Volatility gauges suggest traders expect smaller near-term swings in Ether compared with Bitcoin, a reversal of the usual pattern for the two largest digital assets in the cryptocurrency sector.
The T3 Ether Volatility Index, a measure of implied 30-day swings in the token, trails a similar gauge for Bitcoin by around the most since at least 2021. Typically the Ether index tops the one for Bitcoin.
Meanwhile, the spread between the 180-day realized or historical volatility of Ether relative to Bitcoin is the narrowest since 2020 and barely positive, according to data compiled by Bloomberg.
“Lower volatility typically helps institutional investors to allocate more capital to crypto, as it becomes cheaper to buy protection and manage exposures,” said Caroline Mauron, co-founder of crypto derivatives platform OrBit Markets. “The volatility spread compression may drive more exposure to Ether from long-term investors.”
Cryptocoins including Bitcoin and Ether have partially rebounded from a rout in 2022 that sparked wipeouts such as the collapse of the FTX exchange. But the revival has stalled of late amid depressed liquidity, a backdrop that may point to limits to investor ardor in part as the US cracks down on digital assets.
The Bitcoin and Ether implied volatility indexes are based on options pricing. Both gauges slid from recent peaks in March but Ether’s dropped faster. A wider measure of cross-asset swings across global markets has also fallen.
Ether Staking
The Ethereum blockchain implemented an upgrade in April that lets investors withdraw Ether coins pledged to help operate the network in return for rewards — a process called staking. The crypto sector views the rewards as a yield.
“With its increasing yield, now in the high-single-digits, you would also expect this to potentially suppress volatility,” said Richard Galvin, co-founder at fund manager Digital Asset Capital Management.
Bitcoin’s blockchain has been roiled by an explosion of nonfungible tokens — digital collectibles — and memecoins built atop a software innovation.
Even so, the convergence in the volatility profiles of Bitcoin and Ether is questionable for Noelle Acheson, author of the Crypto Is Macro Now newsletter.
“Ether is a newer asset with a lower market cap and more technological as well as regulatory risk,” she wrote, adding that the US Securities and Exchange Commission continues to refuse to say whether it considers the token to be a security subject to the agency’s rules.
Bitcoin edged up toward $27,000 as of 7:28 a.m. in London and has added 63% so far this year. Ether, which has climbed 51% in 2023, also made small gains.