The recent downtrend in Deribit‘s forward-looking ether volatility index (ETH DVOL) has captured the attention of crypto enthusiasts, as macroeconomic uncertainties and increased demand for the Ethereum network continue to persist. ETH DVOL, which calculates ether’s annualized 30-day implied volatility, hit a record low of 51 over the weekend, according to digital assets data provider Amberdata. This decline follows the index’s peak above 150 in early November after FTX’s collapse.
One point of discussion is the low ETH and BTC DVOL indices amid a time of heightened uncertainty. The world seems full of unknowns, with concerns surrounding the U.S. banking crisis, debt ceiling worries, and strong U.S. jobs reports fueling bets on the end of the Federal Reserve’s tightening cycle. Furthermore, the highly anticipated U.S. inflation data for April is set to be released later this week, adding to the marketplace unpredictability.
Despite this uncertainty, expectations for major cryptocurrency price swings seem to be underpriced, with ether market volatility expectations appearing even more underpriced than bitcoin. Greg Magadini, director of derivatives at Amberdata, has suggested that now may be the time to “go long ETH volatility.” Considering the ratio of ETH-DVOL divided by BTC-DVOL, relative volatility is allegedly near an all-time low.
While a risk-off crash could potentially hurt ETH spot prices due to its “altcoin” nature, Magadini also adds that if a crypto bull market were to resume, altcoins, such as Ethereum, should outperform. In this traditional crypto bull scenario, ETH may out-rally BTC.
Traders typically buy call or put options or both, as well as volatility futures, to profit from an expected surge in volatility. Deribit launched BTC DVOL futures in late March. However, with volatility indices somewhat contradicting market conditions, it’s crucial for investors to remain vigilant and be prepared for unexpected developments that may affect the crypto market.
In conclusion, coping with macroeconomic uncertainties and the pepecoin frenzy has led to a decreased ETH DVOL index in the past weeks. While market volatility expectations are underpriced, investors and traders must stay informed and be ready for potential changes affecting the crypto landscape. This situation highlights the importance of staying up-to-date with global economic events and adapting investment strategies accordingly. Moreover, while the current low of ETH-DVOL may prompt traders to lean towards Ethereum, other factors must also be considered to determine the wisest course of action.