Crypto Volatility, Liquidity, and Option Pricing During the FTX Crisis

Summary

This desk commentary describes sharp BTC and ETH price swings during the FTX crisis and tracks their effects on options markets. It reports weekly expiry implied volatility peaks of 175% for BTC and 250% for ETH, alongside a strong negative relationship between spot prices and implied volatility. Market-maker liquidity was slow to recover, while far out-of-the-money options remained elevated as volatility uncertainty increased.

The author cautions against relying on lognormal return assumptions, arguing that digital asset moves can be unusually abrupt and that volatility does not settle into one stable distribution across market regimes. The note is a contemporaneous market observation rather than a tested forecast or trading system. Its numerical readings and interpretations describe the period covered and may not generalize to other conditions.

Key ideas

• BTC and ETH implied volatility rose sharply during the FTX-related selloff.
• The commentary reports a negative relationship between spot prices and implied volatility.
• Market-maker liquidity remained impaired after spreads widened.
• Far out-of-the-money options stayed expensive as uncertainty in implied volatility increased.
• The author argues that lognormal assumptions may understate the severity of crypto price moves.

Tags

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.