Key Indicators: (October 28, 4 PM -> November 4, 4 PM Hong Kong Time)
BTC/USD price increased by +0.15% ($68,500 -> $68,600), ETH/USD price decreased by -2.4% ($2,520 -> $2,460)
BTC/USD year-end (December) ATM volatility increased by +3.7 points (54.3 -> 58.0), year-end 25 delta skew decreased by -0.6 points (3.7 -> 3.1)
Spot Technical Indicators:
The price reached a new all-time high on Wednesday, initially making us feel that we had underestimated the spot market's potential to surge before the election. However, the price was unable to sustain the high level and quickly retreated, with $70,000 once again becoming the main resistance level. Meanwhile, the new high price will become the target for the next round of market competition, provided that Trump wins the election.
We currently believe that the price may fluctuate between $66,000 and $70,000 in the next few days, until the election outcome guides the next major move.
If Harris wins, the price may break below the $63.5k to $64k flag support and decline to $60,000. It may even slide below the support zone to around $54,000 in the next few days. On the other hand, if Trump wins, the price will break above $74,000 and even have the potential to rise to $77,000 to $78,000.
Market Themes:
With the fluctuations in the US election odds on Polymarket, trading activity in the cryptocurrency space has increased. When Trump's winning odds rose to 67%, the BTCUSD spot price briefly broke above $73.6k to set a new all-time high. Subsequently, when the weekend poll pushed the odds back to 55%, the price retreated and tested $67.5k. The Republican's control of the Senate odds also declined from 48% to 37%. Although the gap is narrowing, the price movements in the various markets still reflect a bullish sentiment and a preparation for a Trump victory.
The US Nonfarm Payrolls (NFP) data came in at 12,000, far below the expected 100,000. However, the market generally shrugged it off, attributing it to the recent hurricanes and labor strikes. The BTCUSD spot market saw some fresh inflows after the data release, briefly pushing the price up to $71.5k, but then gave up the entire gain. The market remains cautious about chasing rallies during the election period.
Microstrategy announced a $4.2 billion Bitcoin investment plan over the next three years in its recent earnings report, primarily raising funds through stock and convertible debt issuance to increase its Bitcoin holdings. While this should be a positive driver for the price in the medium term, the short-term price action is mainly influenced by the election.
BTC Implied Volatility:
Actual volatility increased this week, mainly due to the changes in the Polymarket election odds. The odds went from 58% to 67% and then back to 54% (Trump leading). The high-frequency realized volatility rose to the mid-40s, which, while not particularly high by Bitcoin's historical standards, is clearly higher than the previous few weeks. Additionally, the changes in price around the November 1 expiry suggest that the market has been building up long Gamma positions ahead of the election.
The level of implied volatility this week has been well-supported, as the market has seen a surge in demand for November expiry options, primarily focused on the post-election expiry dates. The demand has been concentrated in the $75k to $80k call strike prices, but we have also seen some pure volatility trading straddle/strangle combinations. The impact of this heavy demand has caused volatility to rebound from its recent lows.
Event volatility pricing has decreased to recent lows over the weekend, as the visible high volatility roll-off data and theta data have incentivized retail to hold short positions over the weekend. With only a 7% premium on the straddle volatility for the Friday expiry after the election and FOMC, we believe that holding long Gamma positions should have ample profit potential in the event volatility. Just the 67% to 54% odds change has caused the price to drop from the high of $73.5k to the low of $67.5k last week, suggesting that a move to $75k on a Trump win or $60k on a Harris win should not be too difficult.
Skew/Kurtosis:
Skew continued to decline this week, seemingly tracking the movements in the spot price and the changes in election odds. The skew for the November 8 expiry has actually reversed quite aggressively downwards, reflecting the market's preparation for a Trump win and the belief that a "surprise" Harris victory would lead to a greater downside slippage.
Kurtosis has gradually risen from the lows this week. This is because the market has seen buyers on both sides of the real-time price, especially for the November expiries.
Wishing you all the best for the coming week!
