BTC Volatility: A Weekly Review August 5, 2024 – August 12, 2024

Key Metrics: (August 5, 4 PM HKT -> August 12, 4 PM HKT)

• BTC/USD + 11% ($52,700 -> $58,500), ETH/USD + 8% ($2,360 -> $2,550)
• BTC/USD December (year-end) ATM volatility decreased by 0.5% (62 -> 61.5), December 25 d RR volatility increased by 0.3% (3.3 -> 3.6)

• Global risk reversal caused BTC prices to quickly fall below the key support level of 58-59k, triggering stop-loss orders and leading to a price drop to the major support level of 50k.
• Subsequently, BTC prices rebounded above 54k, so the current trading range is expected to be between 54k and 64k.
• Short-term support is expected at 57k, with resistance at 63k.

Major Market Events

• After a significant increase in volatility that triggered stop-loss orders in traditional financial markets, the market began to gradually recover. Due to a recent increase in the actual volatility of global assets, the market showed turbulence later, attempting to readjust its positions.
• Last week, geopolitical conditions were relatively calm, and most of the week's volatility seemed driven by low liquidity market flows rather than significant changes in overall market sentiment.
• There is strong buying demand in the BTC market around 50k, possibly coming from Accumulator products, which saw buying volumes below 50k double the original, thereby increasing demand for BTC. The overexposure in ETH weighed on the market, causing its recovery to lag behind Bitcoin (based on volatility, you would expect it to rise around 15%, not 8%).
• The Vega in the cryptocurrency market showed strong buying pressure for most of the week, as traders seemed slightly misled by market volatility and held short volatility positions. However, a new round of selling on Thursday night and Friday appeared to complete their position filling, leading to a gradual decline in Vega before the weekend. Due to the continued scarcity of liquidity in spot and perpetual contracts, actual volatility remains at a high level.

ATM Implied Volatility:

• Over the past week, as spot prices fluctuated, the peak of front-end implied volatility continued to decline. However, overall volatility levels remain high until the selling pressure on Thursday and Friday.
• In traditional financial markets, the VIX volatility index soared to a high of 65 on Monday, then retreated to a range of 22-28 for the remainder of the time, finally closing at 20.6.
• Before the release of CPI data, front-end volatility rebounded from the weekend's lows; if the CPI data is released calmly and the market maintains its current range, we expect front-end volatility to return to levels seen at the end of July. In this case, we expect belly FVAs to perform better.

Skew/Convexity:

• The market experienced panic buying on Monday evening, quickly correcting as spot prices rebounded. Butterfly options and risk reversals gradually declined over the week and have now returned to long-term trend ranges. On Monday morning, there was slight compression in the front-end term before the CPI release, but it eased during the morning trading session.
• The correlation between spot and volatility shows significant negative correlation in localized areas; that is, when spot prices fall from highs, implied volatility is quickly pushed higher. Due to the tense sentiment, some overlapping supply makes traders more willing to mark volatility at lower levels at higher spot prices.
• There continues to be demand/buying for Vega on the upside, while supply above year-end may decrease when spot prices are lower.

Wishing you successful trading this week!