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Our monthly report delves into insights from options volatility to inspire your next crypto move.
BTC volatility smile hits lowest cycle since 2022: BTC’s volatility smile has flattened, reaching near-record lows by July/August 2025 — signaling reduced expectations for extreme price swings.
Stepwise price action in BTC & ETH throughout 2025: BTC and ETH have shown “stepwise” behavior — long periods of stability followed by sharp, sudden moves.
BTC ATHs amid low volatility: Despite hitting multiple all-time highs in July, BTC’s options markets continue to reflect historically low implied volatility.
ETH/BTC IV ratio steepens further: ETH surged 208% from $2,400 to nearly $5,000, with July/August marking another increase in the ETH/BTC at-the-money implied volatility ratio across maturities.
Figure 1. Rolling 90-day beta coefficient of daily returns between ETH and BTC. Source: Block Scholes
In July 2025/August 2025, Ether and altcoins outshined Bitcoin (despite BTC reaching new all-time highs), fueled by a surge in optimism following the US government's declaration of “Crypto Week” and the passage of landmark legislation like the GENIUS Act. This regulatory shift sparked a broad rally, with ETH soaring over 58% from $2,400 to nearly $5,000, eventually surpassing its 2021 peak of $5,000. The market’s appetite for risk rotated toward altcoins, pushing BTC’s dominance below 60% and signaling a shift in investor sentiment.
Meanwhile, ETH’s implied volatility continued to outpace BTC’s across all options tenors, with the 7-day ETH/BTC ATM IV ratio climbing from 1.63 to 2.2. This reflects the market’s expectation of greater price swings in ETH, consistent with its historically higher beta relative to BTC (1.6 in July), meaning that ETH tends to amplify BTC’s moves. Both assets have exhibited “stepwise” price behavior, but ETH’s recovery lagged behind BTC’s until July, when it surged back in two sharp moves. Despite temporary divergence in spot prices, ETH’s volatility premium has remained intact, underscoring its role as the more reactive and speculative asset in the crypto landscape.
Figure 2. BTC (green) and ETH (pink) at-the-money options’ implied volatility at the 30-day tenor. Source: Block Scholes
In July/August 2025, the divergence between ETH and BTC implied volatility became increasingly pronounced. While BTC’s 30-day at-the-money implied volatility remained flat for most of the month — despite hitting a new all-time high of $123K — ETH’s IV surged from 58% to 71% before stabilizing in the 60% range. This imbalance drove the ETH/BTC IV ratio higher, steepening from 1.6 to 1.95, even as ETH’s realized volatility declined slightly. Traders continued to price ETH options at a premium, reflecting stronger expectations for ETH price swings relative to BTC.
This steepening trend echoes a similar episode in February 2020, when ETH’s IV spiked to nearly 100%, while BTC’s remained subdued, coinciding with a sharp ETH rally. However, the July/August 2025 dynamic was driven more by BTC’s collapsing volatility than by an explosive move for ETH. Despite expectations for convergence between realized and implied volatility ratios, BTC’s volatility continues to hit historic lows — both in absolute terms and relative to ETH — underscoring a persistent market view that ETH remains the more volatile and reactive asset.
Figure 3. Ratio of ETH at-the-money options’ implied volatility to BTC at-the-money options’ implied volatility at 30-day tenor. Source: Block Scholes
We expect a convergence in the two ratios because — in general — if traders recognize over some period of time that ETH’s realized volatility is significantly higher than BTC’s, an expectation for that trend to continue would translate into an equivalent increase in the at-the-money volatility ratio. Similarly, if the delivered ratio declines, traders anticipating a continuation of that decline would price it into options markets.
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