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After an early scare at the start of the month, crypto asset spot prices have enjoyed a modest recovery rally that’s seen BTC reach a two-week high above $94K and ETH reclaim the psychological $3,000 mark.
To recap, during early Asian trading hours on Dec 1, 2025, BTC led other risk-on assets and sold off sharply amidst hawkish signs from the Bank of Japan and a spike in JGB bond yields, foreshadowing the move in US equities when trading in New York began. However, recent bullish developments (including Vanguard opening its platform up for trading crypto ETFs and mutual funds) have encouraged a sharp recovery rally. As such, sentiment in derivatives markets, particularly in options markets has picked up.
Open interest in perpetual futures positions has increased slightly, though remains far below pre-Oct 10, 2025 levels, and volatility smiles for BTC and ETH have priced out the most extreme part of their bearish premium towards ‘crash protection’. Still, the recovery has not been enough to turn options traders bullish just yet – unsurprising given how far both BTC and ETH trade relative to their all-time high levels.
Perpetuals: Open interest is still very subdued relative to Oct 10's liquidation event which was nearly two months ago, while funding rates showcase altcoin weakness.
Options: The whipsaws in spot price resulted in short and temporary inversions in the term structure of volatility for BTC and ETH. Additionally, traders have priced out most of their fears of further price drops.
Block Scholes’ Risk Appetite Index measures the level of euphoria (above 1) or panic (below -1) in the spot market. Momentum in this index shows a strong relationship to spot returns.
The month of December began with a crypto selloff in early Asian trading hours as Japanese government bond yields spiked higher after Bank of Japan Governor Kazuo Ueda indicated the central bank would be open to an interest rate hike in its December meeting. The selloff extended through the day and BTC fell as low as $83K – however, that did not have much of a noticeable impact on perpetual swap contract open interest.
We’ve noted in previous editions that recent selloffs in spot price have not shown the tell-tale signs of a liquidation cascade, particularly as post Oct 10, 2025, there appears to be a far lower participation rate in leveraged positions.
Nonetheless, the recent recovery rally back above $93K, a two-week high, did encourage some traders to get back into the market, with open interest levels now rising slightly to just under $9B.
The most recent bounce back above $93K and $3,000 for BTC and ETH respectively has had its most noticeable impact on the volatility smiles of both assets in their options markets.
At the start of the month, short-tenor smiles for BTC showcased OTM put options trading with a 10 vol point premium over call options at a similar moneyness. For ETH put options, that premium was closer to 13 percentage points.
Since then, the put-call skew ratio has recovered from its bearish tilt, with put contracts for BTC demanding a smaller, though still notably bearish 4% premium, and for ETH only a 2% premium. While they are not yet pricing-out further downside, traders are at least pricing downside protection with far less of the premium they had been willing to pay only one week ago.