Yesterday, August 25th, was far from a calm Sunday. In the Middle East, Israel declared a 48-hour state of emergency, escalating geopolitical risks and causing a temporary spike in front-end implied volatility (IV) in the markets. In the cryptocurrency sector, Pavel Durov, the founder of Telegram, was arrested in France on charges of terrorism and fraud, leading to a sharp drop of over 16% in the value of TON Coin within the day. This incident has raised global concerns about communication freedom and privacy. Additionally, the Ethereum Foundation transferred 35,000 ETH to the Kraken wallet, sparking speculation about potential price fluctuations and causing slight market volatility over the weekend, with intraday volatility reaching around 50%. However, the foundation’s executive director later clarified that the transfer was part of routine financial management aimed at balancing the foundation’s accounts, which helped stabilize market sentiment. Amid the recent developments, bullish sentiment in the cryptocurrency market has weakened, with growing risk aversion leading to a decline in leverage on contracts. Funding rates for perpetual contracts across various exchanges have been falling, with some even turning negative.
Source: Deribit (as of May 2nd, 16:00 UTC+8)
Source: SignalPlus
For BTC, amid the growing influence of macroeconomic news and a lack of new narratives within the crypto community, the coin’s actual price volatility has remained low, between 20–25% over the past two days. A brief rise in front-end implied volatility (IV) quickly subsided, and overall implied volatility also dropped significantly throughout the day. In addition to the lower realized volatility, a large number of top-side sell-offs in BTC, particularly in the longer term, contributed to the decline in IV. Consequently, we observed a decrease in long-term volatility skew. From the perspective of the volatility cone, it is now noticeably below the historical 25th percentile, with the curvature of the volatility smile flattening, and the value of the fly has dropped significantly.
Source: SignalPlus
Source: SignalPlus
Source: SignalPlus
We observed similar changes in ETH. Due to the decline in realized volatility, the IV term structure has steepened. However, since ETH did not experience the same Top Side selling flow as BTC, the long-term IV hasn’t dropped as much. Similarly, although convexity has decreased, it remains relatively mild compared to BTC. From the perspective of volatility skew, the risk reversal (RR) in the mid-to-long term has also declined. In addition to considerations related to its correlation with BTC, the impact of buying put options in September and October cannot be overlooked.
Source: SignalPlus
Source: SignalPlus
