ETH Volatility Outpaces BTC as Market Braces for Election Uncertainty
Staff Writer • 2024-10-03
Ethereum (ETH) is experiencing heightened volatility compared to Bitcoin (BTC), with the gap between the two assets widening in recent months. This divergence in volatility comes as traders prepare for potential market turbulence driven by the upcoming U.S. election and its impact on the broader crypto ecosystem, especially within decentralized finance (DeFi). Rising Volatility Gap Between ETH and BTC According to Derive's market data, the 30 days-to-expiry (DTE) at-the-money (ATM) implied volatility (IV) for ETH has been increasing relative to BTC as the U.S. election nears. While both cryptocurrencies had almost identical volatility levels at the start of November 2023, the gap has since widened to almost 7%, with an average difference of 5.9% throughout the year. Nick Forster, an analyst in the crypto market, attributes this growing divergence to market expectations of further volatility events for Ethereum. He notes that, at its peak in early June, the market priced 2-3% higher monthly movements for ETH than for BTC. This pattern suggests the market is pricing in heightened risks and potential volatility for ETH. Election Impact on Ethereum One of the key drivers behind ETH's increased volatility is the upcoming U.S. election. Forster points out that ETH's close ties to the DeFi ecosystem may expose it to significant regulatory scrutiny depending on the election outcome. In contrast, Bitcoin's position as a digital store of value may shield it somewhat from such direct regulatory risks. "The upcoming U.S. election could have a significant impact on ETH, particularly because of its ties to the DeFi ecosystem, which may face regulatory scrutiny depending on the election results," says Forster. "Traders are positioning for potential volatility tied to this uncertainty." Forward Volatility Spikes and Price Predictions Derive's data also reveals a notable spike in forward volatility for both ETH and BTC between October 25 and November 8. ETH's forward volatility is currently at 76.6%, while BTC's is at 69.8%, indicating that traders expect significant market movements during this period. However, ETH's higher volatility suggests it is more sensitive to external events, especially those tied to the election and potential regulatory developments. Price movement predictions ending November 8, 2024, are as follows: • ETH: ◦ 68% chance of a move between -14% ($2,100) and +16% ($2,842). ◦ 95% chance of a move between -26% ($1,813) and +35% ($3,307). • BTC: ◦ 68% chance of a move between -12.8% ($53,000) and +14.5% ($69,500). ◦ 95% chance of a move between -24% ($46,100) and +31.44% ($79,800). These probabilities indicate that ETH is expected to experience more extreme price movements than BTC, further reinforcing the market's anticipation of higher volatility for Ethereum in the near term. Skew Analysis: BTC Shows Mild Bullish Sentiment When examining the skew analysis for ETH and BTC, both markets currently appear roughly neutral, with skews near zero. However, BTC is beginning to show signs of mild bullish sentiment as its skew starts to diverge slightly. This subtle shift suggests traders are becoming more confident in Bitcoin's ability to navigate the current macroeconomic landscape. Forster adds, "This data signals that ETH’s heightened volatility is a direct reflection of traders’ expectations for increased uncertainty, especially as we approach the U.S. election. This uncertainty is driving traders to price in more extreme movements for ETH, anticipating that election outcomes could have a significant impact on DeFi and the Ethereum ecosystem." Market Positioning: Confidence in Bitcoin vs. Caution with Ethereum While ETH's heightened volatility indicates concerns over its exposure to potential regulatory changes, Bitcoin seems to be receiving more positive sentiment. Traders are showing greater confidence in Bitcoin's ability to withstand macro events, likely due to its established status as a digital store of value and its relatively lower exposure to the regulatory risks that may affect Ethereum. "Traders seem more confident in Bitcoin’s ability to weather these macro events, likely due to its established position as a digital store of value and its relatively less direct exposure to regulatory concerns compared to Ethereum," Forster explains. Conclusion The widening gap in volatility between ETH and BTC highlights the market's anticipation of heightened uncertainty for Ethereum, particularly in the face of the U.S. election and potential regulatory impacts on the DeFi space. While Bitcoin remains volatile, it appears to be viewed as a more stable asset, with traders pricing in a relatively lower level of risk. As the market navigates these macro uncertainties, traders will closely monitor developments around the election and regulatory changes that could significantly influence both ETH and BTC's volatility in the coming months.
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