While massive, the recent correction was more a function of over-leveraged longs being cleaned out — as exhibited by swap funding rates calming down after the dip.

Looking ahead, the options market is definitely pricing in higher volatility for ETH vis-à-vis BTC. The 1M/3M/6M ETH-BTC implied volatility spreads are now at highs not seen since 2020’s Black Monday.

ETH prices have decoupled from BTC significantly, signifying idiosyncratic factors impacting ETH prices. 1M ETH-BTC Realized Correlation has plunged below 50% from 80% seen in December 2020.

DeFi narrative: From YFI’s protocol consolidation to upcoming L2 solutions, the DeFi sector is awakening from its 2H 2020 slumber with TVL hitting highs above $20 billion. 

Competing with DeFi liquidity is of course Eth2 staking and Grayscale’s ETH holdings, estimated to be 3-4% of ETH’s current total supply. The above, combined with a significantly tighter regulatory backdrop, provide the ingredients for heightened volatility in 2021.

Stability is likely to come after the market goes through a phase of “price discovery” for the DeFi sector; whether to the upside or downside remains to be seen.

The post ETH at Crossroads: Bullish Signs Ahead appeared first on Bybit Blog.

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