BTC Vol — week in review 22–29Jul24

Key metrics: (22Jul 4pm HK -> 29Jul 4pm HK):

• BTC/USD +3.4% ($67,240 -> $69,500) , ETH/USD -3.2% ($3,480 -> $3,370)
• BTC/USD Dec (year-end) ATM vol -11% (68.5 -> 61.1), Dec 25d RR vol -45% (7.3 -> 3.3)

• Upward trading channel remained in play after partial breach last week (triggered around the time of liquidations in TradFi markets) — initial support 68–68.25k and stronger support 66.75–67k
• Big resistance level on topside around 70k-70.25k; clean break above would open up a test of ATH again
• Break below 66.75k could see choppy consolidation period in 63.5–67k range

Market Themes:

• ETH ETF launched on 23Jul, ultimately failing to propel spot higher and leading to liquidation of ETH longs and rotation to BTC — with ETH/BTC breaking decisively below 0.05
• Trump’s keynote speech at Bitcoin 2024 was highly anticipated, and alongside his usual pro-crypto rhetoric he announced the US would not be selling any of its BTC holdings if he takes office, instead using them to build a strategic reserve (but did not mention a fresh purchase of BTC to build reserves, despite this rumour in the lead up)
• Drastic ranges in BTC and ETH front-end implied vol, both in the lead up to ETH ETF launch and more notably in lead up to Trump’s speech, with high frequency realised performing over the events but ultimate fix-to-fix realised much below the implied gap moves
• TradFi markets saw elevated volatility with rapid unwinds of consensus macro trades and large dispersion/rotation within equity markets

ATM implied vols:

• Significant volatility in the level of implied volatility for shorter dated contracts this week, most notably over Trump’s keynote speech at Bitcoin 2024, as straddle premium for the event traded in a 4.0–5.5% range. With spot failing to clear 70k despite perceived bullish announcements, market saw a significant drop in IV post event for front contracts as we await a fresh catalyst to push spot higher. Crypto calendar is light for the week ahead, while focus will turn to Fed with market pricing 15% chance of a cut following recent trend in US data
• Further out the curve (September onwards), implied volatility straight-lined lower despite BTCUSD spot breaking to fresh highs on the week, as the bullish narratives played out without too much fanfare and buying demand for longer dated topside subdued. Meanwhile, large supply of December topside strikes was also noted.
• Realised volatility on a high-frequency basis picked up over the events, clocking closer to 50 (vs low-mid 40s last week), while daily-fixing realised volatility was also just shy of 50 despite underperformance over the actual conference event

Skew/Convexity:

• Pronounced move lower in skew (topside compressing relative to downside) this week, with implied skew levels fully retracing the move higher of last week and moving further lower
• Observed correlation of spot vs implied volatility was negative for expiries further out the curve, with implied volatility moving lower regardless of the march higher in spot
• This was mainly due to consistent supply of year-end topside throughout the course of the week, while demand that had been observed last week waned. We can expect further pressure on skews should spot fail to clear 70k and retrace to the established range

• Muted moves in the convexity this week, with some downward pressure in line with the reprice lower in base vols
• While vol-of-vol remains very high in this environment, locally the risk-reversal versus spot correlation broke down due to supply-demand dynamics, therefore weakening the performance of the convexity locally
• Overall, structural supply of wing premium continues to be observed via overlays and call-spreads, and outright wing selling picked up this week too

Good luck for the week ahead!

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