Key metrics: (4Nov 4pm HK -> 11Nov 4pm HK):
BTC/USD +18.4% ($68,600 -> $81,200) , ETH/USD +27.6% ($2,460 -> $3,140)
BTC/USD Dec (year-end) ATM vol -6.2v (58.0-> 51.8), Dec 25d RR vol +0.1v (3.1 -> 3.2)
Spot Technical Outlook:
With Trump confirmed as the president, we tore through the $74k resistance level, putting in an 11% move between going in (Tuesday 4pm HKT) and the 8th Nov 4pm Expiry, extending up to our bullish election target of $76–78 region. Upward momentum has continued since and we continue to be constructive on BTC post the election, with longer term targets above $100k. Short term we might expect some choppy price action/exhaustion, but technicals support a core long bias
The major support region below here is $74–72k which we suspect will hold, should the market overly aggresses any short term take-profits on a pullback
Market Themes:
Trump secured the presidency and the Republicans swept control of House and Senate too, despite narrowing of the odds ahead of the event that drove short-term liquidations in spot to $67k. This has indeed proved to be the fresh catalyst that the crypto market was waiting for — after an initial reprice higher to $75–76k post event, the market has not looked back, breaking through the key psychological level of $80k over the weekend, while Altcoins surge higher too with ETH back above $3k
The broad macro backdrop remains supportive of risk assets into year-end, with the Fed delivering a dovish cut on Thursday night post-election. China stimulus announcements underwhelmed on Friday but that was broadly shrugged off as the market finds no strong reason to fade risk assets in the near-term. This should continue to be a tailwind for crypto prices too
While the USD rallied against FIAT currencies on Trump’s win, partly driven by the move higher in US yields, crypto completely de-correlated with the fresh narrative of pro-crypto regulation/potential strategic reserve likely to remain front-of-mind in the coming months until proven otherwise, and this should underpin inflows into the space
ATM implied vols:
Event variance for the election ended up being under-priced for the election, with the market essentially decaying the gap move down to around 5.5% (across 2 days) heading into the event, vs a realised one-day move of closed to 8.5%. The realisation of the result on actual day also caught the market off-guard as many had expected a tighter race and priced premium into mid-end November contracts for a delayed outcome — which was eventually unwound aggressively
Implied volatility levels have been trending lower since the election as the market runs into some long vol derive on higher spot (from legacy call-spreads and overlay selling), while directional interest via options has been fairly quiet on the move higher, aside from occasional rolling up of strikes that performed
There is a structural argument for dampened volatility heading into the new regime too — should Trump successfully get the ball rolling with regulation on institutional adoption in the US, this should unlock a fresh wave of capital inflows that will underpin prices and dampen volatility. Moreover, realised volatility for the asset has been declining to the low-mid 40s excluding events in the past few months, further supporting that view. However we caveat that there is a long way to go before Trump can actually pass such legislature through congress
Skew/Convexity:
Skew prices have ended the week largely unchanged, despite bullish sentiment — legacy topside structures (overlay selling and call-spreads) are giving the market long Vega derive on higher spot, which has not yet been offset by fresh demand. As such the spot-implied vol correlation has not performed on this move higher and this has weighed on the skew, offsetting the bullish sentiment and supply of downside wings
Convexity priced lower as the market has been supplied with downside wings on the spot move higher (bullish plays) and also has derived longer topside wings from legacy structures. We think this part of the surface is oversold now as spot should settle into new equilibrium range locally, but can be explosive on a real break of >$100k or below $60–65k on some risk-off event
Good luck for the week ahead!
