Week 47-2018: Volatility is back
How the huge drop in crypto assets affected the derivatives on Augur
State of the underlying markets
The last couple of days were quite turbulent for everybody involved into crypto assets. After a somehwat stable period almost all currencies and tokens went down by a lot. Leading the way are BTC by almost loosing 40% and ETH now being worth only half of what it was worth a couple of weeks ago.
This obviously also impacted historic volatility, which spiked up by quite a lot to almost 400% in BTC and 500% in the ETH markets. (AugurInsider calculates Volatitly based on the last 30 days).
Impact on the derivatives
The implied volatility calculated based on the derivatives on Augur, that are listed on AugurInsider, which are the base for calculating the AIVIX indicator, did not follow this huge spike and stayed at similar levels than before.
This probably can be explained by the low volume of trades on Augur in these markets, that do not adapt as fast as in more mature derivative markets. But this could also be an opportunity for finding good trades.
In the past the markets on Augur had a much higher implied volatility than the actual history volatitly with a huge bias towards the bullish side. In plain English: A lot of people were betting on markets going up by a lot. A good strategy might have been to short those markets.
Now this has changed and the actual volatility is higher than the one derived from the markets. This could be an indicator that there could be good trades on the long side in bearish derivatives, but most of the markets on Augur are still based on a more bullish mindset (Will XY be above YZ). Maybe here could be an opportunity for market creators to create more markets that are more fit to bear markets.
About us
AugurInsider is building the authority for KPIs about derivative markets on the decentralized market protocol Augur that lives inside the Ethereum blockchain.
