The cryptocurrency markets, particularly Bitcoin and Ethereum, experienced a notable decrease in implied volatility throughout June. This came despite several geopolitical events that temporarily unsettled prices. Traders on the on-chain options platform, Derive.xyz, are now recalibrating their strategies with eyes set on a potentially turbulent July. Analysts have characterized the preceding month as one of muted responsiveness to significant global risks.
According to a recent analysis by the head of research at Derive, Sean Dawson, the data suggests that traders had already incorporated the likelihood of the conflict in the Middle East into their strategies, as the market’s reaction to rising tensions was brief and limited. Notably, Bitcoin faced a temporary drop below $100,000 on two occasions during late June but rapidly rebounded to levels exceeding $107,000 after a ceasefire agreement was announced. Similarly, Ethereum fluctuated between $2,600 and $2,200 before stabilizing.
Implied Volatility Trends
Despite these fluctuations, implied volatility for both cryptocurrencies dropped significantly, with Bitcoin’s 30-day implied volatility declining from 44% to 36%, while Ethereum’s fell from 68% to 60%. Dawson pointed out that these trends indicate traders were effectively betting on a limited fallout from these geopolitical events. This sentiment may reflect a broader market expectation of stability rather than volatility.
As traders look ahead, Derive’s options market activity indicates an anticipation of substantial price movements in July, especially for Ethereum. Current data reveals a wide spectrum of call and put positions, particularly around the $130,000 and $90,000 thresholds for Bitcoin. This split in positioning suggests traders are bracing themselves for both upside breakouts and potential pullbacks.
According to Derive’s probability modeling, there is merely a 10% chance that Bitcoin will exceed $130,000 by the end of August. Nonetheless, market participants are keeping an open mind regarding significant price adjustments in either direction. The sentiment among traders remains cautious, particularly as macroeconomic factors come into play.
The latest U.S. labor market report, which showed a decrease in unemployment to 4.1%, has tempered expectations for an impending Federal Reserve rate cut. The CME FedWatch tool now indicates a 95% likelihood that interest rates will remain stable in the upcoming meeting of the Federal Open Market Committee (FOMC). This sustained inflationary environment and prevailing interest rates are shaping investor sentiment and contributing to the watchful positioning observed within the crypto options markets.
While both assets are showing signs of cautious setups, Ethereum’s options market exhibits a transition towards bullish sentiment. Data from Derive reveals that nearly 80% of July call open interest for Ethereum is situated above the $3,000 mark, with approximately 30% placed at strike prices beyond $3,500. This bullish bias can be attributed to Ethereum’s strengthening narrative within the market, especially following Robinhood’s recent announcements regarding tokenized stocks and advancements in Layer 2 solutions based on Arbitrum.
Dawson posits that these developments significantly bolster Ethereum’s utility case, potentially driving increased capital rotation into ETH in the upcoming weeks. He highlighted this evolving sentiment, stating, “Traders are betting on a big July. With volatility suppressed and positioning split, all eyes are now on the Fed, macro data, and further geopolitical developments. While Ethereum displays the stronger momentum narrative, Bitcoin’s options market is poised for a decisive shift.”
