Ethereum’s Resilience
Ethereum is relatively resilient to the recent negativity caused by the FTX news. Ethereum is generally more volatile and riskier than Bitcoin, but unlike Bitcoin, Ethereum did not renew this year's lows and its implied volatility declined relatively to Bitcoin’s one.
Bitcoin reaches a new low, but Ethereum does not
The recent news about the insolvency of FTX and the related entity Alameda Research led to a widespread drop in crypto prices. But interestingly selling pressure seems to be more expressed in Bitcoin than in Ethereum. Bitcoin price has reached a new low for the year and now is 12% below summer minimums (based on a daily close).
Bitcoin (BTC/USD)
Ethereum fell more than Bitcoin on the FTX news (Ethereum is down 33% since November 4 vs Bitcoin’s 25%), so there is no break of a general rule of altcoins’ higher beta to market moves, but Ethereum price remains above summer lows.
Ethereum (ETH/USD)
Bitcoin becomes a more popular hedge than Ethereum
The implied volatility of crypto options doubled on the FTX news, reflecting the risks of large-scale forced selling. That is far more expressed in Bitcoin options than Ethereum options, despite Ethereum’s bigger immediate spot move. The ratio of Ethereum implied volatility to Bitcoin implied volatility sharply dropped on the FTX news, decreasing to 1.3 as of November 14 compared with 1.5 as of November 7 (based on DVOL indexes).
The ratio of Ethereum implied volatility to Bitcoin implied volatility (based on DVOL indexes)
The options open interest data confirms that crypto traders prefer to hedge FTX contagion risks via Bitcoin. Bitcoin options open interest reached a historical maximum on November 10 while the same figure for Ethereum failed to match the level before the October expiration (not to mention higher open interest during the Merge mania in September).
Bitcoin options open interest
Ethereum options open interest
Ethereum futures show calm
Binance Bitcoin end-2022 futures basis (i.e., the difference with spot) dropped on the FTX news, becoming significantly negative for the first time. Binance is the largest exchange for futures trading, so I believe its data is the most relevant.
Binance Bitcoin end-2022 futures basis
It looks like the basis drop was because of long positions closing. The Block’s data shows an unusually large liquidation of long Bitcoin future positions on Binance during the last week. Longs worth $229 million were closed on November 8 and a further $151 million followed the next day.
Binance Bitcoin end-2022 futures basis
On the contrary, selling pressure on Ethereum futures seems subdued.
Binance Ethereum end-2022 futures basis
A possible reason for Ethereum futures resilience is worries about exchanges' solvency. I think that many crypto traders hedge their staked Ethereum with futures and may decide to reduce exposure on exchanges fearing their credit risk in the light of FTX contagion. That creates a buying flow in futures and, therefore, may partly compensate for a general selling pressure caused by the FTX news.
Conclusion
It looks like the recent negativity caused by the FTX news was concentrated in Bitcoin. Ethereum dropped too, but unlike Bitcoin, its price remained above summer lows. The derivatives data indicates much lower selling pressure on Ethereum compared with Bitcoin, as the implied volatility of Ethereum declined relatively to Bitcoin and the futures basis of Ethereum did not move as much as Bitcoin’s.
Do crypto traders prefer to sell Bitcoin rather than Ethereum because of fears regarding the sustainability of overall crypto infrastructure? Or maybe there are no large leveraged Ethereum positions that would be subject to liquidation anymore because of the Ethereum liquidations in June?
In any case, prove-of-stake Ethereum seemingly becomes more independent from Bitcoin. If that holds, it may be a large positive for crypto going forward, since a lower correlation between the two biggest cryptocurrencies adds benefits of diversification and implies a lower risk of the total crypto market.
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