In June, the cryptocurrency arena witnessed a notable dip in implied volatility for Bitcoin and Ethereum, despite ongoing geopolitical tensions that slightly influenced market dynamics.
As the month unfolded, traders utilizing the Derive.xyz platform began recalibrating their strategies for July, anticipating potential market fluctuations stemming from a “calm before the storm” scenario, as suggested by market analysts.
A recent study conducted by Sean Dawson, the head of research at Derive, revealed that traders seemed to have factored in the low probability of escalation from June’s tensions in the Middle East, resulting in only temporary market reactions during peak unrest.
During the spikes in military activities, Bitcoin experienced brief dips below the $100,000 threshold on June 13 and June 22, yet found recovery quickly, surpassing $107,000 following a ceasefire announcement. Meanwhile, Ethereum mirrored this volatility, oscillating between $2,600 and reaching a momentary low of $2,200 before stabilizing.
Despite these fluctuations, the implied volatility declined for both cryptocurrencies, with Bitcoin’s 30-day implied volatility decreasing from 44% to 36%, while Ethereum fell from 68% to 60%. Dawson pointed out that this data suggests traders were predominantly betting on a limited fallout, which indeed materialized.
Market Sentiments Indicate Potential for Major Movements Ahead
As the landscape evolves, Derive’s activity reflects traders gearing up for more significant price movements in July, especially concerning Ethereum.
Analysis of open interest reveals a diverse mix of call and put options around crucial price levels of $130,000 and $90,000 for Bitcoin. This signals a divided sentiment, with some traders anticipating a bullish breakout while others brace for a possible price downturn.
According to Derive’s predictive models, the probability of Bitcoin surpassing $130,000 by late August stands at around 10%. This positioning indicates that traders are cognizant of potential volatility and are preparing for sharp price movements in either direction.
The broader economic picture is crucial here. Reports highlighting a robust US labor market indicated an unemployment rate drop to 4.1%, surpassing expectations.
This data dampens speculation surrounding a near-term rate cut by the Federal Reserve, as reflected in the CME FedWatch tool that now indicates a 95% likelihood of rates staying steady during the forthcoming FOMC meeting.
As inflation and interest rates continue to shape investor behavior, these factors are likely influencing the cautious yet observant positioning noticed within crypto options markets.
Ethereum’s Optimistic Outlook Amidst Emerging Developments
While both Bitcoin and Ethereum reflect careful strategies, Ethereum’s options market showcases a more optimistic trend. Data from Derive indicates that about 80% of July’s call open interest for ETH is set above the $3,000 level, with nearly 30% placed at strike prices beyond $3,500.
Dawson attributes this bullish sentiment to Ethereum’s strengthening narrative, particularly in light of Robinhood’s recent initiatives to introduce tokenized stocks alongside a Layer 2 solution powered by Arbitrum. He believes these factors enhance the utility case for Ethereum, potentially leading to substantial capital flow into ETH in the upcoming weeks.
Dawson commented:
“Traders are positioning for an eventful July. With volatility currently subdued and sentiment split, attention now pivots to the Fed, economic indicators, and further global developments. ETH appears to have a stronger momentum narrative, while BTC’s options market is primed for a significant movement.”
Featured image created with DALL-E, Chart from TradingView
