Key Indicators: (October 28, 4 PM - November 4, 4 PM Hong Kong Time)
BTC/USD price up +0.15% ($68,500->$68,600), ETH/USD price down -2.4% ($2,520->$2,460)
BTC/USD year-end (December) ATM volatility up +3.7 points (54.3->58.0), year-end 25 delta skew down -0.6 points (3.7->3.1)
Overview of Spot Technical Indicators:
On Wednesday, the coin price reached an all-time high, initially leading us to feel that we had underestimated the potential of the spot market before the election. However, the coin price ultimately failed to maintain its high and quickly retreated, with the $70k price becoming the main resistance level. Meanwhile, the peak price will become the target for the next round of competition in the market, provided that Trump wins the election.
Currently, we believe that the coin price may fluctuate between $66k and $70k in the coming days until the election situation guides the next major direction.
If Harris wins, the coin price may break down below the flag support level of $63.5k to $64k and drop to $60k. It is even possible that it could slide below the support range to around $54k in the coming days. On the other hand, if Trump wins, the coin price will break above $74k, with the potential to rise to $77k to $78k.
Market Theme:
With the fluctuations in U.S. election odds on Polymarket, trading activity in the cryptocurrency space has increased. When the odds of a Trump victory rose to 67%, the BTCUSD spot price briefly broke above $73.6k, setting a new historical high. Subsequently, when weekend polls pushed the odds back down to 55%, the coin price retreated and tested $67.5k downwards. The odds of Republican dominance also dropped from 48% to 37%. Although the odds gap is narrowing, the price trends in various markets reflect that market sentiment remains bullish and is preparing for a Trump victory.
The U.S. Non-Farm Payrolls (NFP) data came in at 12,000, far below the expected 100,000. However, the market generally brushed this off, attributing it to recent hurricanes and labor strikes. The BTCUSD spot market saw some fresh inflow after the data release, briefly pushing the price up to $71.5k but subsequently giving back the entire gain. The market has adopted a cautious stance towards chasing after prices during the election period.
Microstrategy announced a three-year, $42 billion Bitcoin investment plan in last week's earnings report, primarily raising funds through stock and convertible bond issuance to increase its Bitcoin holdings. While this should drive prices in the medium term, short-term price movements are mainly influenced by the election.
BTC Implied Volatility:
This week's actual volatility has increased, mainly due to changes in Polymarket election odds. The odds have fluctuated back and forth from 58% to 67% and then to 54% (with Trump leading). High-frequency actual volatility has risen to a moderate level in the 40s, which has to be acknowledged as not particularly high in Bitcoin's history but is noticeably higher than in previous weeks. Additionally, the price changes after the November 1 expiration settlement show that the market's short gamma positions are increasing before the election.
This week's implied volatility levels have received strong support as the market has seen a surge in demand for November expiration options, primarily targeting the expiration date after the U.S. elections. The demand is mainly concentrated in the upward strike prices between $75k and $80k, but we are also seeing some pure trading volatility straddles/strangles. Affected by the large demand, volatility has rebounded from recent lows.
The market's pricing of event volatility for election day has dropped to recent lows over the weekend, as visible high volatility roll data and theta data incentivized retail investors to hold short positions over the weekend. With only a 7% premium on the volatility of straddle combinations expiring on the Friday after the election and FOMC, we believe holding long gamma in event volatility should have sufficient profit space. A mere change in odds from 67% to 54% prompted the coin price to drop from a high of $73.5k to a low of $67.5k last week, suggesting that a rise to $75k following a Trump victory or a drop to $60k following a Harris victory should not be difficult.
Skew/Kurtosis:
This week's skew continues to decline, seemingly tracking the movements in spot prices and the changes in election odds. The skew for the November 8 expiration has actually reversed downward quite sharply, reflecting the market preparing for a Trump victory and believing that an 'unexpected' Harris victory would lead to a drop in coin prices, resulting in higher slippage.
Kurtosis has gradually risen from a low this week as buyers have appeared on both sides of the real-time price, especially for the November expiration.
Wishing everyone good luck in the coming week!
