Crypto Options Exchange Deribit's Ether Volatility Index Hits Record Low

Deribit's forward-looking ether volatility index (ETH DVOL) hit lifetime lows over the weekend. Expectations for price turbulence appear underpriced considering the lingering macroeconomic uncertainties.

AccessTimeIconMay 8, 2023 at 8:31 a.m. UTC
Updated Mar 8, 2024 at 4:56 p.m. UTC

The downtrend in leading crypto options exchange Deribit's forward-looking ether volatility index (ETH DVOL) continues amid macroeconomic uncertainties and the pepecoin (PEPE) frenzy that has boosted demand for the Ethereum network.

The DVOL index, which calculates ether's annualized 30-day implied volatility or expectations for price turbulence over the next four weeks, fell to a record low of 51 over the weekend, according to digital assets data provider Amberdata. The implied volatility is calculated based on Deribit's options order book.

The index peaked above 150 following FTX's collapse in early November and has been falling ever since. The record low comes nearly four weeks after Ethereum implemented the long-awaited Shanghai upgrade, de-risking the passive investing strategy of staking coins in the Ethereum network in return for rewards.

Bitcoin's DVOL has declined from 74 to 51 of late but remains above the lifetime low of 41.95 in January. Deribit, which accounts for nearly 90% of the global crypto options trading activity, launched the bitcoin and ether DVOL indices in early 2021.

Implied volatility is positively correlated to the demand for options – hedging instruments – and is said to represent the degree of fear or uncertainty in the market.

Currently, there is plenty of uncertainty in the air, courtesy of the U.S. banking crisis and debt ceiling worries. Friday's surprisingly strong U.S. jobs report raised bets that the Federal Reserve's tightening cycle is over. If that's not enough, the U.S. inflation data for April – a market-moving figure – will be released later this week.

"The world seems full of unknown, unknowns, right now," Greg Magadini, director of derivatives at Amberdata, said in a weekly newsletter, noting the unusually low ETH and BTC DVOL indices.

In other words, expectations for wild price swings appear underpriced major cryptocurrencies right now.

According to Magadini, volatility expectations in the ether market are more underpriced than in the bitcoin market, and now may be the time to "go long ETH volatility [buy ETH volatility]."

"Looking at the ratio of ETH-DVOL divided by BTC-DVOL, relative vol. is basically near an all-time low," Magadini noted.

"A risk-off CRASH would likely hurt ETH spot prices a lot due to its 'Altcoin' nature. But on the flip side, if we're really, truly resuming a crypto bull market, then altcoins should outperform. ETH should out-rally BTC in that "traditional" crypto bull scenario," Magadini added.

Traders typically buy call or put options or both or volatility futures when intending to profit from an expected surge in volatility. Deribit launched BTC DVOL futures in late March.

Edited by Parikshit Mishra.


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Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team.