Bybit X Block Scholes Option Volatility Report (February 2025): January 2025 Marks New Start for Crypto, Shaped by Macro and Policies

Key Highlights:

Our monthly report delves into insights from options volatility to inspire your next crypto move.

Influence of Macro Events on Crypto: In January 2025, Bitcoin (BTC) and Ethereum (ETH) faced significant weekend sell-offs driven by macroeconomic factors, including Donald Trump’s U.S. tariff policies, expectations of a strategic Bitcoin reserve and disruptions from AI competitors like DeepSeek.

BTC and ETH as Early Indicators: BTC and ETH reacted more quickly and sharply than traditional equities did to economic and geopolitical news as leading indicators for Monday market movements, similar to the earlier yen carry trade unwinding in August 2024.

Ethereum's Volatility Trends: Ethereum consistently underperformed Bitcoin during market dips in January 2025. However, the options markets reflected a lower implied volatility premium for ETH than expected, based on recent volatility comparisons.

Please check out the report’s highlights.

Macro Factors Influencing Crypto Sentiment

In January 2025, the cryptocurrency market — particularly Bitcoin (BTC) and Ethereum (ETH) — experienced significant volatility largely driven by macroeconomic events. Key influences included U.S. president Donald Trump's unpredictable tariff policies and the emergence of artificial intelligence (AI) competitors such as DeepSeek, both of which created uncertainty in traditional and crypto markets. 

The turbulent sell-offs of BTC and ETH contrasted starkly with the relatively stable conditions observed during the Christmas 2024 period. This volatility was particularly evident on weekends, as crypto markets reacted more sharply to macroeconomic news than traditional equities, often serving as a leading indicator for market movements in the following week. For instance, the reaction to both subsequent labor market data and the hawkish tone from the Federal Reserve resulted in a notable sell-off of crypto assets before traditional markets opened.

The Dynamics of Weekend Volatility

Throughout January, a pattern emerged whereby the cryptocurrency market exhibited heightened volatility during weekend trading sessions, especially on Sundays. This trend was characterized by significant sell-offs that preceded the opening of traditional markets on Mondays. The chaotic environment was exacerbated by the launch of Trump-family meme coins and heightened expectations surrounding a strategic Bitcoin reserve, which led to rapid price fluctuations in crypto assets. 

Despite the initial bullish sentiment, these expectations were tempered by conflicting tariff reports, resulting in further volatility. This analysis highlights that the realized volatility — measured by 10-minute returns — spiked significantly during weekends, indicating that the crypto market is particularly sensitive to developments that unfold over the weekend.

Ethereum's Underperformance and Volatility Trends

January 2025 marked a challenging month for Ethereum, which consistently underperformed relative to Bitcoin during periods of market downturns. Despite ETH’s historical tendency to exhibit higher volatility than BTC, the options markets were pricing ETH’s implied volatility at a lower premium than its realized volatility. This discrepancy suggests that investors weren’t fully accounting for ETH’s increasing volatility in their market expectations. 

The emerging trends indicated a growing volatility premium for ETH as compared to BTC, with ETH exhibiting sharper price movements in both upward and downward directions. As January progressed, the divergence in performance between BTC and ETH underscored the unique dynamics within the crypto market, particularly as macroeconomic pressures continued to shape trader sentiment.

Events of January 2025 highlighted the intricate relationship between macroeconomic factors and cryptocurrency volatility. The sharp reactions of BTC and ETH to external events signify their role as leading indicators in the financial landscape, and the pronounced volatility during weekends and the distinct behavior of Ethereum relative to Bitcoin reflect an evolving market characterized by rapid changes and heightened sensitivity to external influences. As the landscape continues to shift, these trends will be critical for traders and investors navigating the complexities of the crypto market.

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