Key metrics: (23Dec 4pm HK -> 30Dec 4pm HK):
· BTC/USD -1.9% ($95,300 -> $93,500) , ETH/USD +3.0% ($3,300 -> $3,400)
Spot Technical Outlook:
· The price action over the last week has been choppy but ultimately contained within $92.5k-99k range and this eventually led to a compression of the realised volatility -at least fix to fix — and we suspect that will continue for a few more sessions. However, there could be volatility into the year end fix and it is possible that the end of this extended correction might have come and gone before year end, which would set us up for the next leg higher.
· Support here down to $92k, below that we expect good support to come in around $90k, and all the way down to $85k. If that levels break we could see a more material move lower but we assess that to be fairly unlikely. On the top side if we manage to regain the psychological $100k mark that will open us up for a test of the highs and then on to our target level of $115–120k (expected early to mid Q1)
Market Themes:
· Very quiet holiday week with consolidation in prices following a corrective move lower in US equities and higher in the USD (against FIAT) on the back of the more hawkish FOMC meeting
· Crypto momentum has shifted to the downside with the market undoubtedly long at this juncture and the marginal buyer hard to find. MSTR also rumoured to be heading into a blackout period of buying ahead of their January results reporting which could also reduce the upward pressure on BTCUSD spot prices in the coming weeks
BTC$ ATM implied vols:
· Despite some choppy local price action locally, overall realised volatility continues to decline as prices find equilibrium in this broader range of $92–99k. Despite that implied volatility levels remains stubborn particularly from February onwards, with the market still digesting large demand from earlier in the month
· We would expect implied volatility levels to normalise lower by January, with the market pricing implied volatility levels north of 60 on a weekly basis for Q1, which historically has been very hard to sustain. While January itself could see elevated volatility as the market readjusts positioning to start the new year and with Trump’s inauguration on 20Jan, it is likely that we will continue to see the structural compression of realised volatility that we’ve seen this year, as the asset becomes more established and underpinned by ETF inflows on dips, and therefore we feel a more sustainable baseline realised volatility is in the 40–50 region (as opposed to pricing of above 60 currently for Feb/March onwards)
BTC$ Skew/Convexity:
· Skew prices trended higher this week despite implied levels remaining sticky on lower spot and realised volatility quite high on the downside. The market continues to look for topside into 2025 and taking advantage of the lower spot prices to do so, while legacy shorts in mid-curve remain from large buying flows earlier this month
· Convexity generally traded sideways with the spot vs risk reversal correlation breaking down locally, while demand for wingy low strikes remains absent for now in Vega tenors (just some tactically gamma downside buyers in case of a flush below $90k)
That’s a wrap for 2024 — thanks for tuning in and happy holidays!
