Key metrics: (28Oct 4pm HK -> 4Nov 4pm HK):
BTC/USD +0.15% ($68,500 -> $68,600) , ETH/USD -2.4% ($2,520 -> $2,460)
BTC/USD Dec (year-end) ATM vol +3.7v (54.3-> 58.0), Dec 25d RR vol -0.6v (3.7 -> 3.1)
Spot Technical Outlook:
Initially it seemed that we had underestimated the potential for spot to break-out ahead of the election, when we made brief new highs on Wednesday. However, the test of the highs ultimately failed to follow through and spot retraced fairly aggressively, with $70k re-establishing itself as major resistance for now while the ATH will be the next level for the market to run at should Trump win
From here we think that spot will likely move between the $66–70k range for the next few days before the election determines the next big move
A break of the Flag support (63.5–64k) will see a move down to $60k (Harris victory) with potential for a slip within the pivot zone down to $54k (over the subsequent session). On the topside we see a break of $74k on the cards for a Trump victory with potential to extend the move up to $77–78k
Market Themes:
Pick-up in activity in the crypto space as the market tracked the swings in the Polymarket odds for the US election, with BTCUSD spot briefly printing ATH through $73.5k as odds swung to 67% for Trump, before retracing to test $67.5k as weekend polls pushed pricing back to 55% only. Republican sweep odds also dropped from 48% to 37%. Despite this, sentiment overall remains bullish as cross-market price action looks pre-positioned for a Trump win despite the narrowing of odds
US NFP came in considerably weaker than estimates at 12k vs 100k expected, but the market broadly shrugged this off, attributing it to the recent hurricane and labour strikes. BTCUSD spot saw some fresh inflows post the data which pushed it up to $71.5k briefly, before retracing the whole move with the market wary of chasing longs into the election
Microstrategy announced a three-year $42billion bitcoin investment plan over their earnings last week, essentially issuing shares/convertible bonds to raise capital to increase bitcoin holdings. While medium-term this should provide a tailwind to prices, in the short term the price action was dominated by election positioning
ATM implied vols:
Pick up in realised volatility this week driven by Polymarket election odds doing a round trip for 58%->67%->54% (favouring Trump). High frequency realised picked up to mid-40s which is admittedly not a particularly high number for Bitcoin historically but significantly higher than previous weeks; moreover the market price action post 1Nov expiries suggests that the market is decaying shorter gamma into the election
Implied volatility levels were well supported this week as the market saw a large wave of demand for November expiries covering the US elections; predominantly demand was for topside strikes in the $75–80k range, though some outright straddle/strangle buying as a pure vol play was also seen. Vols further out bounced off local lows driven by general demand for optionality into the election
The actual event variance for the election days dropped to a local low over the weekend, as optically high vol rolls/theta numbers encouraged retail sellers on the weekend, with 6Nov expiry in particular being sold. With a total straddle premium of 7% for Friday expiry covering the US election and FOMC, we think gamma should be monetisable over the events, with spot having retraced from $73.5k to $67.5k last week high-to-low on the shift in odds from 67% to 54% alone, suggesting $75k on Trump and $60k on Harris should be easily achievable
Skew/Convexity:
Skew prices continued to trade lower this week, seemingly tracking the movement of spot and the shift in election odds. Skew for 8Nov (event skew) actually flipped quite aggressively for downside, reflecting a market that is pre-positioned for a Trump win and therefore ascribing higher slippage to the downside in the event of a Harris ‘surprise win’
Convexity ticked up from the lows over the course of this week, as the market was paid for optionality on both sides of the distribution, particularly in November expiries
Good luck for the week ahead!
