Derivatives Market Update - 3.04.2024
March 4, 2024

Volatility Markets - Overview

Late Sunday night, buying momentum pushed BTC past $63,000, and the upward trend continued throughout the night all the way to $65,000. The bullish frenzy persisted as this morning BTC broke $66,000 and shows no signs of slowing down. ETH also gained some traction, moving from $3,400 to $3,560 but nowhere lags behind BTC in percentage terms. Altcoin activity remains relatively quiet this morning, except for a select few like PEPE, as the next alt push is expected after the BTC/ETH momentum subsides. In the traditional financial markets (TradFi), stability prevailed last week, with the exception of Nvidia's continuous upward climb, marking a 10% increase last week.

Basis and funding rates for futures are experiencing further expansion, currently resembling 2021 rates at 20% annualized. This compensation reflects the high demand for cash leverage and the willingness to sacrifice potential upside. For a trader to lend cash in this market, "risk-free" rates must be around 20%. Perpetual funding rates are even more disproportionately inflated, indicating a strong demand for short-term leverage. BTC, ETH, and SOL exhibit 8-hour rates of 0.06%, 0.05%, and 0.07% (equivalent to 65%, 55%, and 77% annualized). 

Options markets are also benefiting from the current market craze, witnessing significant volatility shifts. Term structure has flipped, decreasing as short-dated implied volatility experiences a notable surge. Short-dated vols for BTC are currently trading at around 80% (compared to 50% last week). Quarterly vols have also seen substantial gains, with March, June, and September vols increasing from 54%, 60.75%, and 61.5% to 75.8%, 75%, and 72.6%, respectively. With this recent move, BTC vols have realigned with ETH vols, which were previously higher. Volatility skew is notably positive, especially on the call side, reflecting the prevailing bullish momentum in the market and inflated funding. While the general sentiment is bullish, there may be opportunities to consider option spreads or basis adjustments to potentially sacrifice some upside for strategic positioning.

Digging Deeper - Volume Analytics

Derivatives volume continues to be strong amidst the action in spot markets, as traders in the options market take advantage of the activity. The market is quite juicy both for vol sellers and buyers, as IVs are inflated but momentum still leaves much opportunity for speculators to get paid. Volume concentrations are pretty similar to last, but with slightly more volume. Despite insane call-side skew and expensive vol, traders are of course still buying upside via call spreads as this move in BTC is likely not over.

BTC Combo Spread Volumes:

  • Call Spreads: 3,932 Contracts (23.5%)
  • Put Spreads: 3,444 Contracts (20.6%)
  • Call Diagonal Spread: 1,758.1 Contracts (10.5%)

ETH Combo Spread Volumes:

  • Call Spreads: 30,696 Contracts (27.3%)
  • Call Butterfly: 24,112 Contracts (21.4%)
  • Put Spreads: 13,176 Contracts (11.7%)

BTC Volume

***Data and insights as of March 4th, 2024 12:00:00 UTC

ETH Volume

***Data and insights as of March 4th, 2024 12:00:00 UTC


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