As Ether’s price crashes, its volatility soars above 100%.

Ether Sees Volatility Surge to 100% as Price Plummets Amid Rising Trade War Tensions

Ether (ETH), the second-largest cryptocurrency by market capitalization, witnessed a significant volatility surge early Monday, spurred by fears of a renewed global trade conflict between the U.S. and its major trade partners, resulting in broad risk-off sentiment in financial markets.

The price of Ether saw a sharp 24% decline, leading to widespread dislocations on centralized exchanges. On Deribit, ETH dropped to a low of $2,065, while Kraken and Coinbase saw similar declines, with prices bottoming out at $2,127 and $2,150, respectively. These levels marked the lowest since the crash on August 5, 2021, according to TradingView and CoinDesk data. CryptoQuant reported that this dip represented the largest drop since May 2021.

Ether’s losses stretched over three consecutive days, with a 23% decline, marking the steepest drop since November 2022. Meanwhile, Bitcoin (BTC) saw a smaller 5% decrease, falling to $91,200.

As the price dropped, Ether’s one-day at-the-money volatility spiked dramatically from 34% to 184%, according to Deribit’s options data, tracked by Presto Research. Ether’s DVOL (daily volatility) index, which forecasts the potential for price turbulence over the next month, surged from 67% to 101%, showing an increased expectation of short-term instability.

The surge in volatility was driven by a rush of traders purchasing ETH put options as a hedge against further price declines. “The rapid drop in ETH perp prices on Deribit, from $3,285 to $2,065, triggered a notable shift in market positioning,” said Rick Maeda, an analyst at Presto Research. The put-call ratio surged from a calm 0.6 last week to above 2.5, signaling growing demand for downside protection.

In addition, risk reversals, which measure the implied volatility premium for calls compared to puts, hit negative values above 10%, indicating a stronger bias for puts than calls.

Liquidity Withdrawal by Market Makers

The sharp volatility was exacerbated by market makers pulling liquidity from the market, a common occurrence during periods of extreme price swings. Griffin Ardern, head of options trading and research at BloFin, explained that the risk-averse behavior of market makers, who withdrew liquidity in high volatility conditions, contributed to the rise in options prices and added further pressure on Ether’s price.

Markus Thielen, head of 10x Research, noted that the actions of market makers, who are required to maintain neutral market positions through constant buying and selling of futures, contributed to Ether’s sharp drop. “Market makers, in an effort to hedge their positions, sold into the market’s weakness, amplifying the downward momentum,” Thielen said.

Trade War Concerns Lead to Broader Market Instability

The widespread market sell-off, including in Ether, appears to be driven by the renewed trade war between the U.S., Canada, Mexico, and China. The announcement of new tariffs has sparked concerns over inflation, which could make it harder for central banks, including the Federal Reserve, to lower interest rates and support economic growth.

The broader market reflected this sentiment, with traditional financial markets also under pressure. Dow futures plummeted by more than 650 points early in the day, and European stock futures followed a similar downward trajectory. The U.S. dollar also saw an uptick as investors sought safe-haven assets.

The fear is that these trade tensions could disrupt the global economy, causing higher costs for goods and creating broader economic instability. As the trade war continues to unfold, investors are bracing for further volatility across all asset classes, including cryptocurrencies like Ether.