Vol Commentary: What Goes Up, Must Come Down

Cumberland is commenting on the recent volatility and potential opportunities to take advantage of it.

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As we commented many times before (E.g. Jan 3 commentary), the BTC vol to ETH vol ratio is something we watch very closely. We had recommended shorting BTC vol and buying ETH vol as the ratio had reached 84% for the 50D 31 March expiries and 85% for the 30 June expiries. It even stretched to over 90% at the end of January. This was beyond the high end of its normal range of ~60% to 85%, and had far exceeded the range for realized relative vol ratio. Given that ETH is a higher beta asset, we felt that ETH vol was undervalued relative to BTC vol, and would outperform on a forward going basis.

Post SEC news on cracking down of Kraken’s ETH staking services in the US, ETH had reacted much more negatively, sending the ratio back down to 78% & 79% respectively for the March and June expiries. While it’s not possible to foresee what surprising news might cause crypto markets to react, it is possible to conclude that over the long run ETH should react more violently to both good and bad news relative to BTC.