The recent crackdown on cryptocurrency exchanges Binance and Coinbase by the U.S. Securities and Exchange Commission (SEC) has not significantly affected the options-based implied volatility metrics, indicating that the lawsuits were anticipated and accounted for by bitcoin (BTC) traders. According to Christopher Newhouse, an independent crypto derivatives trader, regulatory concerns have been present in the market since early 2021, suggesting that the SEC’s actions had already been priced in.
Implied volatility (IV) is based on options data and reflects investors’ expectations for price turbulence over a specific period. The demand for options positively impacts IV, with derivative contracts providing purchasers with protection against both bullish and bearish fluctuations. Typically, rising demand for options and the resulting increase in implied volatility signify heightened wariness in the market, which often leads to increased price turbulence.
Bitcoin’s seven-day annualized implied volatility rose to 43% from 34% following the SEC news but has since retreated to 40%, marking a modest six-point increase for the week. Similarly, the 30-day gauge increased by four points, while three and six-month IVs have remained largely stable. David Brickell, director of institutional sales at crypto liquidity network Paradigm, states that there have been no signs of panic, indicating a short-lived spike in short-duration IV.
Griffin Ardern, a volatility trader at crypto asset management firm Blofin, argued that the SEC’s action has a more significant impact on alternative cryptocurrencies (altcoins) rather than bitcoin. BTC and ETH have been certified by the U.S. Commodities and Futures Trading Commission, and their derivatives have been traded on compliant exchanges such as CME for several years. Thus, the SEC’s prosecution mainly targets altcoins, while the impact on BTC and ETH remains limited.
The SEC’s lawsuit against Coinbase named Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), Sandbox (SAND), Axie Infinity (AXS), Chiliz (CHZ), Internet Computer (ICP), Voyager Token (VGX), NEAR protocol (NEAR), NEXO, FLOW, and DASH, causing their prices to drop. Meanwhile, bitcoin has experienced daily price moves of 3% to 5% since Monday within a range of $25,300 to $27,400, according to CoinDesk data. Ether has displayed a similar pattern, with prices fluctuating between $1,800 and $1,900.
Ardern explains that when liquidity leaves altcoins, it typically flows back into BTC, ETH, and stablecoins. Thus, while the SEC’s recent actions may affect the wider cryptocurrency market and altcoins, the consequences on the value and performance of major cryptocurrencies, such as BTC and ETH, remain relatively minimal.
Source: Coindesk
