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Ethereum (ETH) Volatility Is Mispriced, Suggesting Explosive Moves Ahead: On-Chain Report

Tue, 04/05/2022 - 11:08
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Arman Shirinyan
Ethereum implied volatility pointing down on explosive moves ahead
Ethereum (ETH) Volatility Is Mispriced, Suggesting Explosive Moves Ahead: On-Chain Report
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The implied volatility of the second-biggest cryptocurrency on the market is heavily mispriced according to historical data by skewAnalytics.

What does Implied Volatility (IV) tell?

The implied volatility of the asset is often used to determine when the asset is aiming at an explosive or high-volatile move. In traditional financial markets, IV is used in options trading for pricing contracts where high volatility results in higher contract premiums and vice versa.

ETH Volatility
Source: Messari

The metric itself is based purely on technical data and does not rely on any kind of fundamentals. Since calculations are being made purely on price actions, it may help to see the uncertainty and determine the sentiment for a short-term period.

Ethereum volatility at the lower border

As the data suggests, Ethereum's volatility is currently at a minimum according to historical data. Implied volatility from October 2020 to today is at 74%, with the minimum being 70% and the maximum 175%.

Besides extremely low volatility, the Ethereum/Bitcoin volatility spread against the ETHBTC trading pair is negative, which is a strong volatility spike signal. In an analogy with moving averages, a large volatility spread with Bitcoin historically led to volatile moves on the market.

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Prior to the March pump during which the Ethereum and Bitcoin prices increased by 40% and 27%, respectively, the volatility spread for both assets was at its highest level in history as the volatility saw a significant decrease, showing that the market remains in fear and uncertainty.

At press time, Ethereum trades at $3,516 with almost no price change in the last 24 hours.

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About the author

Arman Shirinyan is a trader, crypto enthusiast and SMM expert with more than four years of experience.

Arman strongly believes that cryptocurrencies and the blockchain will be of constant use in the future. Currently, he focuses on news, articles with deep analysis of crypto projects and technical analysis of cryptocurrency trading pairs.