Perp activity in focus

Macro

The fifth week of the Iran conflict brought more of the same: headline-driven whiplash with no durable resolution. Monday's relief rally on reports of productive U.S.-Iran talks was unwound by Friday as strikes on industrial and nuclear targets resumed, pushing oil higher and risk assets lower. The S&P 500 closed at a seven-month low, the VIX reached its highest point in 11 months, and bond markets continued repricing higher-for-longer, with a rate hike now carrying roughly 25% implied probability for later this year.

Crypto gave back its gains from earlier in the month to end the month of march pretty much flat. BTC fell around 3% on the week to ~$66,700, losing the $70K level that it had loosely held as support. ETH slipped below $2,000 for the first time since February. Looking at ETFs, weve have consecutive days of outflows across both BTC (~$300m) and ETH (~$205m).

The anticipated $14b quarterly option expiry on 27 March had little impact on the market itself, however it wiped out ~35% of the option interest on exchange, leaving the market more exposed to macro and geopolitical forces as that gamma’s now cleared and there’s less positioning buffer.

Rather than rehashing a fluid, geopolitical situation which we’re all up to speed on by now, we’ll have a closer look at the market structure to get a sense of how it might react on the upcoming headlines.

Where are we in the cycle?

As we’re moving ahead with limited bottom up headlines, this is a question which is resurfacing again in the market. To contextualize we look at BTC max drawdowns since 2013. BTC peaked roughly 175 days ago at $126k. For context, after the 2017 top it took 364 days to trough (–83.4%), and after 2021 it took 378 days (–76.6%). Today we sit at day 175, down 45.8% from the all-time high.

So either this cycle is compressed, which is a narrative many are running with, supported by the arrival of ETFs and institutional participants, or we’re still in the earlier inning of a drawdown that historically takes about a year to play out. If historical cycle timings hold, that would land BTC in the low-to-mid 50s by 3Q26. Both views are plausible, however, timing alone isn’t going to help us solve this question. FOr that, we need to look at positioning

Perps are driving the tape

Looking at the ratio of perp vs spot trading volumes in BTC, we find that this perp-to-spot volume ratio on the largest exchanges has climbed to 15x. When perpetual futures are dominant, price action is being shaped by leverage positioning rather than organic capital flow. This is generally a more fragile setup, but the ratio alone doesn’t tell which way the leverage is positioned.

Funding shows lack of directional conviction

Funding has been oscillating between positive and negative with no sustained direction bias. Longs and shorted are rotating, getting chopped and reopened without any consensus.

Another interesting point is the volatility of funding itself. Rolling funding rate vol sits at 2.9%, one of the lowest readings of the past year, well below the 5% levels of March-April last year. What stands out is that the oscillation is getting tighter which means that funding is flipping signs but in an increasingly narrow band.

This feels like a hallmark of a compression pattern in which elevated leverage is lacking direction. At the same time the swings are shrinking, which gives the feeling that the market is coiling for a breakout either up or down. This dynamic becomes clear when overlaying the perp-spot-ratio with the funding rate volatility.

The options market sees this but isn’t fully pricing it in

At 53, DVOL (BTC 30d ATM IV) isn’t cheap and well above the mid-30s from last summer and with the IV-RV spread essentially flat, the option market seems to be appreciating the environment.

The question now is what happens when the compression is resolved. In the last twelve months, we’ve had two episodes where the IV-RV spread went deeply negative. In the most recent case (feb-26), vol didn’t drift up but printed 80+, driven by crowded positioning that reversed and forced liquidations.Today’s setup is structurally different. The leverage (relative to spot) is there (in perps) but lacks direction which is arguably harder to price than a crowded trade. While there will be less pressure driven by forced unwinding because there’s no direct overextension, the perp market is driving a coil which can still bleed into a spot move, generating a spike in RV.

At 53, DVOL is pricing for an environment the market recognizes. It's not pricing for what this compression pattern can produce through a different channel and that gap is where the vol opportunity sits."

Our take:

“The market is sitting on compressed energy with no consensus, the direction will be decided by what lights the fuse."

The four-week de-escalation window is expiring with no resolution in sight. Brent above $112, Hormuz effectively closed, and rate hike probabilities climbing. The macro ceiling on risk assets is lower than it was a month ago, making sustained rallies above $70K difficult to hold.

What makes this setup distinctive is the positioning underneath. The March 27 expiry didn't just clear $14B in gamma, it also removed the delta hedging flows that had been anchoring spot around key strike clusters. Without that passive bid/offer providing structure, the market is more exposed to directional moves on thinner flow. Layer on negative ETF flows across both BTC and ETH, and perp leverage that is elevated but directionless at cycle-low funding volatility, and you have a setup that doesn't grind. It snaps.

Credible diplomatic progress and oil pulling back toward $100 would leave the short side vulnerable to a squeeze back toward $70K-$74K after which $74k resistance could be tested if the de-escalation sustains. Conversely, further escalation and oil pushing toward $120 opens the path to the low $60Ks, with high to mid-$50Ks on the table if cycle analogs hold.

The broader point is that direction here is secondary to the setup itself. Perp leverage is elevated, funding is flipping signs in the tightest band we've recorded, and vol of vol is compressing. Regardless of which way the catalyst breaks, the market structure suggests the resulting move will be outsized relative to what current pricing across spot, perps, and options appears to reflect.