Key Indicators: (December 9th, 4 PM -> December 16th, 4 PM Hong Kong Time)
BTC against USD up 5.3% ($99,600 -> $104,880), ETH against USD up 1.5% ($3,910 -> $3,970)
BTC against USD December (end of year) ATM volatility unchanged (55.2 -> 55.2), December 25th skew decreased by 2.5 points (4.2 -> 1.7)
Key Technical Indicators for Spot:
The price trend of the currency has shifted from unilateral correction to restrained upward movement. We see that the highest price continues to refresh in a very balanced manner, suggesting that the current process will peak in the coming weeks, with a target price in the range of $110,000 to $115,000, rather than our original target of $115,000 to $120,000.
If the price drops below $100,000 again before this, it could lead to a price retreat to the $90,000 to $95,000 range, which would imply that this wave of increase is just a long correction, and the final increase will still come next year. On the other hand, if the price quickly breaks through $106,500, it may trigger a more turbulent explosive rise.
Market Theme:
In the absence of significant short-term catalysts to reverse the upward trend, risk assets continue to grow slightly before the end of the year. The U.S. Consumer Price Index is in line with expectations. Although core numbers remain above the Federal Reserve's ultimate target, the market's expectation for a 100% chance of a 25 basis point rate cut this week has not changed.
The macro backdrop supporting cryptocurrencies has greatly benefited Bitcoin. Bitcoin's price has been bought up as soon as it drops below $100,000, setting a new high again this week. The news of Nasdaq including MSTR in the index boosted the coin's price over the weekend, while Taylor himself hinted that more buyers are about to enter the market, stimulating the coin price to finally break through the key resistance level of $104,000. Funding rates for Bitcoin and other small coins have returned to normal this week, indicating that such positions are starting to unwind after a good year.
ATM Implied Volatility
Despite the relatively fluctuating spot price of BTCUSD this week, which ultimately set a new high, the actual volatility has not increased significantly. It seems that the positions opened in the market at the end of the year are relatively few, which can also be seen from the return to normal funding rates and basis. This has caused selling pressure on contracts before the end of the year, with the implied volatility of contracts expiring on December 27th briefly dropping below 50 points this weekend. However, contracts expiring from January next year still maintain strong buying interest. The market has seen significant demand for the upper range (between $130,000 and $150,000) in February/March, as well as for the lower range (between $70,000 and $75,000) in February/March. The former is likely to be a transfer of spot long positions to Q1 options, while the latter is to hedge the core Bitcoin long positions.
We expect implied volatility to return to lower levels in January. The current market pricing for Q1 is above an average of 60 points implied volatility per week, a level that would be difficult to maintain according to historical data. During this period, the market has retained some risk premium on implied volatility to guard against the potential impact of liquidity shortages around New Year.
BTC Skew/Kurtosis
Despite the level of implied volatility rising along with the spot price, the skew has shown a downward trend this week. This is mainly driven by the demand for lower strike prices expiring in February and March (likely related to hedging flow), while classic call spreads have reserved Vega long for market makers in the $105,000 to $110,000 range.
With the correlation between the price and skew being broken at the current price level, the kurtosis has generally been unilaterally adjusted downwards. The market has priced volatility more in the range of $90,000 to $120,000, suggesting that the price will likely remain within this range over the next month.
