Ether Volatility Surges Above 100% Amid Price Plunge and Renewed Trade War Fears
Ether (ETH), the second-largest cryptocurrency by market capitalization, experienced a dramatic surge in volatility early Monday as renewed trade tensions between the U.S. and its trading partners spooked financial markets and led to widespread risk aversion.
The price of Ether crashed as much as 24%, resulting in significant price dislocations across centralized exchanges. On Deribit, ETH briefly plummeted to a low of $2,065, compared to $2,127 on Kraken and $2,150 on Coinbase, marking a steep decline reminiscent of the August 5 market crash, according to data from TradingView and CoinDesk. CryptoQuant reported that this drop represented the largest price fall since May 19, 2021.
The downturn marked Ether’s third consecutive day of losses, bringing its three-day total decline to 23%, the steepest slide since November 2022. Meanwhile, Bitcoin (BTC) saw a smaller dip of just over 5%, falling to $91,200.
As the price dropped, Ether’s one-day at-the-money volatility spiked dramatically from an annualized 34% to 184%, as tracked by Deribit’s options data and Presto Research. Ether’s DVOL (daily volatility) index, which measures the expected price turbulence for the coming four weeks, surged from 67% to 101%, according to TradingView.
The volatility spike came as traders flocked to buy ETH put options, providing downside protection amid the sharp price drop, according to Presto Research. “The significant plunge in ETH perp prices on Deribit, from $3,285 to $2,065, has led to a dramatic shift in market positioning,” said Rick Maeda, an analyst at Presto Research. The put-call ratio surged from a relatively calm 0.6 to over 2.5, indicating a rush among traders to secure downside protection.
At one point, risk reversals – a measure of implied volatility premiums between calls and puts – showed a stark negative value over 10%, signaling an unusually strong demand for puts.
Market Makers Amplify the Selloff
The heightened volatility was further exacerbated by market makers pulling liquidity from the market, a typical response during periods of extreme price swings. Griffin Ardern, head of options trading and research at BloFin, explained that market makers, often acting risk-averse in volatile environments, removed liquidity, which significantly impacted options pricing.
Markus Thielen, head of 10x Research, noted that delta hedging by market makers also contributed to Ether’s downside volatility. “As market makers scrambled to offload futures positions, they sold at any available bid, intensifying the sell-off,” Thielen explained. Market makers aim to maintain neutral delta exposure by constantly adjusting their futures positions, buying into strength and selling into weakness, which added momentum to the downward price movement.
Trade War Concerns Spark Broader Market Selloff
The massive sell-off in Ether, along with the broader market downturn, appears to be tied to the renewed trade war between the U.S. and Canada, Mexico, and China. The fear is that the new wave of tariffs will increase inflationary pressures on the global economy, making it harder for central banks, including the Federal Reserve, to lower interest rates to foster economic growth.
This uncertainty is not limited to the cryptocurrency market. Traditional financial markets also felt the impact, with Dow futures dropping over 650 points early in the day, European stock futures following suit, and the U.S. dollar gaining strength.
As the market braces for more turbulence, many are keeping a close eye on potential economic implications of the trade war, which could continue to weigh on investor sentiment across asset classes.
