Ether (ETH) saw a massive spike in volatility early on Monday as the cryptocurrency’s price plummeted in the wake of renewed trade tensions between the U.S. and its major trading partners. The sudden shift in market conditions triggered significant risk aversion across global financial markets, leading to a sharp decline in Ether’s value.
Price Drop and Volatility Surge
Ether’s price crashed by as much as 24%, with notable discrepancies across various exchanges. On Deribit, the price fell to a low of $2,065, while Kraken and Coinbase recorded prices of $2,127 and $2,150, respectively. This marked the biggest drop for ETH since the August 5 crash, according to data from TradingView and CoinDesk.
The decline, as tracked by CryptoQuant, was the largest since May 19, 2021. Over a three-day period, ETH lost 23% of its value, the steepest decline since November 2022. Meanwhile, Bitcoin (BTC) also took a hit, falling just over 5% to $91,200.
DVOL and Implied Volatility Skyrocket
As ETH’s price dropped, its one-day at-the-money (ATM) volatility surged dramatically, jumping from 34% to 184%, according to options data from Deribit tracked by Presto Research. This increase in volatility was mirrored by a sharp rise in the Deribit DVOL index, which measures the expected price fluctuations over the next four weeks. The DVOL index spiked from around 67% to above 100%, reflecting heightened market turbulence.
The surge in volatility was driven by traders flocking to purchase ETH put options for downside protection. Presto Research analyst Rick Maeday highlighted a significant shift in market positioning, as the put-call ratio jumped from 0.6 to over 2.5, signaling a rush for downside hedging.
At one point, risk reversals, which gauge the implied volatility premium for calls relative to puts, reached negative values of over 10%, suggesting an unusually strong demand for puts.
Market Makers Contribute to the Volatility
The heightened volatility was also exacerbated by the behavior of market makers. Griffin Ardern, head of options trading and research at crypto platform BloFin, noted that some market makers withdrew liquidity due to the extreme price swings, which further distorted the market.
Markus Thielen, head of 10x Research, explained that the sell-off was compounded by delta hedging from market makers, who were forced to sell futures in a rush to neutralize their exposure. This added selling pressure contributed to the sharp decline in ETH’s price.
Market makers are essential in maintaining liquidity in the order books, profiting from the bid-ask spread. In times of high volatility, they adjust their positions to remain neutral, often amplifying price movements when they sell into weakness or buy into strength.
Trade War Fears Spark Broader Market Sell-Off
The dramatic ETH sell-off occurred amid fears that the ongoing trade war between the U.S. and key trading partners—Mexico, Canada, and China—would create inflationary pressures in the global economy. Such concerns raise the risk of central banks, including the U.S. Federal Reserve, struggling to lower interest rates to stimulate economic growth.
The renewed trade tensions have impacted traditional financial markets as well, with Dow futures dropping over 650 points and European stock futures following suit. Meanwhile, the dollar saw an uptick, further adding to the global risk-off sentiment.
Conclusion
The sharp drop in Ether’s price, coupled with an explosive rise in volatility, highlights the sensitive relationship between crypto markets and broader economic events. The renewed trade war has added significant uncertainty, leading to risk aversion that has affected both traditional and digital asset markets. As volatility remains high, market participants are bracing for continued turbulence, with Ether’s price movements closely linked to global macroeconomic developments.
