BTC Volatility: A Weekly Review from August 19 to August 26, 2024
Key Indicators (Hong Kong Time, August 19, 4 PM -> August 26, 4 PM):
BTC/USD + 8.5% ($58,600 -> $63,600), ETH/USD + 4.4% ($2,620 -> $2,735)
BTC/USD December (year-end) ATM volatility unchanged (62.2 -> 62.2), December 25 d risk reversal volatility -2.0 v (4.1 -> 2.1)
Spot prices have finally successfully broken through the 54-63k range and tested the resistance in the 64-65k price range. If this range can be broken, the BTC price may challenge the high again (initial target is 70k, then above 74k). Initial support is below 62.5k.
With last Friday's price breakout, the volatility trend over the past few weeks has formed a (somewhat chaotic) inverse head and shoulders pattern. This suggests that if the price falls back again and fails to break through the upper resistance, the trend may more intentionally move towards the lower end of the range.
Major Market Events:
At the beginning of this week, the market was generally in a calm consolidation phase, but as Powell's speech at the Jackson Hole meeting approached on Friday evening, market expectations gradually heated up. Powell did not strongly counter the market's rapid adjustment to a faster and earlier rate cut expectation, instead acknowledging that "now is the time" to start the Fed's rate cut cycle.
The cryptocurrency market initially reacted relatively slowly (compared to the rapid rise in the U.S. stock market / the weakening of the dollar against G10 currencies), but eventually BTCUSD broke through the recent 58-62k price range, stabilizing at 64k, which drove ETHUSD to rise to recent range highs.
Geopolitical noise is currently gradually retreating to the background, with no signs of immediate escalation in tensions in the Middle East, while peace negotiations are also progressing slowly without substantial progress.
ATM Implied Volatility:
Implied volatility remained basically flat this week, with spot prices maintaining range-bound fluctuations before the Jackson Hole meeting. The Jackson Hole meeting raised implied volatility to an overnight breakeven point of 2.5% (implied volatility at 60). From high-frequency data, this level is roughly reasonable, but from fixed-time data, it is relatively low.
After the Jackson Hole meeting, spot prices broke through the 58-62k range, and implied volatility initially rose. However, by Monday, implied volatility quickly fell back, while spot/actual volatility stagnated around 64k.
There is continued demand for options related to the U.S. elections in the market, mostly through rolling September/October call options to November/December. However, the large supply of long-term call options after the weekend also led to a decline in forward prices, reducing the impact of the U.S. elections.
Skew/Convexity:
Skew pricing has been significantly lowered (reduced demand for upside options), interestingly, this is in direct contrast to the movement of spot prices. This may indicate that the market is still concerned about the accelerated decline in prices, as the previous two declines in spot prices within this range were very volatile.
Additionally, some traders are taking advantage of the rise in spot prices by selling Covered Calls, especially over longer durations, which has put downward pressure on the term structure's skew.
Convexity has weakened this week, with low correlation between actual volatility and actual spot risk reversal, which has exerted some downward pressure on convexity.
Wishing you successful trading this week!
