Bitcoin May Return to Center Stage After Ethereum’s White-Hot Summer

By Omkar Godbole

With the U.S. elections just five weeks away, the crypto market’s focus looks to be shifting back to bitcoin and away from ether and the Ethereum ecosystem.

  • The spread between the six-month implied volatility (IV) for ether (ETH) and bitcoin (BTC), a measure of expected relative volatility between the two, fell to a 2.5-month low of 4% over the weekend, according to data source Skew.
  • The metric has declined from 21% over the past four weeks.
  • The spread’s reduction indicates that the market doesn’t expect a lot of dispersion between the two coins and foresees ether trading in line with bitcoin in the near term.
  • Implied volatility is the market’s expectation of how risky or volatile an asset would be over a specific period and is driven by net buying pressure for options and historical price volatility.
Ether-bitcoin implied volatility spread

Source: Skew

  • “The decline could signal a change in market leadership back to bitcoin after a couple of months focus on the Ethereum complex,” Skew’s CEO Emmanuel Goh told CoinDesk.
  • Bitcoin has matured as a macro asset since the beginning of the coronavirus crisis in March.
  • As such, it could lead the price action in crypto markets in the run-up to and following the Nov. 3 U.S. presidential election, which could be the most contentious in recent decades and have a significant impact on traditional markets.
  • The six-month ether-bitcoin IV spread rose sharply from 0.9% to 15% in July and reached a high of 21% in mid-August, as the decentralized finance (DeFi) boom boosted interest in ether.
  • The total value locked in the DeFi platforms, most of which are based on Ethereum’s blockchain, quadrupled to over $8 billion in July-August and recently rose to record highs above $11 billion, according to DeFi
  • As such, ether options drew greater demand than bitcoin, leading to a rise in volatility spread. Options are hedging instruments that give holders the right to buy or sell an asset at a predetermined price.
  • “ETH volatility had gone to a premium due to increased demand for options at higher prices. That demand is now subduing a bit, and leading to a mean reversion in the ETH-BTC volatility spread,” Vishal Shah, an options trader and founder of Polychain Capital-backed derivatives exchange Alpha5, told CoinDesk in a Telegram chat.
  • The ether-bitcoin one-month realized correlation coefficient has also risen back to 0.80, having declined from 0.90 to 0.57 in July-August, as per data provided by Skew. A coefficient of 1.0 means two assets are perfectly correlated while 0.0 means they are not correlated at all.
  • At press time, bitcoin is trading at $10,750, having faced rejection near $11,000 on Monday, according to CoinDesk’s Bitcoin Price Index.

While ether has rallied by 58% this quarter, bitcoin has gained just 18%.

Via Coindesk


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