SignalPlus Volatility Column (20240731): FOMC Outlook

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Following Trump's speech in support of digital currencies at the Bitcoin 2024 summit on Sunday, news emerged the next day about the U.S. government transferring a large amount of Bitcoin. The potential selling pressure led to a risk-averse sentiment among investors, causing BTC to drop from a high of $70,000 back to the familiar range of around $66,000. The inflow of funds into BTC ETFs also decreased, but on the ETH side, we saw ETF products led by Blackrock ETHA resisting the selling pressure from Grayscale ETHE with a higher positive fund inflow. On July 30, the flow successfully turned positive, providing confidence for price stabilization.

Source: Farside Investors

Today, investors are undoubtedly focused on the FOMC meeting at 2 AM. The end-of-month options have already priced in this uncertainty with high premiums. However, the uncertainty surrounding this meeting does not stem from the decision-making process; in fact, according to surveys conducted by foreign media, nearly all economists expect no change in interest rates this time. What we need to pay more attention to is Powell's remarks at the subsequent press conference. The market anticipates that the Federal Reserve may subtly change its wording in the statement, acknowledging recent improvements in inflation and the balance with the labor market. While no one expects Fed officials to show significant enthusiasm for rate cuts at this meeting, there may be preliminary hints for a rate cut in September, as well as information on what indicators to watch next. For investors seeking clearer signals, they may have to wait until the Jackson Hole central bank annual meeting in August, where the Fed Chair will deliver a speech and announce some important information.

Source: SignalPlus, Economic Calendar

Source: SignalPlus

In terms of trading, investors bought a large number of put options for protection on ETH on August 2, while simultaneously selling a significant number of call options in the mid to front end, resulting in a decrease in Vol Skew within this range. For BTC, the market sold call options on August 2, absorbing the premium brought by the uncertainty of the FOMC. Meanwhile, there remains ample supply on the far-end top side, notably represented by the purchase of 1,000 September 95,000-C calls, 85,000 vs 55,000 Long Risky, and the December 65,000 vs 100,000 call rollovers, which pushed up the premium on the top side wing, causing the far-end Vol Skew to tilt towards call options.

Source: Deribit (as of July 31, 16:00 UTC+8)

Data Source: Deribit ETH trading overall distribution; SignalPlus 25 dRR

Data Source: Deribit BTC trading overall distribution; SignalPlus 25 dRR

Source: Deribit Block Trade

Source: Deribit Block Trade