OTC Desk Market Update: Volatility Trends in Crypto — Will Upcoming ETFs Shift Sentiment?

Welcome back to our weekly market update! Here are the top things we’ll be paying attention to this week:

• U.S. Consumer Price Index (CPI) Data on Thursday

• U.S. Producer Price Index (PPI) Data on Friday

Macro Update

Solana and Ethereum ETFs

VanEck has filed to sell shares in a Solana (SOL) exchange-traded fund (ETF). This marks the first such registration in the United States, coming just six days after 3iQ filed for a similar product in Canada.

Nate Geraci, President of The ETF Store, has provided insights into the expected timeline for the Ethereum (ETH) ETF launch in the U.S. In a recent social media post, Geraci expressed his belief that spot Ethereum ETFs would likely be listed for trading within the next two weeks. His forecast is based on the timing of filings with the Securities and Exchange Commission (SEC) and the typical procedures followed by issuers.

According to Geraci, most issuers are expected to submit amendments to their filings on Monday, followed by the submission of “final” S-1 forms. He suggests that issuers would prefer to avoid a Friday launch, pushing the likely timeline to the week of July 15th.

Progress on Inflation: Cautious Optimism

Federal Reserve Chair Jerome Powell expressed a sense of satisfaction with the progress made on inflation over the past year. Speaking at a central banking forum in Portugal, Powell acknowledged the significant strides taken in bringing inflation back towards the Fed’s target. However, he emphasized the need for more evidence before considering any reduction in interest rates.

The Path to Disinflation: Recent Indicators and Future Goals

Powell highlighted recent inflation readings as indicators of a return to a disinflationary path. The Personal Consumption Expenditures (PCE) price index, the Fed’s primary inflation gauge, showed a 12-month pace of 2.6% in May, a notable decrease from around 4% a year ago. Despite this progress, Powell stressed the importance of seeing sustained movement towards the 2% target before loosening monetary policy.

Nonfarm Payrolls Exceed Expectations

The U.S. economy added 206,000 nonfarm payroll jobs in June, slightly surpassing the Dow Jones forecast of 200,000. While this figure represents a continued trend of job growth, it’s worth noting that it falls short of the revised May figures, which were adjusted downward from 272,000 to 218,000. This adjustment suggests a potential slowdown in job creation, albeit still at a healthy pace.

Labor Force Participation Increases

Despite the rise in unemployment, there was a positive development in U.S.labor force participation. The overall participation rate increased to 62.6%, while the prime-age participation rate (ages 25–54) reached 83.7%, its highest level in over 22 years. This suggests that more people are entering or re-entering the job market, which could partly explain the increase in the unemployment rate.

Sector-Specific Job Growth

The June job gains were largely driven by increases in government employment, which added 70,000 jobs. Other sectors showing strong growth included health care (49,000 jobs), social assistance (34,000 jobs), and construction (27,000 jobs). However, some sectors experienced declines, notably professional and business services (-17,000 jobs) and retail (-9,000 jobs).

Crypto Market Overview

Implied and Realized Volatility

Last week, digital assets experienced a notable drop, pushing Realized Volatility (RV) in Bitcoin (BTC) up to the mid-fifties on July 4th. This heightened level has since stabilized and retraced to the high 30’s. In contrast, Ethereum’s Realized Volatility has been steadily decreasing, despite the brief spike on Thursday. Currently, Ethereum Implied Volatility (IV) is about 10 Vols higher than BTC at around 60, this premium is largely due to the anticipation of the ETH spot-ETF. Since the announcements form 3IQ and Van Eck, Solana’s relative strength among majors is also being reflected in its IV with an implied volatility now in the low 80’s

The anticipated volatility in Ethereum is predominantly expected to be on the upside based on traders positioning themselves in call spreads and outright-calls relative to downside instruments like puts and put spreads, especially with the potential benefit of inflows following the ETF launch. However, Solana has begun to price in even greater volatility. Albeit this is the case most of the time, as SOL is generally the more volatile asset between the two.

Term Structure and Skew

For the first time in weeks, the term structure for both Ethereum and Bitcoin has shifted higher from the prior week. Front-end volatilities for both assets have dropped, mostly due to market liquidity being lower on weekends, but the backend of the curve has shifted about 6 Vols higher in both BTC and ETH. The postponement of the Ethereum spot ETF has seen the front-end of the ETH term structure experience a more pronounced decline as the event-driven volatility shifts away.

Call skew has softened by about 1–2 Vols across the curve for both assets from last week, with Ethereum’s call skew remaining steeper than Bitcoin’s. This steepness in Ethereum’s call skew aligns with market commentator expectations of a potential knee-jerk reaction following the ETF launch.

For Bitcoin, the front-end skew remains in a small put premium out to July expiries, reflecting some residual market risk concerns of a potential drop from $60,000 to $50,000 USD. This demand for downside protection is relatively inexpensive, given the current sub-40 level of front-end volatilities.

Options Flows and Positioning

Bitcoin volumes are down over 50% from a week ago following the sell off. Open interest is at around $11 Billion USD which is also down from a week ago, reflecting a market where sentiment has shifted after a negative start to the month. Ethereum volumes are also down though call demand has begun to pick up as we get closer to the launch of the spot ETF.

This week’s gamma level of note in BTC is the $58,000 USD strike where there is the highest concentration of negative gamma across maturities. ETH has multiple levels of note, however the closest strikes with a high concentration of negative gamma are $3,000 and $3,500 USD strikes.

As always, our team is here to assist you and provide services tailored to your specific needs. If you would like to discuss these topics further, we invite you to book a meeting with our team.

To schedule a meeting, please visit NDAX OTC | Bitcoin and Crypto OTC Trading Desk or contact your OTC representative directly. We look forward to assisting you on your investment journey.

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Disclaimer: This article is not intended to provide investment, legal, accounting, tax or any other advice and should not be relied on in that or any other regard. The information contained herein is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of cryptocurrencies or otherwise.