Key indicators: (August 5, 4pm Hong Kong time -> August 12, 4pm)
BTC/USD + 11% （$ 52, 700 -> $ 58, 500），ETH/USD + 8% （$ 2, 360 -> $ 2, 550）
BTC/USD December (year-end) ATM volatility decreased by 0.5% (62 -> 61.5), December 25d RR volatility increased by 0.3% (3.3 -> 3.6)
The global risk reversal caused the BTC price to quickly fall below the critical support level of 58-59k, causing stop-loss orders to be triggered, leading to a drop to the main support level of 50k.
BTC price subsequently recovered above 54k, so the current trading range price is expected to be between 54k and 64k.
Short term support is expected at 57 k and resistance at 63 k.
Market Events
After experiencing a low point where volatility had risen sharply and caused stop-loss orders to be triggered in traditional financial markets, the market has gradually returned. As the realized volatility of global assets has risen recently, the market has shown volatility in the late stage, trying to readjust its positions.
Last week was relatively geopolitically quiet, with much of the intra-week volatility appearing to be driven by illiquid market flows rather than by major shifts in overall market sentiment.
The BTC market has strong buying demand around 50k, likely coming from Accumulator products which are buying twice as much below 50k, in turn increasing demand for BTC. Excessive open interest in ETH is dragging the market down, causing it to not recover as quickly as Bitcoin (based on volatility, you would expect it to rise around 15% instead of 8%).
Cryptocurrency market Vega showed strong buying for most of the week as traders seemed to be slightly misled by the market volatility and took short volatility positions. However, a new round of selling on Thursday night and Friday seemed to have them fill their positions, causing Vega to gradually decline before the weekend. As spot and perpetual contract liquidity remains scarce, realized volatility remains at a high level.
ATM Implied Volatility:
Over the past week, the peaks of the front-end implied volatility have continued to decline as the spot price has moved, but overall volatility levels have remained high until selling pressure eased on Thursday and Friday.
In traditional financial markets, the VIX volatility index surged to a high of 65 on Monday before retreating to a range of 22-28 for the rest of the day, finally closing at 20.6.
Ahead of the CPI data release, front-end volatility has recovered from weekend lows; if the CPI data release is quiet and the market remains in its current range, we expect front-end volatility to return to end-July levels. In this case, we expect belly FVAs to outperform.
Skewness/Convexity:
After the market experienced panic buying on Monday night, it quickly pulled back as spot prices recovered. Butterflies and risk reversals gradually retreated during the week and are now back in long-term trend ranges. There was a slight squeeze in the front-end period ahead of the CPI release on Monday morning, but it eased in the morning trading session.
The spot-volatility correlation shows a significant negative correlation in local areas; that is, when spot prices fall back from highs, implied volatility is quickly pushed up. As sentiment remains tight, some overlay supply makes traders more willing to mark volatility lower at higher spot prices.
Market demand/buying for upper Vega continues to exist, while supply above is likely to decrease towards year end amid lower spot prices.
Good luck with your trading this week!
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