Bybit X Block Scholes Crypto Derivatives Analytics Report (Dec 11, 2024): ETH Perp Positions Fall as ETH Options Still More Bullish Than BTC Options

Key Highlights:

Our weekly crypto derivatives analytics report delves into macro events, the current state of crypto and trading signals from spot trading volume, and futures, options and perpetual contracts.

BTC’s rejection of prices above $100K and ETH’s downward bounce near $4K have had a significant impact on derivatives markets. The pullback in spot prices intensified due to liquidations of overleveraged long positions in perpetual swaps, leading to a decline in open interest, particularly in ETH, and a reset of previously high funding rates to lower, yet still positive, levels. 

In the futures market, open interest remains below pre-November 2024 expiration levels, with positions concentrated in the December end-of-year contract. Meanwhile, perpetuals funding rates have been recalibrated following the liquidation wave. In options, ETH’s term structure is inverted, contrasting with BTC’s flat shape, as realized volatility has exceeded forward-looking expectations for the second time since late September.

Please check out the report’s highlights.

ETH Perp Positions Closed

Sources: Bybit, Block Scholes

The surge in ETH perpetual positions that contributed to last week’s increase in open interest has now reversed. This shift coincides with a sharp decline in funding rates for the contracts, suggesting it was driven by the liquidation of overleveraged long positions. Notably, despite a similar drop in funding rates for long positions, activity in BTC perpetual contracts has remained mostly stable throughout December 2024, spiking only during BTC's brief rise above $100K late last week.

Funding Rates Fall to Reasonable Levels

Sources: Bybit, Block Scholes

The previously high and exuberant funding rates in nearly all perpetual markets (as noted in last week’s analysis) have subsided following a substantial liquidation of heavily leveraged long positions. Although this shift reflects much lower levels of bullish positioning, funding rates haven’t plummeted to significantly negative levels after the flash sell-off, and are currently trading sideways around 0.01%. This behavior suggests a reset in leveraged exposure, typically seen when expectations for further spot rallies become overly optimistic.

ETH Options More Bullish Than BTC’s

Sources: Bybit, Block Scholes

Unlike the balanced levels in BTC options markets, ETH's open interest remains tilted toward bullish calls, primarily set for December’s end-of-year expiration. However, trading volumes have decreased during the recent period of sideways spot price movement. The volatility term structure remains inverted, as longer-dated volatility expectations remain anchored around 70%, while shorter-dated expirations have reacted to spot price fluctuations following the Nov 5, 2024 U.S. elections.

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