Traders are preparing for volatility related to the cloudy future of decentralized finance regulation in the United States.
Ethereum’s volatility readings surpass those of Bitcoin, a gap that has widened over the past few months as traders prepare for the upcoming U.S. election in November.
Nick Forster, founder of DeFi derivatives protocol Derive, told Decrypt that the implied volatility of the 30-day at-the-money Ethereum contract relative to Bitcoin has expanded to nearly 7%.
At-the-money refers to options contracts where the strike price is equal to or very close to the current market price of the underlying asset.
In early November last year, both assets saw nearly identical levels of volatility. As the next month approaches, traders are positioning for volatility associated with the cloudy future of decentralized finance regulation in the United States, the founder explained.
“Ethereum’s heightened volatility is a direct reflection of traders’ expectations of increased uncertainty, especially as the election approaches,” Forster said.
As the second-largest cryptocurrency by market cap, Ethereum is one of the largest smart contract platforms in the industry and is critical to supporting DeFi protocols and projects.
From October 25 to November 8, a significant increase in positive volatility can be observed, with Ethereum's positive volatility at 76.6% and Bitcoin's positive volatility at 69.8%.
Forster said this means traders expect significant volatility during this time and Ethereum appears to be more sensitive to external events.
Bitcoin and Ethereum are also roughly neutrally skewed, close to zero, though Bitcoin is starting to diverge slightly, indicating mild bullish sentiment towards the world’s largest cryptocurrency.
“Bitcoin is entering a period of positive seasonal performance, with gains typically seen in the fourth quarter of a bull cycle,” a spokesperson for digital asset market data agency CryptoQuant told Decrypt. “With demand recovering and favorable seasonality, Bitcoin could target $85,000 to $100,000 in the fourth quarter.”
With several positive factors converging, including the US election, the timing could be fruitful.
In an effort to sway voters, presidential candidates, Vice President Kamala Harris and former President Donald Trump have been courting industry players in hopes of gaining an advantage for themselves.
Many in the cryptocurrency industry believe that Trump would be more willing to enact policies that would provide greater clarity for practitioners in the industry.
His political rival Harris has also made progress, speaking publicly about the issue for the first time last month, though the language on future policy remains vague.
“Traders seem to be more confident in Bitcoin’s ability to weather these macro events,” Foster said.
