Key metrics: (30Sep 4pm HK -> 7Oct 4pm HK):
BTC/USD flat ($63,500 -> $63,500) , ETH/USD -4.6% ($2,600 -> $2,480)
BTC/USD Dec (year-end) ATM vol -0.7v (56.8-> 56.1), Dec 25d RR vol -0.4v (2.7 -> 2.3)
Spot Technical Outlook:
The long-term flag top resistance proved to be too strong to break — which remains our base case ahead of the US Elections next month
The rejection at $65–66k, coupled with geopolitical escalation resulted in a test and subsequent break briefly of the previous range support at $60–61k, though more substantial support was seen and held at $60k
From here we think that short term support around $60.5–60k should hold for the time being, while moves to the topside should be capped ahead of $65k. Overall expecting consolidation as the market awaits a fresh catalyst in the form of the election outcome
Market Themes:
China stimulus euphoria took a breather as the market turned its attention to the escalating geopolitical situation in the Middle East. After Iran missiles struck Israel (and seemingly did more damage than Israel cared to admit), Israel has vowed retaliation, though for now the exact format remains unclear and it seems the US is attempting to de-escalate by encouraging Israel to refrain. The risky geopolitical backdrop weighted on Crypto prices with BTCUSD briefly testing below $60k and ETHUSD below $2,400 — crypto locally exhibiting high correlation to US equities (as opposed to any safe haven characteristics)
US jobs data surprised significantly to the upside, with unemployment back down to 4.05% and headline new jobs beating expectations by over 100k! This provided an uplift to US equity prices on Friday and also the USD against FIAT currencies, though crypto actually rallied on the number with the equity-beta more dominant than the USD/US-rates beta
After a strong performance from Vance in the VP presidential debate, polls for the election reverted back to 50/50. Given Vance presents some medium term credibility to the Trump ticket and has a pro-crypto stance, this should fatten the distribution for a bullish election tail (which was previously suppressed by Trump lagging Harris in polls)
ATM implied vols:
Realised volatility picked up from very subdued levels as the geopolitical headlines drove spot liquidations down to <$60k briefly in BTCUSD; despite this, realised numbers were still only in the low-mid 40s on high-frequency and fix-to-fix basis (up from mid 30s last week), versus daily vol of high 40s.
With spot holding $60k and bouncing in-line with the relief rally in US equities on Friday, implied vols capitulated into the weekend to fresh lows in the recent cycle, as the market was reluctant to hold inventory given the low realised and lack of demand. Realised on the weekend remained extremely low (<25) before a small pick-up Monday morning as de-escalation headlines in the Middle East drove BTCUSD spot 2.5% higher
We continue to expect subdued gamma performance (and hence heavy front-end implied contracts) this week, barring any fresh escalation in the Middle East, or any significant outlier for CPI
Election variance priced lower once more as the market took out risk premium from the implied volatility curves into the weekend; with the election now just 4 weeks away and the election odds 50/50, it is a matter of time before attention pivots to this as the next potential fresh catalyst for the cycle, which should drag the event pricing higher as we approach
Skew/Convexity:
Skew prices drifted lower this week, as some large supply of December topside (via ratio call-spreads) was observed in the market. Moreover the price action in spot to the downside on the geopolitical news was more explosive from a realised vol perspective, which resulted in downside contracts relatively better bid in shorter dated tenors especially (Oct expiries and 8Nov)
Convexity traded sideways over the course of the week, with some supply via ratio call/spreads offset by outright demand for wing strikes outside of the local 55/70k range
Good luck for the week ahead!
