Block Scholes x Bybit Crypto Derivatives September 4th
After the recent drop in BTC and ETH spot prices over the last week, we can observe an overall increase in implied volatility levels across the term structure for both major tokens. The front end of the structure has been particularly affected. For example, ETH 7-day option volatility has risen to the same levels as long-tenor options. Derivative markets remain skewed toward OTM puts for both majors for short term options, showing a significant strengthening in a short-term bearish outlook as spot fails to pick up. The negative sentiment for cryptocurrencies continues with open interest for BTC options showing higher levels for puts, and total open interest for perp swaps on the decline following the most recent sell-off.
Key Insights
Futures: Despite the fall in spot for both majors, open interest in futures has remained at consistent levels throughout. In addition, trading volumes have been lower in the past week.
Perpetuals: After a short period of positive funding rate, SOL has registered negative levels over the past week. Rates for all other tokens have been fluctuating overall.
Options: Volatility has quickly risen across all tenors for both BTC and ETH ATM options. Open interest has dramatically fallen for BTC call options, and is at a lower level compared to puts.
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
- Personal Consumption Expenditures Price Index — Aug 30, 2024 — PCE remains at 2.5%, unchanged from the month before, and also on par with market expectations.
- U.S. Manufacturing Purchasing Managers' Index™ — Sep 3, 2024 — PMI numbers for August have increased to 47.2, up from last month’s figure of 46.8, yet still below expectations of 47.6.
- Initial Jobless Claims — Sep 5, 2024 — Jobless claims are expected to remain unchanged at 230K, as compared to the prior figure of 231K. This data point will be heavily watched as an early indication of the NFP.
- U.S. Nonfarm Payrolls Report — Sep 6, 2024 — Employment figures are expected to recover, with surveys predicting 163K as compared to the previous figure of 114K.
- Consumer Price Index — Sep 11, 2024 — CPI is expected to fall to 2.6% compared to the prior release of 2.9%.
Initial jobless claims vs. NFP: It’s likely that the market’s rate-cut expectations will be heavily based on the unemployment data points shown below. A high NFP and low initial jobless claim will boost optimism of a “soft landing.”
Trending News
- Spot Bitcoin ETF outflows continue, with $287.8 million noted on Sep 3, 2024. This is the largest single-day outflow recorded since May 1, 2024, when $563.7 million exited the market.
- The Harris-vs.-Trump debate is set for Sep 10, 2024. With cryptocurrencies gaining attention in politics, it’s likely that the political sentiment will be reflected in BTC prices.
Futures Activity Remains Muted
Open interest for future contracts has again remained at consistent levels during the past several weeks, despite spot prices failing to pick up after the sell-off in late August. Trading volumes, however, have been on an overall downward trend in the past few days, and are showing particularly low levels of activity with respect to previous weeks. This is especially noticeable for ETH futures, which registered unusually high activity on certain days in August and are now trading at much lower volumes.
Bybit Futures Swap Open Interest
Bybit Futures Trading Volumes
Perp Open Interest Falls in Sell-off
While open interest for perpetuals had been on the rise after the sell-off in early August, after last week’s latest volatile price action we can observe a consistent unwinding of positions. In other words, open interest for perp options has been on a steady downward trend. In addition, we notice a parallel downward trend in trading volumes. This behavior has been consistent over the past month, with the highest volumes occurring after the dramatic price drops at the beginning of August.
Bybit Perp BTC & ETH Open Interest — Open interest has fallen in the latest spot price sell-off, similar to early August.
Bybit Perp Trading Volumes — ETH’s trade volumes were higher than usual in the sell-off, but remain below those of BTC contracts.
SOL Sees Negative Funding Rates
After trading positively for several days at the end of August 2024, SOL is now experiencing consistently negative levels in funding rates. This dramatic and sudden shift isn’t being seen with other cryptocurrencies, which have all experienced fluctuating levels of funding rates. Among other coins, CRV has demonstrated more stubborn positive funding rates in the past weeks, while TON has experienced a return to negative sentiment after a short period of positive rates, recorded right after the arrest of Telegram CEO Pavel Durov.
BTC Options
While implied volatility levels have largely been fluctuating in the past week for ATM options, we’re now seeing an overall increase across the whole of the term structure, with a dramatic rise over the past day. Skew still indicates a stronger preference for bullish OTM calls and long-tenor options, with expirations after the election date, and a more general bearish sentiment for short tenors. What’s interesting is that after the August 30 options expiration date, open interest for call options has suffered much more than for puts: interest has overall dropped but for puts it has recovered to similar levels prior to the sell-off. Combined with this, the recent price drops and failure of spot to pick up could conceivably have drawn skepticism toward positive sentiment, potentially resulting in call positions not rolling over, and lower trading volumes than for puts.
BYBIT BTC OPTIONS VOLUMES
BYBIT BTC OPTIONS OPEN INTEREST
Term Structures Rises At The Front End
BYBIT BTC & ETH Volatility Term Structure — The term structure of volatility has increased overall, with a more dramatic rise at the front end.
BYBIT BTC SVI ATM IMPLIED VOLATILITY — Levels are increasing significantly after periodic fluctuations in the past few weeks.
BYBIT BTC IMPLIED AND REALIZED VOLATILITY — Realized volatility has risen slightly, but doesn’t show any significant movement overall.
ETH Options
Similarly to BTC, ETH ATM option volatility levels have been on the rise, especially at the front end of the term structure and in recent hours. In contrast to BTC, however, open interest for calls following the August 30 option expiration is still greater than for puts. We have in fact seen a dramatic unwinding of positions for both puts and calls immediately after, which has settled without the inversion of open interest levels observed for BTC options. Trading volumes have additionally remained unchanged, showing larger activity for calls than puts.