Bitcoin’s implied volatility surpasses Ether’s for unprecedented 20 consecutive days.

Bitcoin's implied volatility surpasses Ether's for unprecedented 20 consecutive days.

The Growing Volatility Gap between Bitcoin and Ether in the Blockchain Industry

The negative spread shows traders imply a higher volatility in bitcoin relative to ether. (Amberdata)

Bitcoin (BTC) has long held its position as the world’s biggest and most liquid digital asset. However, in recent times, crypto traders have been pricing in higher volatility for bitcoin compared to ether (ETH), the second-largest cryptocurrency by market value. The difference in implied volatility between the two has remained consistently negative since September 7th, the longest such stretch since the start of Deribit’s forward-looking 30-day implied volatility index for both assets.

Implied volatility (IV) is an estimate of price turbulence based on options prices. The negative spread between BTC DVOL and ETH DVOL indicates that bitcoin’s implied volatility has surpassed that of ether for 20 consecutive days. This phenomenon initially occurred in March, reflecting the relative richness of BTC IV. Since then, it has become a norm, highlighting how traders are currently focused on macroeconomic issues and show less interest in trading alternative cryptocurrencies.

Bitcoin’s Macro Asset Evolution in the Blockchain Industry

Bitcoin has evolved into a macro asset since the crash induced by the COVID-19 pandemic in March 2020. It has consistently taken cues from the Federal Reserve’s monetary policy, developments in the U.S. fiscal and banking sectors, and sentiments in traditional markets. The crypto market has experienced a surge in macro risks recently, including rising U.S. Treasury yields, stagflation risks, a strengthening dollar index, the lingering threat of a U.S. government shutdown, and increased prospects of a deflationary crash in China. These risks have decreased the overall appeal of investing in risk assets, such as bitcoin.

Ether’s Decline and Prospects in the Blockchain Industry

On the other hand, ether has fallen out of favor due to Ethereum’s dwindling revenue and renewed inflationary tokenomics. Ethereum’s revenue has been affected by high gas fees, which have impeded the efficiency and affordability of transactions on its blockchain. However, there may be renewed investor interest later this year when the Ethereum Improvement Proposal (EIP)-4844 is implemented. This upgrade will introduce “proto-danksharding” to the Ethereum blockchain, aiming to reduce gas fees and increase transaction capacity.

Insights into the Blockchain Industry

The growing volatility gap between bitcoin and ether sheds light on the changing dynamics of the blockchain industry. Bitcoin, as the frontrunner, has increasingly become a macro asset, making it susceptible to macroeconomic events and traditional market sentiment. Meanwhile, ether’s position has been influenced by its own internal challenges, such as high gas fees and revenue concerns.

The negative spread in implied volatility indicates that traders perceive bitcoin as more volatile compared to ether. This perception aligns with the current market environment, where macro risks and concerns about the global economy dominate. Traders are likely seeking the relative stability of ether amid these uncertainties.

To summarize the key points:

Bitcoin (BTC) Ether (ETH)
Consistently priced with higher volatility compared to ETH Perceived as more stable, given lower implied volatility
Evolved into a macro asset, closely tied to macroeconomic events Affected by internal challenges including high gas fees and dwindling revenue
Traditionally considered the primary cryptocurrency Currently offers an alternative option for traders seeking stability

In conclusion, the volatility gap between bitcoin and ether in the blockchain industry reflects the changing landscape and dynamics of the crypto market. Factors such as macroeconomic risks and internal challenges pose implications for traders and investors. As the industry continues to evolve, it will be interesting to observe how these dynamics develop and influence the overall trajectory of the blockchain industry.

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