Key metrics: (19Aug 4pm HK -> 26Aug 4pm HK):
BTC/USD +8.5% ($58,600 -> $63,600) , ETH/USD +4.4% ($2,620 -> $2,735)
BTC/USD Dec (year-end) ATM vol unchanged (62.2-> 62.2), Dec 25d RR vol -2.0v (4.1 -> 2.1)
Spot finally managed to break out of the congestion zone between 54–63k to test the range resistance at 64–65k. If we are able to clear this we will setup again for a retest of the highs (initial at 70k then again above 74k). Initial support below here is 62.5k
The choppy price action of the last few weeks ended up giving us a (somewhat messy) reverse H&S and Friday’s break higher has now completed this. This suggests if we slip back lower we might see a more deliberate move to the range lows having failed to secure a break back higher.
Market Themes:
Initially a quiet week of consolidation across markets, though anticipation built up to Powell’s speech at Jackson Hole on Friday night. Powell certainly didn’t push back aggressively on the market’s rapid re-pricing of faster and more imminent cuts, acknowledging ‘now is the time’ to begin the Fed’s cutting cycle
After an initial under-reaction in crypto (compared to the quicker reaction higher in US equities/weaker $ vs G10 peers), BTCUSD finally broke out of the recent 58–62k consolidation range to settle at 64k, dragging ETHUSD higher in sympathy to the top-end of recent range
Geopolitical noise continues to subside into the background for now, with no signs of imminent escalation in the Middle-East, while peace talks are struggling to make meaningful progress
ATM implied vols:
Implied volatility traded broadly sideways throughout the week, with spot remaining range-bound up until Jackson Hole. Event weight for Jackson Hole did squeeze up to an implied overnight 2.5% break-even (60 implied vol), which in the end was about fair on a high-frequency basis (though low on a fix-to-fix basis)
After an initial pop higher in implied volatility with spot breaking the 58–62k range post Jackson Hole, implied volatility levels were quickly offered once again on Monday, with spot/realised volatility stalling quickly at 64k
Market continued to see demand for US election optionality, primarily via rolling of September/October calls to November/December. However large supply of longer-dated topside post the weekend led to deflation of back-end, which has compressed the election weight
Skew/Convexity:
Decent reprice lower in skews (less bid for topside), interestingly counter to the spot price action. This perhaps shows market is still nervous about downside acceleration given the previous two episodes of spot moves lower from this level have been very volatile
Moreover, some participants are using the higher level of spot to sell overlay calls particularly in the longer dates, which is putting downward pressure on skews further out the term structure
Convexity has been muted this week with low realised vol-of-vol and low realised spot-risk reversal correlation putting some downward pressure
Good luck for the week ahead!
