Key metrics: (7Oct 4pm HK -> 14Oct 4pm HK):
BTC/USD +1.2% ($63,500 -> $64,250) , ETH/USD +1.8% ($2,480 -> $2,525)
BTC/USD Dec (year-end) ATM vol +1.4v (56.1-> 57.5), Dec 25d RR vol +0.6v (2.3 -> 2.9)
Price action remained choppy last week, but in general held within the 60–65k range last week
A break above 66–66.5k would represent a break of the top of the long term flag and this would open us up to ~70k initially but beyond that we could see a material move to the topside.
On the downside, a break below 59k would initially find support at 57k and then below than at 53.5k
Market Themes:
Mixed bag of crypto specific headlines this week driving some locally choppy price action — on Thursday SEC announced charges against a large crypto firm for unregistered crypto security dealings, causing a brief liquidation of BTCUSD longs below $60k and down to $58.8. However prices recovered quickly and were boosted on Friday with Mt. Gox extending the Bitcoin repayment deadline to 2025 in order to address creditor issues, helping drive spot briefly above $63k. Ultimately we continue to remain trapped in the $60–65k range heading into the US election
China stimulus expectations were left wanting this week with measured medium-term announcements laid out at Saturday’s press conference, without any specific details of imminent stimulus/cash handouts. While the overall sentiment is moving in the right direction the rapid upside tail has for now diminished
US CPI data surprised marginally to the upside, which coupled with the strong jobs data of last week has raised some questions about whether 50bp was then appropriate magnitude of cut in September. US rates pricing has bounced quite aggressively from the fast/deep cuts priced in 2 weeks ago as a result of this, which has given the USD a lift against FIAT currencies. However crypto and Gold prices broadly remain supported despite this
Trump has started to edge into a marginal lead in betting odds for the election, though for most intents and purposes we remain around 50/50. The Democrats handling of the brewing Israel-Iran situation could swing the pendulum in the coming weeks, though overall this continues to go down to the wire
ATM implied vols:
Realised volatility remained at very subdued levels this week (high 30s/low 40s) as spot for the most part remain locked in the $60-$63k range, with a brief blip either side at the end of the week. Perps/futures seem to be trading with low liquidity overall due to lack of participation, as market participants await the US election (or an external catalyst) to spark momentum in prices one way or the other
Implied vols continued to grind lower over the course of the week in sympathy with the low realised performance and the lack of participation; however implied levels did pick up over the weekend with the brief rally above $63k on Friday, and extended gains on Monday as spot broke through $63k cleanly and tested above $64k
We continue to expect subdued gamma performance (and hence heavy front-end implied contracts) this week, with China stimulus euphoria wearing off and a quiet calendar in terms of US data. The only short-term risk to this would be some escalation in the Middle East situation, though again the reaction function is likely to be short-lived/muted for now
Election variance priced lower last week when the 1Nov expiry became listed for trading — the market isolated selling the 25Oct/1Nov FVA (by selling 1Nov expiry and covering end Oct expiries), which in turn put pressure on the 8Nov expiry and then implicitly lowered the day weight. As the event becomes closer in sight we expect demand to pick up for expiries covering it with less theta to pay in the interim
Skew/Convexity:
Skew prices picked up again at the end of last week, with renewed bullish sentiment locally following the Mt.Gox headlines and the strong bounce off the lows after the brief move below $60k. However overall the market’s reaction in skew was muted, suggesting the market has gamma length on higher spot
Convexity traded sideways with the eventual range-break still contained for now and further supply of wings via year-end ratio call spreads
Good luck for the week ahead!
