Derive Trading Insights Report: October 2024
Introduction
As we approach the US presidential election, there has never been a more exciting time to follow crypto options trading.
I am delighted to share Derive.xyz’s Trading Insights Report for October 2024, which reveals critical dynamics in the Bitcoin and Ethereum markets as they evolve in this politically charged environment.
This report draws from a detailed analysis of market trends, including the strategic movements of options traders and the underlying sentiments that could hint at future market directions.
October has been a landmark month for Derive.xyz, marked by significant milestones such as a record-breaking options trade valued at $25 million in notional volume, and rolling out new products like spot markets and additional perpetual markets. These achievements highlight our commitment to enhancing the trading experience by building a whole new class of decentralized finance.
We are facing an unprecedented opportunity to observe how geopolitical events can influence market behavior and trading strategies. The Derive.xyz insights offer a unique perspective into the potent interplay between market sentiment and political developments, highlighting how traders position themselves in times of uncertainty.
By analyzing the convergence of open interest, implied volatility, and trading behaviors, we aim to equip our users with a comprehensive understanding of the current market landscape and how these factors could reshape the future of crypto trading post-election.
Market Overview
BTC open interest dynamics: In October, we observed a significant clustering of call open interest at the $70k and $80k strike prices, indicating that traders anticipate potential price movements beyond $80k. On the other hand, puts were mainly concentrated around the $50k strike, suggesting that traders are also preparing for possible dips below this level, especially if the election results favor Kamala Harris.
ETH conservative betting: Compared to BTC, Ethereum shows a more conservative setup with 30% of open interest pinned on the $2800 calls. This indicates less bullish sentiment from the market, expecting a moderate upswing for ETH of 6.5%, while for BTC this is 12.5%.
Put open interest (OI) is distributed more evenly across various strike prices compared to Bitcoin. This distribution suggests that market participants are considering a wider range of potential downward movements for ETH, reflecting a broader uncertainty about its price directions.
BTC sentiment analysis: The even distribution of puts and calls for Bitcoin throughout October indicates a neutral market sentiment leading up to the US election. This balance suggests that traders are equally poised for upward and downward movements without a strong bias in either direction.
ETH call selling dynamics: For Ethereum, there is a slight tendency towards selling calls, primarily influenced by weekly call selling from the Derive Vaults. This activity doesn't necessarily signal bearish sentiment but reflects a strategy to capture premium, influenced by systematic vault operations rather than market sentiment changes.
The clustering of BTC open interest at higher strike prices reflects a bullish sentiment among traders, anticipating significant market movements post-election. ETH's more measured open interest distribution mirrors a cautious optimism, aligning with broader market uncertainties.
Implied Volatility Moves
BTC volatility trends: Throughout October, BTC's 30-day implied volatility (IV) edged up from 50% to 55% (red), while the 30 day realized volatility (orange) has gradually fallen from 44% to just over 40%, suggesting that traders are bracing for heightened volatility leading up to the election, and consequently, the market is willing to buy options at a substantial premium.
ETH volatility trends: In contrast, ETH’s implied volatility shows a narrower gap between expected and realized volatility (60 IV vs. 50 RV, 10% difference), indicating lesser market perturbation expected for ETH compared to BTC.
Implied volatility across different expiries: In the last week of October, there was a uniform increase of approximately 5% in the 30, 60, and 90 days-to-expiry (DTE) implied volatility (IV) for Bitcoin. This increase has been consistent since the start of the month, reflecting a market bracing for heightened volatility as the US election nears.
Sentiment analysis
Neutral-to-bullish BTC sentiment: The options market is showing a relatively neutral sentiment with a slight bullish lean for BTC as indicated by the 25 delta skews. As we are less than a week from the US election, short-dated skews are most relevant and these are relatively flat. These skews, which measure the implied volatility differential between call and put options, have remained stable, suggesting that traders are cautiously optimistic but not overly so.
ETH sentiment: For Ethereum, the 7 and 30-day skews are near zero, reflecting a completely neutral market sentiment, which contrasts with the slight bullishness seen in BTC.
The steady rise in IV across different time frames highlights the market’s growing anxiety about potential volatility due to the upcoming election. Traders are increasingly hedging against possible price swings, suggesting that we could see significant movements in Bitcoin prices as the election day approaches.
The stability in BTC's short-term skew values close to the election indicates a balanced view among traders, cautiously weighing their options. ETH's flat skew points to a market in wait-and-see mode, closely monitoring potential regulatory shifts that could affect the DeFi landscape.
New Products and Milestones
Innovative borrowing and trading products: Last month, Derive Borrow saw a significant uptake after launching in September, including a noteworthy $3 million USDC loan secured by almost $5 million of sUSDe.
Additionally, the launch of spot markets including ETH, wBTC and sDAI are now open, as well as 11 new perp markets including DOGE, AAVE, ARB, BNB, NEAR, OP, PEPE, SUI, TIA, WIF, WLD, which have expanded the Derive.xyz trading suite, enhancing its liquidity and trading flexibility.
We saw a new all time high of active daily traders and Derive vaults returned $1.33M in yield for LRT stakers.
Record-breaking options trade: The world’s largest onchain options trade was executed on Derive.xyz on October 12, 2024, involving significant positions in BTC options valued at $25 million in notional volume. It not only demonstrated the protocol’s robust liquidity but also its capability to handle complex, high-stake trades seamlessly.
The introduction of Derive Borrow and our expansion into spot and perp markets represent pivotal developments for the protocol, providing our users with unprecedented access to sophisticated trading and borrowing options. The record-breaking trade this month is a testament to Derive.xyz's capacity for facilitating significant market maneuvers, setting a new benchmark for onchain options trading.
Conclusion
As we look towards the US election, the insights from the October 2024 Derive Trading Insights Report highlight a market ripe with opportunities and challenges. Derive.xyz continues to lead the way in providing innovative solutions that meet the needs of modern traders, enabling them to navigate through these exciting times with confidence and strategic advantage.