The explosive growth of decentralized finance, or DeFi, on the Ethereum blockchain has brought unwanted attention to the recent surge in congestion on the network, with a resulting jump in transaction fees.

There's another consequence for crypto traders: Rising volatility in prices for ether, the blockchain's native cryptocurrency. That's especially true when ether's volatility is compared with that of bitcoin. 

You’re reading First Mover, CoinDesk’s daily markets newsletter. Assembled by the CoinDesk Markets Team and edited by Bradley Keoun, First Mover starts your day with the most up-to-date sentiment around crypto markets, which of course never close, putting in context every wild swing in bitcoin and more. We follow the money so you don’t have to. You can subscribe here.

The three-month spread between ether's implied volatility and bitcoin's has increased to 29%, the highest in six months, according to data source Skew. As recently as June 28, the spread was as low of -2.8%, meaning bitcoin had the higher implied volatility at that point.

Volatility often carries a negative connotation because traders often consider it a barometer of risk. In this case the rising spread appears to indicate a wide range of expectations in how DeFi might ultimately affect usage of the Ethereum network and demand for the ether. 

“Ether's rising volatility is a byproduct of its own success," Denis Vinokourov, head of research at Bequant, a London-based cryptocurrency exchange and institutional brokerage, said in a Telegram chat.  "Success comes with risks, the need to hedge.”

Implied volatility represents the market's expectations of how volatile or risky an asset would be over a specific period. It's not necessarily bullish or bearish: Heightened implied volatility simply means that future price swings might lie ahead.

“Investors are focused on DeFi and mindful of a potential big move in ETH," Emmanuel Goh, CEO of the crypto-derivatives data firm Skew, told CoinDesk in a Telegram chat. 

DeFi tokens have been among the hottest performers in cryptocurrency markets this year, with steep rallies in Chainlink’s LINK and the Kyber Network’s KNC. The open-source lending protocol Aave's LEND token has risen more than 30-fold.

The Ethereum network's recent spell of congestion has pushed the average transaction fee to record highs above $6.

The heightened volatility expectations might also be an indication of how volatile prices have been this year for ether itself. The second-largest cryptocurrency has tripled, gaining on bitcoin, which is up a respectable 64%. 

Demand for options, or the need to hedge, tends to pick up with price rallies and major fundamental developments, and implied volatilities are primarily driven by the net buying pressure for options contracts like price calls and puts. 

This is what success looks like right now for Ethereum. 

- Omkar Godbole, Markets Reporter

Despite the recent pullback in bitcoin prices, analysts are still bullish in the long term, with Federal Reserve Chair Jerome Powell expected to bolster inflation expectations in a highly anticipated speech Thursday.  

- Omkar Godbole, Markets Reporter

S&P 500 forward P/E multiple now at 25.98, highest since dot-com era (WSJ)

Gold ETFs now hold more gold than every central bank except Federal Reserve (BNN Bloomberg)

Nouriel Roubini sees "no clear alternative currency" to replace USD as reserve currency (MarketWatch)

Money-market yields so close to negative that BlackRock, Fidelity cut fees (WSJ)

HSBC, ABN, Credit Suisse, UBS cutting back as margins shrink, loan losses swell (WSJ)

Central banks in countries with large populations of off-the-books workers are moving faster on digital currencies (Bank for International Settlements)
A recent paper by the Bank for International Settlements looks at the economic reasoning behind central bank digital currencies and how they may be shaped for future implementation via mainstream adoption.

Boston Fed evaluating 30-40 blockchain networks for digital dollar (CoinDesk)
The Federal Reserve Bank of Boston, one of 12 regional Federal Reserve banks operating under the U.S. central bank, is evaluating more than 30 different blockchain networks to determine if they would support a digital dollar.

Bitcoin addresses with >1K BTC hits record high, suggesting growing institutional interest (CoinDesk)
There are more than 2,000 addresses holding over 1,000 bitcoin, potentially reflecting increased interest from institutions and high-net-worth investors.

Bitstamp to migrate customer accounts from London to Luxembourg (CoinDesk)
Cryptocurrency exchange Bitstamp told CoinDesk it will migrate its customer accounts from its London-based Bitstamp Limited to its entity in Luxembourg.

– Sebastian Sinclair, Reporter