It’s been a volatile week for the crypto market and the second largest cryptocurrency by market capitalization ether was one of the hardest hit digital assets, losing more than 11% over the last seven days.

In a note on Tuesday, crypto hedge fund QCP Capital noted that crypto markets are getting increasingly nervous as the downside skew in ether risk reversals, which is a hedging strategy used by traders to protect against unfavorable price moves, are sinking deeper to -20%.

Volatility skew refers to the difference in implied volatility (or how much the market expects the price of an asset to move) for levels of options with different strike prices.

Risk reversal is an options strategy that traders use to take advantage of this volatility skew. They sell an out of the money put option and simultaneously buying an out of the money call option with the same expiration date to protect against downside risk.

“We expect this nervousness to persist as the Iran-Israeli conflict develops. The risk-off sentiment has been exacerbated by weakness in US equities too,” analysts at the firm said. 

The analysts also observed that perpetual funding rates for altcoins was generally negative, meaning that long leveraged trades had been wiped out. 

“Given the prevailing nervousness, we suggest picking bottoms very defensively by buying BTC or ETH at a significant discount to spot price,” they said.

Based on how price has moved in the past, the current volatility set up could see ether move sharply in either direction. 

According to Zaheer Ebtikar, founder of crypto hedge fund Split Capital, more than half the open interest on altcoins worth $9 billion was erased last week, with the lowest altcoin to market cap ratio since September.

 “Precisely why I’m betting on an ETH bounce despite a medium term bearish outlook. It’s a great proxy for the alt market, and honestly the only one if you use options. It’s not price that you should trade, it’s what goes on under the hood as Zaheer points out,” said another pseudonymous trader on X.