Bitcoin’s (BTC) Implied Volatility Relative to Ether (ETH) Signals Turbulence Ahead
Bitcoin (BTC) has long been recognized as the leading cryptocurrency in terms of market value and liquidity. However, recent trends in the crypto market indicate that traders are now viewing it as more volatile compared to ether (ETH), the second-largest digital asset.
Over the past month, the implied volatility of bitcoin has consistently exceeded that of ether. This is reflected in the negative spread between Deribit’s forward-looking 30-day implied volatility index for the two cryptocurrencies. In fact, this negative spread has persisted since September 7th, marking the longest stretch of its kind since Deribit introduced the DVOL indices earlier this year.
Implied volatility is an estimation of price turbulence based on options prices. The fact that bitcoin’s implied volatility has been consistently higher than ether’s suggests that traders are perceiving bitcoin as a more unpredictable and potentially profitable asset to trade.
The dynamics between bitcoin and ether implied volatility briefly reversed in March of this year, indicating the relative richness of bitcoin’s implied volatility at the time. However, since then, the pattern of bitcoin surpassing ether in volatility has become the norm. This indicates that traders are currently more focused on macroeconomic issues and less inclined to trade alternative cryptocurrencies.
Bitcoin’s status as a macro asset, which was solidified after the market crash in 2020, has played a significant role in shaping market sentiment and behavior. Traders closely monitor Federal Reserve policies, developments in the U.S. fiscal and banking sectors, and overall sentiment in traditional markets, all of which impact the price of bitcoin.
Furthermore, expectations for the approval of a U.S.-based spot bitcoin exchange-traded fund (ETF) have kept traders highly interested in bitcoin. On the other hand, ether has fallen out of favor due to the decline in Ethereum’s revenue and the implementation of renewed inflationary tokenomics.
However, there may be a resurgence of investor interest in ether later this year with the implementation of the Ethereum Improvement Proposal (EIP)-4844. This upgrade aims to introduce “proto-danksharding” to the Ethereum blockchain, which will reduce gas fees and increase transaction efficiency. This improvement could potentially attract more investors to ether and revitalize its market appeal.
In conclusion, the increasing volatility of bitcoin compared to ether is a significant development in the crypto market. Traders are placing greater emphasis on bitcoin due to its macro asset status and anticipation of a U.S.-based spot bitcoin ETF. However, the upcoming Ethereum upgrade may provide a boost to ether’s appeal and attract renewed investor interest.
