implied volatility premium assigned to calls, and selloffs result in a stronger implied volatility premium assigned to puts.

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Each of those previous cases have come at an already bullish skew following a sustained bullish rally in spot price. It’s too early to say whether the most recent move higher in spot unsupported by a move in skew will resolve as in these previous cases, or if derivatives markets are right in their reluctance to back the rally.

ETH is not done yet

The broader rally in the crypto market found one outsized benefactor: ETH. Having largely underperformed relative to BTC and alternative Layer-1 blockchains for the better duration of the current crypto cycle, this time around ETH has led the way in the scale of its rally, strongly outperforming BTC. While BTC has moved up 5% overnight on the back of the US reaching its first trade deal with a major trade partner, ETH has gained 23%. 

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Such a dramatic move in spot price warranted a similar move in derivatives markets. Front-end volatility shot up more than 20 points in the space of 24 hours, breaking a stretch of subdued volatility expectations that followed the mid-April de-escalation of US tariffs. Back-end volatility lifted up only slightly in comparison, which has now resulted in a term structure inversion for ETH.

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In the early half of May, ETH options markets had largely maintained a neutral to slightly negative skew across most short-term tenors – an indication of neutral-to-bearish directional expectations for moves in ETH spot price. However if anything should be taken away from the recent rally it is that you can’t quite keep ETH down. Alongside a mammoth increase in volatility expectations, the demand for short-dated calls in order to capture further upward moves rose sharply, with ETH front-end volatility smiles now having skewed nearly 10% towards out-of-the money calls. Despite ETH trading more than 50% below its all-time high of over $4.8K reached back in 2021, options markets appear as yet unwilling to fade the possibility that ETH has the legs to regain the lost ground from a few years ago. 

Conclusion

Despite delivering no final resolution to the extreme macroeconomic uncertainty stemming from President Trump’s unpredictable tariff policies, April’s end saw short-dated BTC volatility settle at surprisingly low levels. After an abrupt selloff in early April and volatility surging as high as 75%, implied volatility rapidly collapsed back to around 35%, a level that has repeatedly acted as a volatility floor over the past 18 months.

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Notably, BTC briefly traded at lower realized volatility than US equities – an unusual reversal of their typical relationship – but the higher pricing of volatility at tenors longer than 90 days indicates that markets are not yet ready to reverse the uncertainty they have priced in. Despite expectations of elevated volatility over the mid-term, historical patterns suggest BTC’s volatility typically experiences a seasonal lull starting in late April, often persisting through summer.

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Although BTC has rebounded strongly above the key psychological threshold of $100K into early May, the reaction in skew and funding rates, though still significantly bullish, remain far less exuberant than the first time BTC breached that threshold, indicating markets may now view this price level as less significant than before. Whether this muted reaction accurately reflects market sentiment remains to be seen, with traders likely waiting for BTC to approach previous all-time highs before materially adjusting their volatility expectations upward.

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The same cannot be said for ETH, where derivatives markets have stood up and matched the levels of bullishness in spot markets. A major 23% rally overnight set off fireworks in ETH options markets, as skew reversed its course from a negative-neutral tilt towards a 10% bias in favour of OTM calls. With it, volatility expectations at the front-end of the term structure moved up vertically, now nearly 40 points higher than short-tenor volatility for BTC options.