It may appear that Bitcoin is more volatile than traditional assets, but in the crypto markets it is considered relatively stable compared to alternative cryptocurrencies.
Bitcoin (BTC) is the largest cryptocurrency by market value. Not only is it used as the base currency of choice for smaller digital asset trading, but it is also less vulnerable to manipulation or sudden price changes compared to alternative currencies, most of which are chain-based of Ethereum blocks.
However, that price situation may change during the third quarter, according to data from the options market.
The difference between the three-month implied volatility to money for the Ethereum ether (ETH) token pair and the bitcoin pair, a measure of the expected volatility between the two, fell to a record low of -2.4% on Sunday, according to the data provided. by crypto derivatives research firm Skew.
“The negative differential shows that the options market expects Bitcoin to be more volatile than ether in the next three months,” said Skew CEO Emmanuel Goh.
The spread hit a record 33% in February and has been trending downward ever since.
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Implied volatility, which is calculated using option prices and underlying assets and other key metrics, represents investors’ expectations of how volatile or risky an asset would be during a specific period. Implied volatility is a way to quantify uncertainty.
“The fact that the markets now take into account higher volatility in bitcoin prices compared to ether is surprising given the focus on the Ethereum-based Decentralized Finance (DeFi) sector over the past month,” Goh said.
According to data provider DeFiPulse, the amount of blocked ether in DeFi applications has increased from 2,539 million on June 16 to 3,087 million on June 29. It is a growth of more than 20% in 13 days. During the same period, the dollar value of various blocked tokens increased from $ 1 billion to $ 1.62 billion. Note that of the 205 DeFi projects listed on DeFiPulse, 192 are based on Ethereum.
Activity accelerated after the loan protocol. Compound’s COMP token was released to trade on June 18. The government token increased 500% over the next three days, sparking a frenzy in the DeFi space.
The market is divided on whether the DeFi explosion will lead to a sustained recovery in ether or lead to a boom-bust cycle. “DeFi will probably help push ETH to a $ 1 trillion market cap,” Joseph Todaro, managing partner at Blocktown Capital, tweeted June 16.
Meanwhile, BlockTower CIO Ari Paul released a tweet thread on June 21 explaining the possibility of liquidity mining fueling a bubble in the DeFi space. Liquidity mining refers to giving government tokens to put assets on a loan / loan protocol.
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As such, one can expect ether to be more volatile than bitcoin, especially as bitcoin-related news has dried up after the third half of the cryptocurrency mining reward, which took place on May 12.
While the options market suggests otherwise, the possibility that Bitcoin may witness increased volatility cannot be ruled out. The main cryptocurrency has spent almost two months operating in the narrow $ 9,000 to $ 10,000 range. A prolonged period of low volatility consolidation often ends with a large increase in volatility.
That said, ether and other alternative currencies are rarely isolated from the recovery of volatility in the bitcoin market. If Bitcoin sees big moves, the ether is likely to face increased volatility as well, which could shake things up in the DeFi space. That in turn could cause more panic and uncertainty in the ether market. So while bitcoin might initially see increased volatility, eventually ether volatility may catch up to and outperform bitcoin.
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