Elevated Ether Volatility Expectations May Be Unfounded

One perspective holds that the enthusiasm surrounding spot ethereum ETFs might not be justified, according to some onlookers.

As an analyst, I’ve noticed that Ether’s implied volatility has remained higher than Bitcoin’s for more than two months. However, this disparity might not last, as per the assessment of Greg Magadini, the Director of Derivatives at Amberdata.

As an analyst, I express my ongoing doubt that the relative volatility premium will endure. The recent wave of skepticism surrounding Bitcoin Exchange-Traded Fund (ETF) inflows has intensified, with some market participants suggesting that these inflows might merely represent traders taking advantage of basis trading opportunities rather than a genuine appetite for ETF exposure to Bitcoin.

A significant amount of enthusiasm for spot Ethereum ETFs may be due to the approximately $15 billion that investors have poured into Bitcoin ETFs since their launch in January.

At first, Bitcoin’s price rose in tandem with the inflow of funds into Bitcoin ETFs. However, this upward trend has since come to a halt. The primary reason for this, according to industry insiders, is that most of these ETF inflows are not indicative of bullish sentiment towards Bitcoin but rather part of non-directional arbitrage strategies like the cash and carry or basis trade.

As a crypto investor, I’ve noticed that the hype surrounding the launch of a bullish spot Ethereum Exchange-Traded Fund (ETF) has subsided somewhat. However, it’s essential to remember that institutions may employ these ETFs for setting up basis trades. In simpler terms, they can buy the ETF and simultaneously borrow or short sell Ethereum futures contracts to profit from price differences between the two markets. Consequently, even if a spot Ethereum ETF isn’t launched right away, alternative trading strategies using existing instruments remain available.

The term structure illustrates the implied volatility for various maturities in a visual format and typically follows an upward trend: greater volatility is anticipated as the maturity length increases. Ether’s term structure shows a notable rise compared to bitcoin‘s, signaling heightened expectations for volatility across all time horizons.

As a crypto investor, I’ve noticed an intriguing development that could indicate the market’s enthusiasm for spot Ether Exchange Traded Funds (ETFs) might be premature. According to data from Velo, open interest in ether futures listed on the Chicago Mercantile Exchange is significantly lower than that of bitcoin futures. To be precise, the open interest for ether futures amounts to roughly $1.6 billion, whereas bitcoin futures boast almost ten times as much at around $10 billion. This disparity could suggest a more subdued market sentiment towards Ether’s derivatives compared to Bitcoin’s, which might be worth keeping in mind as we navigate the crypto landscape.

As an analyst, I’ve noticed a significant difference between Bitcoin’s current institutional acceptance and that of Ethereum. The upcoming Ethereum-based Exchange Traded Funds (ETFs) might not attract the same level of inflows as Bitcoin due to Ethereum’s still-evolving position in the financial world. JPMorgan, a leading investment banking firm, forecasted that Ethereum ETFs could only garner around $3 billion in net assets this year.

Magadini expressed his long-term affection for Ethereum, but identified a potential trading chance based on the immediate Ethereum-relative value pricing.

As a volatility trader, I focus on capitalizing on price fluctuations by making strategic bets. When I foresee a potential decrease in the implied volatility, I take advantage of this expectation by selling options or volatility futures.