Crypto markets started the year with a rally. Price action has since lulled but with a month laden with significant macro releases, the stage is poised for a pick up in volatility.
Despite spot’s retracement from its prior highs, basis on both majors leans increasingly positive with Binance leading the charge in the dated Quarterlies. Charting annualised basis as a time series for the Mar futures, shows price action has clustered across the bulk of exchanges whereas Binance remains relatively elevated. Pending liquidity constraints and cross exchange margining, this might be an opportunity to initial a delta neutral position in anticipation of basis converging.
Term structure in BTC has shed most but not all near term event risk with the whole curve shifting lower from a week ago. Last month’s euphoric spike in BTC resulted in the steep lip visible in the chart above and last Friday’s bleed out was triggered by Consumption Expenditures data sparked vol selling but with price action seemingly basing around the 23k mark in BTC it remains to be seen whether another rally in spot will reinvigorate the curve.
ATM IV across tenors show 1wk putting in a base circa 25th Feb and prices have seemingly began compressing into this month’s data releases, with NFP, FOMC and CPI due over a 2 week period.
Despite increased attention in the tail end (Sep and Dec), 1yr skew remains relatively undisturbed, posting a slight but not noteworthy Call bias. Open interest here lies mostly ATM but there are some adventurous traders picking up strikes around 40k-60k which is reflected with the slight bias towards Calls here. The near end couldn’t be any more different, continuing its erratic swings; 1wk vols over the last week alone have posted an absolute swing of 14 vol, pivoting higher from Thursday’s lull.
The shift in ETH’s term structure between 1wk and 1mo suggests mid term options remained bid with the near and tail end seeing the largest shifts with both ends coming off prior highs. In keeping with the overriding theme, the entire curve has since come off following BTC’s failure to continually crest resistance. Another point of interest is the impending Shanghai upgrade which should serve as a potential catalyst for increased IV as it nears.
In direct contrast to BTC, Skew in ETH 1yr IV has proven rather lively, swinging deep into negative territory before recovering to narrowly sit above parity along with the remaining tenors.
While we have generally come to expect ETH vol to overshadow BTC, we’ve witnessed continued compression since Sep 22. ETH vol has historically traded at a multiple of BTC, averaging 1.267x. With the 1wk ETH-BTC IV spread sitting just at 1 s.d. below its mean it might be worthwhile monitoring this cross over the coming weeks especially as the Shanghai upgrade nears. This year’s rallies were BTC dominated but if this coming upgrade drives attention to shift towards ETH, we could see an expansion as ETH regains the high ground.