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March 8, 2021

Crypto RFQ

What Volatility Suggests in the Crypto Derivatives Markets With Flowdesk


Paul Gordon
Editor, Coinscrum Markets

(00:47) Guilhem Chaumont, CEO of Flowdesk, joined host Paul Gordon to discuss the cryptocurrency derivatives markets. What Flowdesk is seeing is that there is still high-priced volatility of around 95% for the at-the-money volatility. This clearly shows that the markets are still betting on the continuation of the bull trend or some high volatility regimes that are more for the long-term. The volatility translates to a 12% probability of BTC being above USD 100,000 by the end of the year.

Regulated vs. Unregulated

(1:29) Currently, most of the fund flows are toward bigger venues like Deribit. On the CME, there are some significant volumes but it’s still lagging behind a bit. The market is still being driven by retail traders. The more institutional and sophisticated traders are more interested in looking at the spot markets. As usual, there is still a small lag between the increase in volumes on the spot markets, which will soon be followed by more volumes on the derivatives side — futures first followed by options, said Guilhem.

Since the CME launched their Ethereum futures contracts, there is a lot of additional volume. Compared to BTC, however, it’s still relatively low in terms of absolute volumes and open interest.

(2:22) “But I think it’s going to take a while. Just like BTC options took a while to take off. They were under the radar for a while. I think it’s more something to look at for the remaining part of the year,” said Guilhem.

Funding Side

There have been some very high fundings in recent weeks following the bull run, Guilhem noted. If you look at the broader, more historical perspective, what you notice is that the fundings relative to 2017 are actually quite low. That clearly shows us that there is more liquidity on the derivatives venues, even the regulated ones, including hedge funds, liquidity providers, and asset managers who are looking to take advantage of the market to provide additional liquidity and actually reduce the funding itself.

BTC Pullback

The market came back from an all-time high a couple of weeks ago. Bitcoin pulled back, and everything else pulled back with it. Looking ahead, from the derivatives perspective, if you look at the implied volatility, on the very short-term — the weekly volatility, we’ve just gone through the six-month volatility. Historically speaking, that’s a sign of lower moves.

(3:59) “So I’m definitely convinced that from a broader perspective, the alt season is more or less over at this cycle. And what we are going to see in the coming weeks is probably some more concentration of the volumes on bitcoin itself but without too much volatility. So on my end, I suspect small but steady growth of the turbulence of bitcoin itself, which will also align with the price itself. But nothing tremendous like we have seen in the past week,” said Guilhem.

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Gerelyn Terzo
Gerelyn caught wind of bitcoin in mid-2017 and after learning about the peer-to-peer nature of Satoshi's creation has never looked back. Previously she covered institutional investing and fintech for several major trade publications. Gerelyn resides in Verona, N.J.

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