Bitcoin’s ‘volatility curve’ has a midterm bump

Crypto traders are bracing for a short burst of market volatility on the back of the U.S. midterm elections, not a lasting turbulence.

That is evident from bitcoin’s $BTC$77,884.65 implied volatility (IV) term structure. IV is the size of price swings options traders expect, and the term structure plots it across different expiry dates. Expiry dates are dates when call (bullish) and put (bearish) bets are settled and contracts cease to exist.

The curve normally slopes upward, because the further out an expiry is, the more time there is for something to move the price. However, as of this writing, IV on options expiring Nov. 4, just after election day, is about 43.5%, notably above the roughly 36% for the expiries that follow.

That bulge shows traders are pricing increased volatility as early results and newsroom calls roll in, but not a lasting rise in turbulence. The curve settles back near 36% by late November. Ether’s IV term structure shows a similar pattern.

The picture in futures is different. Open interest, the total value of outstanding futures contracts, has held largely steady at $58 billion and $23.58 billion, respectively, over the past 24 hours.

Looking at that against the backdrop of IV spike for Nov. 4 tells us that traders aren’t taking fresh bets but only buying insurance (options) on what they already hold. That protects them against a possible volatility.

“Flat open interest alongside a funding flip and a five-point skew move describes hedging demand layered onto existing risk, and that kind of demand historically decays hard once the event it was bought for clears,” data tracking platform Laevitas said.

The skew measures the price gap between puts (downside protection) and calls and the five-point skew means puts are currently pricier. Laevitas said demand for protection like this tends to fade quickly once the event is over, so the bulge in the curve could flatten after election day.

Meanwhile, the wider market has steadied. Bitcoin and ether are trading above the lows they hit on Friday, when the hack at crypto exchange Binance set off panic, at about $78,000 and $2,290 respectively. That is a surprising resilience for a hack at the largest crypto exchange.

One analyst sees it as a bullish sign.

“Bitcoin closes above 50 week moving average for 7th straight week despite $6b+ hack on world’s biggest crypto exchange. great to see $BTC’s resilience and ability to keep the current technical market structure intact,”Alex Thorn, Galaxy’s firmwide research head, noted on X.

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