Key metrics: (19th Sep 12am HK — 12pm HK ):

  • BTC/USD spot +4.5% ($59,400 -> $62,100)

  • BTC/USD 27Sep ATM vol -7.0v (54.5 -> 47.5); Dec (year-end) ATM vol -1.4v (59.6-> 58.2), Dec 25d RR vol -0.3v (2.3 -> 2.0)

FOMC Recap:

  • The FOMC delivered a 50bp cut to begin its cutting cycle, with chair Powell sounding confident in the state of the US economy (“if you ask most market participants, they would say the economy is doing just fine”)

  • Knee-jerk reaction was US equities higher, USD lower (vs FIAT and Gold), yields lower — though most of the move was unwound post event with market clearing up positioning. BTCUSD and ETHUSD prices remained relatively muted on the event itself, before staging a 4% rally in the early hours of the Asia morning. Altcoins were generally boosted higher by the risk-on sentiment

  • Cross-market implied vols were heavy in the wake of a muted reaction, with the US election the next narrative for the market to focus on in October. Having said that, growth data will be watched closely by the market and the Fed in the coming month

BTCUSD Volatility Recap:

  • After a subdued start to the week, the implied vol market saw high levels of activity into the event, with notable demand for the event weight observed in the market. The overnight vol squeezed from 65 to 90 vols last night -> implying a break-even of 3.5% for the overnight straddle. In the end spot prices did fulfil the break-even due to this morning’s move, but the ‘event move’ itself was largely underwhelming, with spot settling around the $60k mark by 5pm NY time. Expiries slightly further out were dragged higher too as the market scrambled for gamma, with the 27Sep expiry moving from 51.5->54.5 vols briefly, before cratering back to 47.5 vols at current levels

  • Activity further out the curve was relatively subdued, with implied levels drifting lower into the event and after, as the market still searches for a fresh narrative to break the current range-bound trading. A brief spike on the break higher this morning was quickly faded the market clearly running into some long Vega derive on higher spot locally

  • Skew pricing remained very static, indicating bullish sentiment has yet to return to the market despite the fresh move higher in spot. Implied volatility is struggling to materially move either side of spot (in fact some overlay topside selling observed on higher spot) so this is broadly expected

Forward Outlook for Crypto Vol:

  • Short-term, barring a fresh break higher in spot prices, we expect to see continued pressure on front-end implied volatility with realised metrics subdued (mid-40s realised on high frequency and fix-to-fix average) and no event risk on the imminent horizon. It is likely market participants may use this leg higher in spot to sell shorter-dated topside calls as an overlay to core long cash positions (we have observed some of this already this morning)

  • As pressure on the front-end volatility continues into the weekend, the market may over-discount the post-election expiries; we estimate a total variance of around 5–6% currently priced in for the US election date, which given its significance for the crypto cycle seems low (bearing in mind the market priced in almost 4% break-even for FOMC last night, and around 5.5% for the Bitcoin 2024 conference in August)

  • With pricing at 50:50 for the election we expect that skews will remain fairly static into the event, since the gap-move either side could be fairly symmetric initially (disappointment on Harris/‘status-quo’ outcome vs bullishness on Trump)

Good luck!