The U.S. Securities and Exchange Commission (SEC)'s crackdown on heavyweight cryptocurrency exchanges Binance and Coinbase (COIN) failed to spur signs of disquiet among savvy bitcoin (BTC) traders, options-based implied volatility metrics show. That's a sign the lawsuits were expected and priced in.
"The biggest takeaway for me is everyone has been looking for a catalyst to shock implied volatility back to life and see some sort of renewed bid for longer-dated options," said Christopher Newhouse, an independent crypto derivatives trader. "But I see little evidence of that, which suggests players in the volatility market might be shrugging this off."
Regulatory concerns have been prevalent since the beginning of the year, and perhaps the market anticipated and priced in the SEC's actions, he said.
Implied volatility (IV) is based on options data and reflects investors' expectations for price turbulence over a specific period. It is positively affected by demand for options , which are derivative contracts that offer the purchaser protection against bullish or bearish fluctuations. A call option protects against rallies, while a put option protects against drops.
Rising demand for options and the resulting increase in implied volatility often reflect heightened wariness in the market and the potential for increased price turbulence in either direction. So far, bitcoin implied volatility has seen a muted rise at best.
Bitcoin's seven-day annualized implied volatility rose to 43% from 34% after the SEC news, and has since pulled back to 40%, a meager six-point increase for the week. The 30-day gauge has increased by four points from multimonth lows, while the three and six-month IVs have remained largely unchanged, according to Amberdata.
"We have seen a short-lived pop in the front-end [short duration] IV. So, there are no real signs of panic," David Brickell, director of institutional sales at crypto liquidity network Paradigm, told CoinDesk.
Griffin Ardern, a volatility trader at crypto asset management firm Blofin, said the SEC's action is more damaging to alternative cryptocurrencies, or coins other than bitcoin.
"IVs have indeed risen, but the rise is not large, and it is mainly concentrated in the front-end [short duration] options," Ardern told CoinDesk.
"The possible reason is that BTC and ETH have already been certified by the U.S. Commodities and Futures Trading Commission, and their derivatives have been traded on compliant exchanges such as CME for several years, while the SEC's prosecution mainly targets altcoins, and many altcoins identified as securities, the impact on BTC and ETH is relatively limited," he said.
The SEC, in its lawsuit against Coinbase, mentioned Solana (SOL), Cardano (ADA), Polygon (MATIC), Filecoin (FIL), Sandbox (SAND), Axie Infinity (AXS), Chiliz (CHZ), Internet Computer (ICP), Voyager Token (VGX), NEAR protocol (NEAR), NEXO, FLOW and DASH, driving their prices lower.
Bitcoin has chalked up 3% to 5% daily price moves since Monday in a narrow range of $25,300 to $27,400, CoinDesk data show. Ether has seen a similar range play between $1,800 and $1,900.
"When liquidity leaves alternative cryptocurrencies, it goes back into BTC, ETH and stablecoins," Ardern said.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is an award-winning media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. In November 2023, CoinDesk was acquired by Bullish group, owner of Bullish, a regulated, institutional digital assets exchange. Bullish group is majority owned by Block.one; both groups have interests in a variety of blockchain and digital asset businesses and significant holdings of digital assets, including bitcoin. CoinDesk operates as an independent subsidiary, and an editorial committee, chaired by a former editor-in-chief of The Wall Street Journal, is being formed to support journalistic integrity.