Ethereum Volatility Surpasses Bitcoin as US Election Nears: What It Means for Crypto Traders

As the US election approaches, Ethereum's options volatility has outpaced Bitcoin's, with traders preparing for uncertainty around the future of decentralized finance (DeFi) regulations in the country. Over the last few months, the gap between the volatility of these two major cryptocurrencies has widened, signaling growing concerns over Ethereum's exposure to regulatory changes.

Nick Forster, founder of DeFi derivatives protocol Derive, told Decrypt that the implied volatility for 30-day at-the-money Ethereum contracts is now nearly 7% higher than Bitcoin’s. At-the-money refers to an option contract where the strike price is equal to or near the current market price of the asset.

According to Forster, both Bitcoin and Ethereum had almost identical volatility levels at the start of November last year. However, as the upcoming election looms in November, Ethereum’s volatility has spiked, driven by the uncertainty surrounding potential new DeFi regulations in the US. "Ethereum’s heightened volatility is a direct reflection of traders’ expectations for increased uncertainty, especially as we approach the election," Forster explained.

As the second-largest cryptocurrency by market capitalization, Ethereum is a key platform for smart contracts, which power numerous DeFi protocols. This makes it particularly sensitive to any potential regulatory changes, which could impact its future.

Recent data highlights significant volatility spikes expected between October 25 and November 8. Forward volatility for Ethereum sits at 76.6%, while Bitcoin’s is slightly lower at 69.8%. Traders are anticipating large price movements around this time, with Ethereum appearing more reactive to external events, according to Forster.

Despite Ethereum's higher volatility, Bitcoin is showing signs of diverging from its neutral stance, with a slight skew towards bullish sentiment. A spokesperson for CryptoQuant noted that Bitcoin tends to perform well in the fourth quarter, particularly during bull cycles. "Bitcoin is entering a period of positive seasonal performance, often seeing gains in Q4," they said, adding that Bitcoin could target prices between $85,000 and $100,000 in Q4 due to recovering demand and favorable market conditions.

The upcoming US election could further influence these movements, as both Vice President Kamala Harris and former President Donald Trump vie for the crypto community’s support. Trump is seen by many in the industry as being more favorable to policies that would provide regulatory clarity for the sector. Harris, while speaking publicly about crypto for the first time last month, has kept her stance on future policy vague.

Forster pointed out that traders seem to have more confidence in Bitcoin’s ability to handle macroeconomic events, while Ethereum’s volatility suggests a more uncertain outlook due to its reliance on regulatory clarity in the DeFi space. As the election approaches, the impact on both cryptocurrencies could become more pronounced.