BTC Volatility: Week in Review September 30–October 7, 2024

Key Metrics: (September 30, 4pm Hong Kong time -> October 7, 4pm Hong Kong time):

• BTC/USD price is flat ($63,500 -> $63,500), ETH/USD is down 4.6% ($2,600 -> $2,480)

• BTC/USD December (end of year) ATM volatility decreased by 0.7 v (56.8 -> 56.1), and risk reversal volatility decreased by 0.4 v (2.7 -> 2.3) on December 25

Overview of spot technical indicators

• In the long term, the flag resistance at the top is too strong to break through - this remains our basic judgment on market trends before the US election next month.

• BTC’s rebound in the $65-66k range was blocked, and the escalating geopolitical situation caused the price to briefly fall below the previous $60-61k range support, but strong support near $60k stabilized the price.

• We believe that the short-term support level of $60.5-60k should be able to hold temporarily, while the upside may be limited around $65k. Overall, the market may enter a consolidation phase, waiting for the election results as a new catalyst to clarify the direction.

Market Events

• The enthusiasm for China’s stimulus has faded somewhat, and the focus has shifted to the escalating geopolitical situation in the Middle East. After an Iranian missile attack on Israel (which appears to have caused more damage than Israel admitted), Israel has vowed to retaliate, although the specific form of retaliation is still unclear. The United States seems to be trying to persuade Israel to ease the situation to prevent escalation. The tense geopolitical situation has put pressure on cryptocurrency prices, with BTC/USD falling below $60k and ETH/USD falling below $2400 - cryptocurrency prices have recently been highly correlated with US stock movements (not showing any safe-haven characteristics.)

• The US employment data exceeded expectations significantly, with the unemployment rate falling back to 4.05% and 100,000 more new jobs than expected! This boosted US stock prices and the exchange rate of the US dollar against fiat currencies last Friday, but cryptocurrencies rose due to factors related to the stock market, outperforming the impact of the US dollar and US interest rates. This shows that the stock market Beta effect is more significant, outweighing the impact of the US dollar and US interest rates.

• US jobs data came in much better than expected, with the unemployment rate falling back to 4.05% and new jobs coming in 100k more than expected! This boosted US stock prices on Friday, while the dollar strengthened against fiat currencies. Cryptocurrencies also rallied after the release of this data, but their gains were mainly driven by the beta of the stock market, rather than the beta of the dollar against US interest rates.

• Vance performed well in the vice presidential debate, bringing the election polls back to a 50/50 situation. Given that Vance brings more mid-term credibility to the Trump camp and supports cryptocurrencies, this will increase the possibility of a favorable election (Trump was previously lagging behind Harris in the polls, and the market was more conservative in its expectations)

ATM Implied Volatility:

• Affected by the geopolitical situation, BTC/USD spot was liquidated and the price briefly fell below $60k, and realized volatility rebounded from very low levels. Despite this, high-frequency and fixed-term realized volatility is still only at 40-45 (up from 35 last week), while daily volatility is around 45-49.

• With spot prices stabilizing at $60k and recovering from the US stock market rally last Friday, implied volatility fell sharply over the weekend to a new low in the recent cycle. Due to low realized volatility and lack of demand, the market is very cautious about holding positions. Realized volatility was extremely low (<25) over the weekend, but recovered slightly on Monday morning after the easing of tensions in the Middle East pushed the BTC/USD spot price up 2.5%.

• Unless the situation in the Middle East escalates again or there is a significant anomaly in the CPI data, we continue to expect Gamma performance to remain sluggish this week (the front end of implied volatility will be under pressure).

• Markets removed risk premiums from the implied volatility curve ahead of the weekend, causing volatility pricing for the election to fall again. With the election now just four weeks away and election odds at 50/50, market attention will soon turn to the election as the next catalyst. Event pricing is expected to rise as we get closer to Election Day.

Skewness/Convexity:

• This week, the skew price has retreated, and there is a large supply of December call options in the market (proportional call spreads). In addition, from the perspective of realized volatility, geopolitical news has led to more severe downward fluctuations in spot prices, making the demand for put contracts in the short-term (especially October expiration and November 8 expiration) relatively strong.

• Convexity has remained sideways this week, with some supply of ratio call spreads offset by direct demand for wing options (strikes outside the 55/70k range).

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