AI Summary
Show More
Quickly grasp the article's content and gauge market sentiment in just 30 seconds!
Sideways trading in the final stretch of 2025 was upended by culminated into a sharp and aggressive move higher this week in BTC spot price to a two-month high, nearly touching $98K. That move dragged the rest of the spot market up with it, and has had a strong effect on derivatives markets.
Funding rates for select altcoins have shot higher, while open interest in perpetuals futures contracts has increased, signalling new longs entering the market in hope of capturing any further upside moves in spot price. Volatility smiles have priced out their bearish put premium and now trade close to neutral for BTC and ETH.
Additionally, spot ETFs for both majors show positive inflows year-to-date. ETH has also benefitted from idiosyncratic, on-chain tailwinds: demand for staking continues to soar, with 30% of the total ether circulating supply currently being staked. Despite the breakout from a month-long period of consolidation and various macro risks in the form of US-Iran tensions, December’s NFP release, December’s CPI report, a grand jury subpoena issued to the Federal Reserve, volatility has continued to trend lower.
After more than a month of rangebound trading between $85K and $95K, BTC has now broken out into the upper-$90k region, lifting the rest of the altcoin market up in tandem. The impact on perpetual swap markets is quite apparent – open interest shot up past $8B across the 9 major tokens we are tracking, returning back to levels we saw at the start of the year, when BTC rallied to $94K.
Coupled alongside a vertical move higher in our Risk-Appetite Index, it suggests that the upward trend in spot price momentum is causing some traders to open perp positions in order to capture any further upside moves in spot prices. ETH and other altcoins have also benefited from inflows into their respective Spot ETFs. Ethereum Spot ETFs purchased $130M of Ether on Jan 13, 2025, while XRP and SOL have seen multiple consecutive days of inflows, further supporting the turn in spot price momentum.
The past month of BTC spot price could be described as ‘chop-solidation’ – a continued sideways chop between $85K and $95K, with few breakouts (neither up nor down) from those bounds. It is unsurprising, then, that options markets expectations for volatility have continued their downward trend.
What’s more surprising is that the eventual breakout from that range to a two-month high of $96K has had very little impact on outright ATM implied volatility levels. Realized volatility ticked up towards the end of last week before now moving sideways at 38%, while short-tenor IV has only been lower around 22% of the time since January 2024.
BTC’s spot price rally has been supported by Spot ETF inflows, however. Year-to-date, BTC Spot ETFs have seen net inflows of $660M, with $760M in net inflows on Jan 13, 20265 - the biggest one-day haul since the 10/10 (Oct 10th) historic liquidation event.
Additionally, we see signs that derivatives markets are supporting a continuation of the rally. Volatility smiles for shorter-dated options have moved towards neutral skew (from previously bearish positions) and 7-day futures trade with a 10% premium over spot price, a sign of a strong willingness for leveraged exposure.
When BTC surpassed $94K earlier this month, we saw a change in the skew of volatility smiles from a bearish put premium to a neutral skew. When that level did not hold, traders once more assigned a volatility premium for OTM puts. Now, a similar region of $94-96K has proven to be a trigger for another change in sentiment from bearish to neutral.
While we are yet to see short-dated volatility smiles fully skew towards calls, taking history as a guide suggests that if BTC fails to hold $95K, we may see a return back to the put premium.
Ultimately, what that suggests is that derivatives markets, particularly options, look seemingly willing to back the move higher in spot price, but a failure to hold at those levels is resulting in a return back to bearish protection.
What’s also interesting is the clustering of the term structure for both BTC and ETH at the same values. For much of the past week, all tenors have traded with a -3% skew for BTC and -3-4% skew for ETH. That’s interesting given that the shorter end of the term structure tends to be more reactive to volatile moves in the short term.