Download App
iOS & Android

Realized Vol Dramatically Higher

From deribit

Crypto Sells Off As Middle East Tensions Escalate

The recent Iranian attack on Israel triggered a significant sell-off in the crypto market. BTC dropped to $61k, while ETH fell even further to $2.85k. Alts also experienced notable declines of -20/30%.

The uncertainty stemming from potential military responses dominates market sentiment, leading to hesitancy on the next directional movements.

Additionally, factors such as higher-than-expected inflation in the US are contributing to the negative market environment as the Fed rate cut expectations are revised lower.

Be aware, while historical trends suggest buying opportunities during geopolitical conflicts, ongoing uncertainties may lead to continued volatility.

Realized Vol Jumps Dramatically

Geopolitical tensions resulted in a sharp increase in realized vol for both BTC and ETH. BTC’s 10- day realized vol rose to the 70s, while ETH nearly touched 100.

1-month implied vol was softer while weekly vol remained high due to gamma working so well, aside from the halving event and its vol expectations. Note that macro correlations are rising.

When it comes to ETH, its outperformance in terms of gamma with deep negative carry gives us caution is in selling gamma, while shorting vol on the upside seems more favorable in BTC or ETH.

Inversion of Term Structures

The BTC term structure shows a slight inversion, with April expiries maintaining higher levels due to increased realized volatility. Conversely, the rest of the curve shifted lower from May 24 onwards. Skew flipped aggressively due to crash risk being hedged.

Meanwhile, the ETH term structure exhibited more significant inversion compared to BTC, reflecting higher realized vol. Weekly vol surged approximately 20pts to nearly 100, while mid-curve activity indicated selling as May calls were sold off. Skew in put premium was extended to Jun 24.

Medium Term ETH/BTC Spread Looks Cheap

The ETH/BTC vol spread increased to around 10 vols in the weekly bucket as ETH’s realized vol surged, outperforming BTC by nearly 30pts.

However, the rest of the curve showed a small premium for ETH vol of around 2-3 vols. The medium- term volatility spread appears inexpensive, indicating potential opportunities for vol players.

Meanwhile, the ETH/BTC spot spread traded below support, potentially leading to further downside amid escalating war risks in the Middle East. Given the high realized spread and the upcoming halving, we presented opportunities to own ETH straddles versus BTC straddles to our subscribers.

Violent Reversal Into Put Skew

The recent spike in realized vol led to a sharp reversal into put skew in the front expiries for both BTC and ETH. Both exhibited around 10 vol put skew in the front weekly expiry as investors anticipated reactions from Israel. Skew curves steepened, with put skew in the front and call skew in the back.

While BTC effectively maintained its call skew in the backend due to long-dated call buyers, ETH’s upside skew diminished, resulting in the long-end call premium falling below BTC for the first time in a while. Spot/vol correlation suggests a potential decrease in volatility with spot recovery.

Option Flows And Dealer Gamma Positioning

BTC option volumes surged by 25% to around $9.5 billion amid increased hedging activity and liquidations. Last week saw bullish flows focusing on longer-term positions, including call spreads for June 28, 2024, and calls for December 24, 2024, and March 25, 2025.

Similar trends were observed in ETH volumes, which also increased by 25% to $625 million. Notably, a significant bearish structure involved selling 26 April 2024 3500 and 3600 calls to fund the purchase of 28 June 2024 3000/2500 put spreads.

Despite negative dealer gamma for BTC, it has not had a substantial impact, overshadowed by larger flows driven by geopolitical headlines. ETH dealer gamma weakened as spot prices declined, leading to a significant short strike at 3000.

Strategy Compass: Where Does The Opportunity Lie?

Short-dated call ratios look like the best way to play any recovery as we would expect vol to retrace lower.

Long ETH vol versus short BTC vol in the 2-3 month buckets also look sensible from a vol trading perspective.


All Comments

Recommended for you

  • Qian Zhimin, the main culprit in the 60,000 Bitcoin money laundering case, was sentenced to 6 years in prison in the first instance

    On May 24th, the Southwark Crown Court in London ruled in the second trial that 42-year-old Chinese national Qian Zhimin was guilty of money laundering and will serve six years and eight months in prison. Previously, Qian Zhimin had attempted to purchase multiple luxury homes in London, including a 23.5 million pound seven-bedroom mansion in Hampstead and a 12.5 million pound mansion with a private cinema and gym, which caught the attention of the police. An investigation found over 61,000 bitcoins worth more than 3 billion pounds in a digital wallet, setting a record for the highest amount of cryptocurrency seized in the UK. Currently, 23,300 bitcoins worth over 1 billion pounds are still in circulation. It is said that these bitcoins came from a 5 billion pound investment fraud case in China between 2014 and 2017, where the funds were transferred overseas and used to purchase cryptocurrency. Qian Zhimin did not directly participate in the fraud, but played a "front desk" role in helping to disguise the source of the laundered funds.

  • Plume Network Raises $10M Seed Funding to Bring Real-World Assets on-Chain

    San Francisco-based Plume Network has secured $10m in seed funding to expand its operations and development efforts. The funding round was led by Haun Ventures, with participation from Galaxy Ventures, Superscrypt, A Capital, SV Angel, Portal Ventures, Reciprocal Ventures and others. Plume provides a modular EVM L2 blockchain for real-world assets, integrating asset tokenisation and compliance providers directly into the chain.

  • Time to Harvest! HTX Liquid Restaking Injects ETHFI & zkLink Airdrops and Allows Points Redemption Soon

    This summer, as the scorching heat envelopes the Northern Hemisphere, an even more exciting anticipation filled the air—the arrival of the restaking airdrop harvest season. HTX, the global leading cryptocurrency exchange, is heating up the restaking season with the addition of Etherfi (ETHFI) and zkLink airdrops to its Liquid Restaking event. Points earned through the event will soon be accessible for redemption, allowing users to capitalize on their participation. According to the previous report, the event has recently increased its quota to over $150 million and introduced a new version featuring a clearer reward display and automatic update from LRS points to r-points.

  • Privacy, human rights, and Tornado Cash

    I am more worried about privacy than crypto crime.

  • A certain address destroyed 11.51 million DOGE 16 minutes ago, worth $1.86 million

    According to on-chain data, an address transferred 11.51 million DOGE, worth $1.86 million, to a black hole address (zero address) 16 minutes ago.

  • Vitalik unlocked 845,205 STRK from the Locked Token Grant contract 50 minutes ago

    According to on-chain analyst Yu Jin's monitoring, V God unlocked and received 845,205 STRK tokens worth $1.07 million from the Starknet Locked Token Grant contract 50 minutes ago.

  • Fidelity FBTC holdings exceed 150,000 Bitcoins, with a market value of over $10 billion

    The net inflow of the Fidelity Bitcoin exchange-traded fund (ETF) FBTC was $19.1224 million yesterday. The total historical net inflow of FBTC has now reached $8.67 billion. According to the latest data from Dune Analytics, FBTC's holdings have exceeded 150,000 Bitcoins, currently reaching 151,797 Bitcoins, and the market value of holdings has also exceeded $10 billion, reaching $10.3 billion. So far, Fidelity is the third-largest holder of spot Bitcoin ETFs, second only to Grayscale (287,701 Bitcoins) and BlackRock (275,756 Bitcoins).

  • xAI to complete new round of financing at a valuation of $24 billion

    According to sources cited by Bloomberg, Elon Musk's artificial intelligence company xAI will complete a round of financing in June, with a valuation of over $24 billion after financing. The company originally planned to raise $6 billion this month. It is said that xAI's goal is to raise as much as $6.5 billion and is expected to achieve this goal in the coming weeks.

  • Bitcoin spot ETFs had a total net inflow of $108 million yesterday, continuing a net inflow for 9 consecutive days

    On May 24th, according to SoSoValue data, the net inflow of Bitcoin spot ETF on May 23rd was $108 million. Yesterday, Grayscale's (Grayscale) GBTC had a net outflow of $13.7209 million, and the historical net outflow of GBTC is currently $17.641 billion. The Bitcoin spot ETF with the highest net inflow in a single day is BlackRock's IBIT, with a net inflow of $88.9516 million in a single day, and the total historical net inflow of IBIT has reached $16.171 billion. The second is Fidelity's FBTC, with a net inflow of $19.1224 million in a single day, and the total historical net inflow of FBTC has reached $8.67 billion.

  • The Hong Kong Privacy Commissioner has issued an enforcement notice to Worldcoin, but the Worldcoin Foundation has not yet disclosed whether it will comply with the ruling.

    The Hong Kong Privacy Commissioner for Personal Data has completed an investigation into the Worldcoin project and emphasized on Thursday that a compulsory enforcement notice has been issued to Worldcoin. However, Worldcoin has not disclosed whether it will comply with the regulatory decision, suspend its biometric data collection activities in Hong Kong, or address the concerns of participants. The Worldcoin Foundation, the supporting organization behind Worldcoin based in the Cayman Islands, expressed disappointment with the views of Hong Kong regulators, stating that its operations are legal and aimed at complying with laws and regulations related to data collection and use in Hong Kong and many other markets. The foundation stated that "unfortunately, Hong Kong overlooked these aspects when evaluating the human verification process."