Key Indicators (4 PM Hong Kong Time, November 11 - 4 PM November 18)
BTC/USD price increased by 13.0% (from $81.2k to $91.75k), ETH/USD price decreased by 0.3% (from $3.14k to $3.13k)
BTC/USD year-end (December) ATM volatility increased by 5.2 points (from 51.8 to 57.0), December 25d skew increased by 2.7 points (from 3.2 to 5.9)
Spot Technical Indicators
The market started to accelerate its upward move last week, with any initially overbought signals being eventually replaced by strong momentum. The market seems to have accumulated a large amount of Gamma around the $90k level, as the market initially encountered resistance at this level multiple times before attempting to break above it and ultimately reaching $93.25k. Currently, the $91.75k-$93.5k range will be our top resistance level.
Referring to the chart above, the first support level is the diagonal support slightly below the current price level, which will continue to exert pressure and guide the market to test the price highs. If the price completely breaks below this support level, we will find good support again around the $85k-$86.25k range. But further down, we expect to see a violent wave of position liquidation.
The daily and hourly volatility ranges have started to show signs of contraction. If the price fails to break above $93.5k, we expect to see a reduction in realized volatility. We maintain a long-term bullish view and reasonably forecast a target of $105k-$115k for the first quarter of next year. However, during this period, we expect the market to gradually stabilize and take a breather over the next 6 months. If we see stronger evidence supporting the contraction of the volatility range (at least in the short term) in the next one or two weeks, this view will be confirmed and start to put pressure on the Gammashi positions.
Market Themes
This week, the "Trump trade" continued in full force. The US dollar continued to rise against other fiat currencies, while US bond yields also continued to rise. Cryptocurrencies have once again shown performance unrelated to the US dollar. BIT surged above $90k, while other altcoins also saw impressive rallies. The US stock market had a good week and saw a sharp drop in the VIX index, before consolidating over the weekend. But this is just a minor correction within the broader bull market trend.
The focus is now on Trump's cabinet picks, with the crypto community keeping a close eye on the upcoming Treasury Secretary appointment. Scott Baesler initially seemed the most likely candidate, but Elon Musk expressed support for Howard Lutnik over the weekend. Both can be considered crypto-friendly, with Lutnik even more so. However, it appears the final decision is still far away, as Kevin Walsh and Mark Rowan have also been added to the list of candidates in the past 24 hours.
It seems that even after MSTR announced the purchase of over 27,000 BIT before and after the election, there is still ongoing demand. The company's stock price is still trading at all-time highs, with a net asset premium of 2.5 times the spot BIT price. The BIT/USD price has found good support on each pullback. Even with outflows from ARKB and BITB ETFs on Thursday and Friday, the weekend price managed to reclaim the $90k level.
ATM Implied Volatility
After the strong breakout above the $80k-$82k resistance level in the early part of last week, the price rallied higher, and the implied volatility levels across the board spiked sharply. As the market probed the $93k level, the high-frequency realized volatility was pushed above 60, before the price settled back into the $87k-$93k range with quite violent oscillations.
The price volatility arrived earlier than the market expected, and the rapid upward move in realized volatility caused the volatility term structure to invert quickly. The 29 Nov ATM implied volatility surged from the 47-48 low levels 10 days prior to a high of 65. The volatility levels further out the curve were also dragged higher in a time-weighted manner.
There is a structural argument that volatility should gradually weaken from here. If Trump successfully pushes for crypto regulation, a large influx of capital will eventually provide support for the prices, further dampening volatility. Additionally, the current price levels already factor in a significant portion of this. While prices are still seeing large swings, the realized volatility has not exceeded the high 60s, and the at-the-money implied volatility has been ranging between the low 50s to high 60s (the average for the year has been 45-50). However, the current bullish momentum has generated demand for the $100k-$150k price range by year-end to late January, providing support for the implied volatility.
Skew/Kurtosis
The skew continued to rise this week (mainly on the call side), primarily due to the market's anticipation of further upside breakthroughs in the price. The implied volatility has continued to show a positive correlation with the price. When the price dipped to the $87k-$88k range, the implied volatility was suppressed across the curve, but whenever the price attempted to break above the $91.5k-$93.5k range, the sellers quickly retreated. Additionally, the unwinding of in-the-money call positions and roll-overs have also contributed to the rise in skew.
As the realized volatility spiked rapidly, the kurtosis has also increased significantly. This week, we observed an increase in demand for upside strikes, especially above $100k. The market has also seen some demand for shorter-dated downside strikes, mainly for hedging spot or margin positions.
Wishing everyone a great week ahead!
