TI Weekly Research: After The Third Time High Volatility

High volatility is accompanied by higher uncertainty. How will the market go in the next few days? A new metric discovered by TokenInsight may be helpful.

Historical volatility of Bitcoin spot price and perpetual contract index price in the past 30 days, source: gvol.io

Bitcoin's market value continues to decline, and Ethereum goes out of its own market

The monthly option delivery and roll over on April 30 created short-term selling pressure on the price of Bitcoin, but did not have a significant impact on the price. After the option delivery was completed at 4.pm, the upward pressure on Bitcoin decreased, then Bitcoin rose from around USD 53,000 to around USD 58,500. A large number of good market news has promoted the rise of Bitcoin price: despite the continuous voices of national supervision, traditional market giants such as Goldman Sachs have begun to provide their customers with perpetual contract products for digital asset investment. However, traditional market giants such as Charlie Munger's "frustration" with the development of digital assets such as Bitcoin has stimulated investors' confidence in Bitcoin.

Bitcoin price changes in the past 30 days, as of 14:00 on May 7, source: tokeninsight.com

At the same time, a lot of bad news is constantly breaking out. The U.S. Treasury Secretary and the chairman of the SEC have all expressed concerns about Bitcoin, and banks such as CITIC have even announced a direct ban on Bitcoin transactions. The sudden increase in regulatory pressure has exacerbated market volatility: On May 4, among the 16 exchanges tracked by TokenInsight, the total bitcoin spot trading volume rose to more than 10 billion U.S. dollars, and the highest trading volume this week reached 12.86 billion U.S. dollars. The highest volume of the perpetual reached US$87.1 billion. A large number of derivatives liquidation also occurred at this time.

Changes in Bitcoin spot and perpetual in the past 7 days, as of 15:30 on May 7, source: tokeninsight.com

Clearing of perpetual on the Deribit exchange, source: gvol.io

Compared with Bitcoin, Ethereum seems to ignore the impact of bad news. Beginning on Monday, Ethereum options trading on the Deribit exchange is active, and its premium volume continues to exceed the Bitcoin premium volume, which is the first time in the history of digital assets; and the rising price of Ethereum has undoubtedly boosted the performance of professional investors on Ethereum expectation: According to the trading records on May 6, among the medium and long-term options expiring on July 30, September 24, and December 31, investors have conducted centralized trading of Bitcoin options with a strike price of $5,000 configuration.

Ethereum price changes in the past 30 days, as of 16:30 on May 7th, source: tokeninsight.com

The trading situation of Ethereum options on May 6 in Deribit Exchange, source: gvol.io

Comparison of trading volume between Ethereum options (left) and Bitcoin options (right) in the past seven days (in terms of premium; coordinate axes have been processed uniformly), source: gvol.io

The weekly volume change is another important signal: Bitcoin spot trading volume this week has been lower than Ethereum. Ethereum's weekly trading volume reached 84.19 billion U.S. dollars, while Bitcoin was only 71.84 billion U.S. dollars this week; Ethereum's main trading volume was concentrated after May 3. Investors seem to be changing the direction of investment in mainstream digital assets, whether it is individuals or institutions.

Recent changes in the trading volume of mainstream digital assets, source: tokeninsight.com

SSI: the difference between DOGE and volatility

As an important indicator of SSI, DOGE's value has reached the point of "beyond imagination": a market value of $75.51 billion. From being “worthless” to almost equal to the New Zealand dollar, Australian dollar, Canadian dollar and other Commonwealth currencies, DOGE only took less than half a year. Now, it is the fourth largest digital asset with a daily trading volume of US$28.73 billion, which has surprised global investors. Some companies have even announced support for DOGE payments, including the NBA Mavericks and other big names.

Changes in DOGE price and trading volume in the past 90 days, source: tokeninsight.com

Has the market been overheated? At present, it does not seem to be the case. Based on the first quarter transaction data, TokenInsight discovered an indicator that seems to be a simple measure of whether the market is overheating: Volatility of Difference (VFD).

The volatility difference is the difference between the historical volatility of mainstream digital assets and the implied volatility of options. Considering that historical volatility indicates the actual performance of the market, implied volatility represents the subjective expectations of professional and institutional investors on the market, which can usually be regarded as "rational expectations." Therefore, when the difference between the two is greater than 0, it indicates that the market is overheated, and the price is often in a downward trend to correct the overheating, when the difference between the two is less than 0, it indicates that the price is lower than rational expectations, and then the price will rise with a high probability to conform to rationality. expected.

The volatility difference is usually inversely correlated with the price changes of mainstream digital assets: an increase in the volatility difference often means that the market is in an overheating stage or is going into an overheating stage, and asset prices are falling; while a decline in the volatility difference indicates that the market is undervalued and assets and there is room for price increases.

Historical volatility and implied volatility of Bitcoin options in the past 30 days, source: gvol.io

From the perspective of the volatility difference in recent months, whether it is Bitcoin or Ethereum, after a cycle of positive volatility difference, the market is currently in a cycle of negative volatility. Looking at the trend of historical volatility and implied volatility, the volatility difference is still in a downward trend. This means that asset values ​​are underestimated, and asset prices have a certain momentum for upward correction. Therefore, in the past 2-3 days, the upward trend of mainstream digital assets may continue, but it is difficult to judge longer-term market trends. Considering the linkage between mainstream digital assets and other digital assets, the market may not have entered an overheating stage. Investors can still enjoy a short "happy hour" in the near future after the third wave.

 The historical volatility and implied volatility of Ethereum options in the past 30 days, source: gvol.io