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

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

AccessTimeIconSep 29, 2020 at 4:06 p.m. UTC
Updated Sep 14, 2021 at 10:02 a.m. UTC
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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
Ether-bitcoin implied volatility spread
  • "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%.


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