Key indicators: (21 Oct 4 pm Hong Kong time -> 28 Oct 4 pm Hong Kong time)
BTC/USD price stable ($68,500 -> $68,500), ETH/USD price down -7.5% ($2,725 -> $2,520)
BTC/USD year-end ATM vol down -1.6 points (55.9 -> 54.3), year-end 25d skew down -0.6 points (4.3 -> 3.7)
Overview of spot technical indicators
The BTC spot market performed very restrained last week, holding steady between $69.5k and $65k. We continuously observe that the market is trapped between the support of a long-term flag pattern and the resistance at $70.25k above. Therefore, we expect the market to remain in this range in the coming days.
Considering the current state of the market and the rising odds of Trump winning, we believe that the market will attempt to break out of this range in the coming week leading up to the election.
Market Themes
Global markets remained calm throughout the week, with everyone eagerly watching the outcome of the U.S. election. Overall, 'no news is good news.' Under the premise that data from the U.S. remains relatively stable, risk assets continue to rise slightly.
Despite Israel's weekend rocket fire at Iranian military bases in retaliation, the market generally views this as a de-escalation measure. This retaliation was very targeted, and Iran denied being affected. From this event, the influence of the U.S. on Israel has prevailed and eliminated the tail risk brought by this geopolitical situation.
(Wall Street Journal) reported Friday evening on the U.S. government's investigation into Tether, leading USDT to briefly fall below its pegged price, putting pressure on the entire cryptocurrency market. However, Tether's CEO denied this speculative report, and no further confirming news emerged over the weekend. The cryptocurrency market then rebounded, with USDT's price returning to just below its pegged level.
The odds of Trump winning continue to rise (support rate of 65-66%), while the odds of a Republican landslide also increased from 42% to 48%. Other markets have clearly begun to prepare for Trump's victory, but the cryptocurrency community is still waiting for further confirming news before attempting to break through BTC's historical highs.
BTC implied volatility
Another week of subdued realized volatility. Leading up to the election, Bitcoin prices have remained stable between $65k and $70k. Bitcoin found good support when it dipped into the $65k to $66k range, while after several failed attempts to break through $69k, the price has struggled to show any upward momentum.
Accompanied by a calm spot market and more selling pressure from year-end vs next March, implied volatility levels generally trended downward this week (excluding contracts expiring in November). Although the absolute level of implied volatility appears low, there remains a significant premium compared to realized volatility.
The implied volatility for November expiration has risen against the trend from last week's low. As the U.S. election approaches, demand for options in the market has started to increase. Market interest ranges from purely buying straddles/strangles, buying call spreads to buying put protection. As the daily breakeven point still hovers around 6%, we expect the demand for options on November expiration contracts to continue to rise in the coming week.
Skew/Kurtosis
Overall, the skew of prices has generally returned to the highs seen early last week, with a slight drop after the Tether news, but by the end of this week, it is only slightly down from the beginning of the week. The market generally lacks interest in holding options within the strike price range of $50k to $60k (except possibly for short-term tail hedging for the election), which offsets the poor performance of realized volatility at price highs. More specifically, the market is more interested in the upside risk of creating historical highs in price after Trump wins/the Republican Party's major victory, which supports the skew of volatility.
The level of kurtosis has not changed much, and the market shows little interest in trading wings in a declining volatility environment. However, if there is significant price movement, changes in volatility and skew will be evident on both wings, providing support for kurtosis to remain at its current level.
Wishing everyone smooth trading in the coming week!
