Key Indicators: (21 Oct 4 pm HKT -> 28 Oct 4 pm HKT)
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
BTC spot market showed very restrained performance last week, maintaining between £69.5k and £65k. We continue to observe the market trapped between the support level of a long-term flag pattern and the resistance level above £70.25k. Therefore, it is expected that the market will continue to stay within this range in the coming days.
Considering the current state of the market and the rising odds of Trump winning, we believe the market will attempt to break out of this range in the upcoming week leading up to the election.
Market Themes
Global markets remained calm throughout the week, with everyone eagerly watching the outcome of the US election. Overall, 'no news is good news'. With data remaining relatively stable in the US, risk assets continue to rise slightly.
Despite Israel's weekend rocket attacks on Iranian military bases, the market generally views this as a de-escalation measure. This response was very targeted, and Iran denied being affected. This event indicates that the US influence over Israel prevails and has mitigated the tail risk of this geopolitical issue.
(Wall Street Journal) reported Friday evening that the US government is investigating Tether, causing USDT to briefly dip below its pegged price and putting pressure on the entire cryptocurrency market. However, Tether's CEO denied these speculative reports, and no further confirming news emerged over the weekend. The cryptocurrency market subsequently rebounded, with USDT's price returning to slightly below its pegged price level.
The odds of Trump winning continue to rise (support rate of 65-66%), while the odds of a republican landslide have also increased from 42% to 48%. Other markets have clearly started to prepare for a Trump 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 sluggish actual volatility. Ahead of the election, Bitcoin prices remain stable between £65k and £70k. Bitcoin found good support when dipping 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 the end of the year vs. next March, implied volatility levels have generally trended downward this week (excluding contracts expiring in November). Although the absolute level of implied volatility appears low, there remains a relatively high premium compared to actual volatility.
The implied volatility for the November expiration date has risen against the trend, up from last week's lows. As the US elections approach, demand for options is starting to increase. Market interest ranges from pure buying straddles/butterflies, buying call spreads to buying put protection. As the daily breakeven point continues to hover around 6%, we expect option demand for the November expiration contracts to continue to rise in the coming week.
Skew/Kurtosis
Overall, the skew of prices has generally returned to last week's highs, with a slight drop following news about Tether, but ended the week only slightly down from the beginning. The market shows a general lack of interest in options with strike prices in the £50k to £60k range (except possibly for short-term tail hedging for the election), which offsets the poor performance of actual volatility at price highs. More specifically, the market is more interested in the upside risks of Bitcoin prices hitting historical highs after a Trump win/republican victory, which supports the skew in 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 manifest on both wings, supporting the kurtosis remaining at current levels.
Wishing everyone smooth trading in the upcoming week!
