Crypto Realized Volatility Spikes As Supports Get Tested On Higher US Yields

Deribit proudly presents "Crypto Options Unplugged" with the brilliant minds Imran Lakha and David Brickell. Uncover deep insights, strategies, and the latest in crypto options. Don't miss this podcast episode featuring special guest Greg Magadini, Director of Derivatives at Amberdata, stay tuned for more! This time last year Greg predicted $100k Bitcoin by the end of 2024, which was spot on! Find out what he anticipates for 2025!

In this week's episode, Imran Lakha and David Brickell discuss the recent strong macro data that has led to higher US yields and a bout of de-risking across asset markets. Crypto markets broke below key supports but have since recovered on optimism around the incoming Trump administration and what they announce next week. David remains resoundingly bullish, looking through the latest bond market weakness and expecting a yield reversal. Imran catches up with Greg Magadini, Director of Derivatives at Amberdata to see what he's seeing in vol trends and how the crypto market may evolve this year.

Introduction

The recent movements in the Bitcoin market have highlighted its volatile nature and sensitivity to macroeconomic trends. Bitcoin experienced a dramatic swing, breaking below $90,000 before rebounding sharply to $97,000. This volatility reflects broader uncertainties in financial markets, driven by factors such as bond yields, inflation fears, and shifting monetary policy dynamics. Despite these challenges, there remains a significant underlying demand for Bitcoin, underpinned by its perceived status as a safe-haven asset in times of economic uncertainty.

Market Overview and Key Drivers

The macroeconomic backdrop remains tense, with high bond yields and a strong U.S. dollar adding pressure on risk assets. Investors are closely watching upcoming CPI data, which could influence market sentiment further. Bond markets have reacted strongly to resilient economic data, including a robust labor market and higher-than-expected inflation indicators. The Federal Reserve's cautious stance, with limited rate cuts priced in for the year, adds to the uncertainty.

At the same time, global growth concerns weigh on the outlook. Key economies such as China, the UK, and the Eurozone are grappling with slowdowns, deflationary trends, and geopolitical challenges. These global disinflationary forces, coupled with a strong dollar, create headwinds for U.S. economic resilience.

Bitcoin’s Technical and Fundamental Outlook

Despite the macroeconomic volatility, Bitcoin's rebound suggests that underlying demand remains strong. Analysts have pointed to the post-Trump administration policy shifts as a key driver of capital inflows into digital assets. Predictions of a potential pullback to $70,000 are countered by bullish sentiment, with many seeing the current levels as a floor rather than a ceiling.

The recent market moves underscore Bitcoin's position as an alternative asset class, particularly in an environment where traditional safe havens like Treasuries face challenges from higher yields and supply dynamics. Bitcoin’s appeal is further bolstered by the narrative of financial repression and potential "not QE" measures by central banks as they grapple with unsustainable debt levels.

Supply-Demand Dynamics and Inflationary Concerns

The surge in bond issuance, driven by the U.S. Treasury and corporate supply, has created temporary selling pressure in bond markets. This influx, compounded by the debt ceiling constraints, has disrupted the market balance. However, once the ceiling is hit, new bond issuance will pause, potentially capping yields and alleviating some pressure on risk assets.

Inflationary fears tied to proposed tariff policies from the Trump administration appear overstated. Historical data suggests that tariffs' inflationary impact is mitigated by factors like a strong dollar, slow global growth, and limited pricing power among producers. Moreover, the push for reshoring and automation may have longer-term disinflationary effects.

Long-Term Implications

The broader macro narrative points toward eventual financial repression as central banks intervene to sustain debt refinancing cycles. With over a trillion dollars of U.S. debt maturing in the coming months, liquidity injections will likely continue to support markets. This environment could prove favorable for Bitcoin, as it benefits from liquidity-driven asset inflows and its role as a hedge against systemic risks.

While the near-term outlook for Bitcoin and broader risk assets remains volatile, the medium- to long-term dynamics suggest continued strength for digital assets. Bitcoin's unique positioning as a decentralized, deflationary asset makes it an attractive investment in an era of increasing macroeconomic instability.

Insights from Greg Magadini on Bitcoin, Ethereum, and Crypto Market Dynamics

In an in-depth discussion with Greg Magadini, Director of Derivatives at Amberdata, we explored the current state of the cryptocurrency market, focusing on Bitcoin's performance, Ethereum's challenges, and overarching trends in crypto derivatives. Magadini’s previous prediction of Bitcoin reaching $100K by the end of 2024 proved remarkably accurate, emphasizing his expertise in market forecasting. His analysis now highlights a consolidation phase for Bitcoin, nuanced shifts in Ethereum's ecosystem, and strategic opportunities within crypto options trading.

Bitcoin’s Consolidation and Macro Challenges

Bitcoin recently surged to an all-time high of $108K, bolstered by positive macroeconomic sentiment, including speculation about a Bitcoin reserve, regulatory optimism under the new U.S. administration, and significant institutional buy-ins like MicroStrategy’s aggressive accumulation strategy. However, Bitcoin is now in a corrective phase, holding around $90K. Magadini predicts a bottom near $85K, citing macroeconomic headwinds such as high bond yields and tightening monetary policy. He anticipates a period of sideways consolidation, as the market digests the rapid Q4 gains before potentially resuming its upward trajectory later in 2025.

Ethereum: Structural Changes Impacting Price Action

Ethereum faces unique challenges stemming from structural changes within its ecosystem. The transition to Layer 2 (L2) scaling solutions and app chains have reduced transaction volumes on the Ethereum Layer 1 (L1) chain, limiting the deflationary impact of EIP-1559's burn mechanism. Consequently, Ethereum's supply dynamics have shifted from deflationary to inflationary, adding downward pressure on prices. Despite these challenges, Ethereum's robust developer community and evolving use cases provide a long-term growth narrative. In the near term, Magadini identifies Ethereum as a volatile yet range-bound asset, often presenting short-term trading opportunities.

Crypto Derivatives: Opportunities in Options and Flows

Magadini provided a detailed analysis of current trends in crypto derivatives. Onscreen options activity reflects a bullish sentiment, with significant demand for out-of-the-money Bitcoin calls targeting $100K-$120K strikes for March 2025. In contrast, institutional block trades exhibit more sophisticated positioning, including selling $55K March and June Bitcoin puts—indicating a strategy aligned with market stabilization and volatility compression.

For Ethereum, the persistent call skew and implied volatility premium over Bitcoin offer opportunities for structured trades, such as selling Ethereum calls to fund Bitcoin call purchases. Additionally, staking Ethereum as collateral to capture natural yield while hedging through short futures positions is a promising strategy in a yield-starved market.

Strategic Considerations

Magadini emphasized the importance of aligning trading strategies with underlying market conditions. He remains cautious on near-term crypto rallies, given macro uncertainties and the potential for further consolidation. However, he notes that structural changes, such as sovereign interest in Bitcoin reserves and the growing adoption of decentralized finance (DeFi), signal long-term bullish potential.

Strategic Opportunities in Cryptocurrency Options

In the landscape of cryptocurrency options, strategic trades such as risk reversals have garnered attention for their ability to offer high upside potential with controlled downside risk. This trade setup, particularly evident in early Ethereum (ETH) options when they were first listed in April 2019, involves layering a short call and out-of-the-money puts, offering a favorable risk/reward ratio. The 3:1 payout structure in these trades highlights a market imbalance, likely caused by limited capacity on the volatility (vol) selling side and increased call buying demand driven by market participants like Michael Saylor, who could potentially benefit from such strategies.

The Emergence of IBIT Options

Further developments have emerged with the introduction of IBIT options, which were listed late last year and quickly gained traction. IBIT, a product that directly correlates with the performance of Bitcoin and related ETFs, has rapidly become a top contender in the options space, surpassing some of the largest equity tickers in trading volume. Notably, IBIT options are trading at a premium to platforms like Deribit, with volatility curves showing a divergence, which could signal potential arbitrage opportunities for advanced traders. This pricing anomaly creates an interesting environment where traders could capitalize on discrepancies between IBIT and Deribit volatilities, potentially enhancing returns through strategic positioning in both markets.

Amberdata’s Role in Market Innovation

Amberdata’s approach to cryptocurrency data analysis has been pivotal in these developments. By providing real-time access to IBIT volatility surfaces, flows, and historical data, Amberdata empowers traders with the tools to identify and act on these market inefficiencies. Their robust methodology for altcoin volatility calibration is especially notable, as it addresses the lack of standardized options markets for altcoins by using a blend of equity options data, GARCH models, and variance risk premium analysis. This innovative approach offers a reliable benchmark for altcoin volatility, enabling better pricing models and more informed trading decisions.

Advancing the Altcoin Volatility Landscape

Amberdata’s ongoing efforts to refine its volatility models for altcoins, including market-leading solutions for Bitcoin and Ethereum, ensure that traders can reference neutral marks and operate with more precision. As the industry continues to evolve, these innovations promise to provide more liquidity and new opportunities for crypto traders, including enhanced trading tools for altcoins like Solana and beyond. The company is also preparing for a major announcement related to its partnership with Deribit, signaling further advancements in its platform capabilities and broader market influence.

Conclusion

In conclusion, the cryptocurrency options market is experiencing significant shifts, driven by innovative products and the ongoing efforts of companies like Amberdata to refine market models and provide actionable insights. As liquidity and infrastructure improve, new trading strategies and opportunities will continue to emerge, shaping the future of crypto markets.

AMBERDATA DISCLAIMER: The information provided in this research is for educational purposes only and is not investment or financial advice. Please do your own research before making any investment decisions. None of the information in this report constitutes, or should be relied on as a suggestion, offer, or other solicitation to engage in, or refrain from engaging, in any purchase, sale, or any other investment-related activity. Cryptocurrency investments are volatile and high risk in nature. Don't invest more than what you can afford to lose.