Key metrics: (9Dec 4pm HK -> 16Dec 4pm HK):
BTC/USD +5.3% ($99,600 -> $104,880) , ETH/USD +1.5% ($3,910 -> $3,970)
BTC/USD 27Dec ATM vol unchanged (55.2->55.2), Dec 25d RR vol -2.5v (4.2 -> 1.7)
Spot Technical Outlook:
The price action has shifted from sideways-corrective to more upward and contained as we continued to make higher highs in a well-balanced fashion. This therefore suggests the end of the current progression might be coming to a head in the next few weeks at a $110–115k target rather than our original target of $115–120k
A break back below $100k beforehand could lead to a move back to $90–95k and would imply these moves are within an extended correction and the final move higher is still to come in the new year. On the top side an acceleration quickly through $106.5k could cause a more erratic and explosive move higher
Market Themes:
Risk assets continued to grind higher into year end with no obvious catalyst imminent to reverse the upward trend. US CPI printed in-line with expectations and has done nothing to de-rail the 100% expectation of a 25bp cut from the Fed this week, despite the headline number still above the Fed’s ultimate target
Crypto benefited from the supportive risk backdrop as dips below $100k in BTC were bought into and ultimately yet another week of printing a fresh ATH. The news of Microstrategy’s inclusion into the Nasdaq index gave prices an uplift over the weekend, spurred on by a tweet from Taylor himself suggesting more buys were imminent, enabling spot to finally clear the key resistance level at $104k. Funding across BTC and altcoins normalised somewhat this week suggesting position unwinds as we round off broadly great year for the asset class
BTC$ ATM implied vols:
Despite some choppy local price action culminating in a fresh ATH in BTCUSD spot prices, realised volatility was not particularly elevated this week, with the market’s positioning feeling a lot lighter into year-end, as evidenced by normalisation in funding/basis this week too. This put pressure on contracts pre year-end, with the 27Dec expiry printing briefly below 50vol level at the end of the week. However expiries for January onwards remained stubbornly bid, with the market seeing a large amount of demand for Feb-March topside ($130–150k region) and also Feb-March downside ($70–75k region). Likely the former is a rotation of cash positions into options for Q1, while the latter seemingly a hedge for core long BTC
We would expect implied volatility levels to normalise lower by January, with the market pricing implied volatility levels north of 60 on a weekly basis for Q1, which historically has been very hard to sustain. In the interim the market will retain some risk premium in the implied levels in case of any liquidity event either side of spot into the new year
BTC$ Skew/Convexity:
Skew prices trended lower this week despite implied levels grinding higher with higher spot, mainly driven by large downside demand for Feb-March $70–75k strikes (likely hedging flow), while legacy call spreads are likely giving dealers some long Vega derive as we move up towards the $105–110k region
Convexity generally traded sideways with the spot vs risk reversal correlation breaking down locally and with the market pricing more of the distribution of vol into the $90–120k range that looks likely to contain spot in the coming month
Good luck for the week ahead and happy holidays!
