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Our monthly report delves into insights from options volatility to inspire your next crypto move.
In May 2025, ETH options exhibited historically high volatility premiums compared to BTC, driven by ETH's elevated realized volatility during a significant price rally. The ETH-to-BTC implied volatility ratio hit a nearly five-year peak, exceeding 2x for short-dated options.
This extreme ratio emerged as BTC's realized volatility dropped to unexpected lows, breaking a long-standing floor and highlighting the divergence in the options markets.
The volatility term structure for ETH and BTC diverged sharply, with ETH showing persistent inversion — shorter-dated options priced higher than longer-dated ones — indicating immediate market uncertainty, while BTC’s structure remained flat.
In May 2025, a significant dislocation in implied volatility between ETH and BTC options emerged. Implied volatility represents the market's expected volatility over an option's lifespan. At the start of May, the ETH-to-BTC implied volatility ratio for 7-day options was nearly 1.5, indicating that ETH options were priced with 50% higher volatility expectations than BTC options. By May 16, this ratio had surged above 2, a peak not seen in nearly five years, as BTC's implied volatility dropped to its lowest levels since October 2023.
This decline in BTC's volatility breached a crucial floor of 35% that had held for over 19 months, while ETH's short-tenor implied volatility remained elevated, albeit lower than its May 10 highs. The divergence in volatility expectations resulted in a notable spread, particularly in the 30-day tenor options, which reached its widest since mid-2022.
In May 2025, traders anticipated higher implied volatility for ETH as compared to BTC, across various tenors, with the divergence reaching near-record levels. This expectation can be linked to realized volatility, which measures past price fluctuations.
Historically, ETH’s realized volatility has been higher than BTC’s — common for smaller market cap tokens that tend to amplify price movements. On May 15, 2025, the ratio of ETH’s to BTC’s 7-day realized volatility peaked, just before the implied volatility ratio also reached a high, suggesting that traders expected ETH’s higher realized volatility to persist.
This divergence wasn’t new: since July 2024, the ratio had been steadily increasing during both market rallies and stress periods. The recent disparity in May was influenced by ETH’s significant rally, beginning May 8, that coincided with key events like the Ethereum Pectra upgrade and positive US-UK trade news. ETH surged over 23% in one day and continued to rise — outperforming BTC, which saw only a modest 10% increase. Despite ETH's strong performance, it remained over 50% below its January 2025 levels and its all-time high.
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