The popping of bubbles does not indicate the failure of crypto technology itself, which continues to see massive long-term venture interest.
Volatility is the defining feature of crypto investing. The past few months – with yet more whipsawed price action creating and then quickly destroying hundreds of billions of dollars in wealth – have provided a reminder of that. But despite these stomach-churning moves, money is flowing into crypto projects like never before. As we discuss below, perhaps it’s because this volatility problem has become a “known known” that investors simply factor into their valuation metrics.
One field of projects that has seen a boom is interoperability protocols, which tackle the big problem of getting different blockchains to talk to each other and enable cross-chain asset transfers without relying on a centralized intermediary.
In this week’s “Money Reimagined” podcast, Sheila Warren and I talk to two leaders in this space: Denelle Dixon, CEO of the Stellar Development Foundation, and Peng Zhong, CEO of Tendermint, who develops the Cosmos “blockchain of blockchains.”
Have a listen after reading the newsletter.
50% swings are mere flesh wounds
Spring is supposed to be a period of rebirth and growth. Not so in Cryptoland this year.
Off the charts: Speaking of volatility
The middle of May saw a spike in options volatility – a measure of expectations for price turbulence that determines the cost of buying the kind of price protection that options provide – to very high levels. At-the-money (ATM) one-month volatility surged to 150% on an annualized basis.
Then, on May 24, after the measure had eased to 123%, still well above the historical average of about 75%, CoinDesk’s Omkar Godbole spotted an interesting trend. Options traders were taking advantage of the higher prices for their derivatives to offer more puts – an options contract that gives the buyers the right to sell an asset at a given price in the future. This was a sign they were more relaxed about the prospect of turbulence where prices were dropping and they would be on the hook for it.
With that past in mind, I thought it would be interesting to look at what happened to volatility in recent days, following the second-leg sell-off in bitcoin that culminated Tuesday in the spot price dropping below $30,000 for the first time since late January. Here’s what CoinDesk Research’s Shuai Hao whipped up for me, using data from Skew.