Bitcoin (BTC) has consistently exhibited higher implied volatility than Ethereum (ETH) for a record-breaking 20 consecutive days, as per Deribit’s 30-day implied volatility index. This ongoing trend marks the longest period of BTC’s implied volatility surpassing ETH since the indices were introduced in 2021.
Implied volatility is a measure of the expected price fluctuations over a specific period, derived from options prices. The fact that BTC’s implied volatility has consistently exceeded that of ETH reflects the current market sentiment and traders’ focus on macroeconomic factors.
Several factors contribute to this trend:
- BTC as a Macro Asset: Bitcoin has evolved into a macro asset, reacting to events in the traditional financial sector, including Federal Reserve policies, U.S. fiscal developments, and overall market sentiment. Traders are closely monitoring these macroeconomic factors.
- Growing Macro Risks: Recent macroeconomic developments, such as rising U.S. Treasury yields, stagflation concerns, a stronger U.S. dollar, the potential for a U.S. government shutdown, and the risk of a deflationary crisis in China, have increased the appeal of Bitcoin as a hedge against market uncertainties.
- Focus on a U.S.-Based Bitcoin ETF: Traders are eagerly anticipating the launch of a U.S.-based spot Bitcoin exchange-traded fund (ETF), which has kept their attention firmly on Bitcoin. This focus on BTC has somewhat overshadowed Ethereum.
- Ethereum’s Challenges: Ethereum has faced challenges such as declining revenue and concerns about its tokenomics, which have led to a decrease in investor interest. However, there is potential for renewed interest when Ethereum Improvement Proposal (EIP)-4844 is implemented, aiming to reduce gas fees and increase transaction capacity.
In summary, Bitcoin’s status as a macro asset and the prevailing macroeconomic uncertainties have led to higher implied volatility in BTC compared to ETH. Traders are closely monitoring Bitcoin’s reaction to these macroeconomic factors, while Ethereum may regain attention with upcoming upgrades aimed at improving its scalability and reducing transaction costs.