BTC Volatility: A Weekly Review from September 9 to September 16, 2024

Key Metrics (Hong Kong Time September 9, 4 PM -> September 16, 4 PM):

• BTC/USD +6.9% ($55,080 -> $58,900), ETH/USD -0.7% ($2,320 -> $2,305)
• BTC/USD December (year-end) ATM volatility -2.9 v (62.4 -> 59.5), December 25 d risk reversal volatility -0.1 v (2.5 -> 2.4)

• BTC/USD has rebounded strongly within the support range, rising back to the key price range of $58-$60k, currently trying to find balance amid significant price fluctuations.
• The short-term trend remains bullish, but a drop below the $57.5k support level could signal a larger correction.
• If the price falls below $54k, it will break the long-term ascending flag pattern, suggesting a potential drop below $50k.
• If the price breaks above $61-$62k, the next major resistance level will be around $65k, where the market may encounter selling pressure; the probability before the election remains 50/50.

Major Market Events:

• Concerns about "Rektember" at the beginning of the month seem to have been exaggerated; after hitting strong support at $52k, BTC/USD has rebounded this week, briefly breaking above $60k. In contrast, ETH/USD lacks upward momentum, hovering around the $2,300 level.
• After the presidential debate on September 10, U.S. polls slightly tilted in favor of Harris due to her perceived superior performance against her opponent. However, since the election remains close to 50/50, the impact on cryptocurrency prices is limited unless the election situation becomes clearer (which may only happen during the actual election).
• The market is still oscillating between expectations of a 25 basis point and a 50 basis point rate cut ahead of this week's FOMC meeting; initially, after the CPI data was released on Wednesday, the market fully priced in a 25 basis point cut, but subsequent "leaked" information from some non-Fed voting members indicated that a 50 basis point cut could also be possible, leading market expectations to revert to 50/50.
• The U.S. stock market has found support again from local lows, due to factors including: market positions still appearing relatively defensive, influenced by concerns over the "September slump"; corporate earnings remaining mostly robust; and no signs of collapse in U.S. economic data. If the Fed does indeed cut rates by 50 basis points at this time, we expect further increases in stock and cryptocurrency prices.

ATM Implied Volatility:

• Despite the market having high expectations priced in for events like the presidential debate and U.S. CPI, actual volatility remained relatively subdued this week; although the 1-week implied volatility once reached as high as 60, high-frequency volatility has remained in the mid-40s.
• Early in the week, there was a surge in demand for options, but by the weekend, the market saw a liquidation of volatility and directional bets, further lowering implied volatility, especially at the front end of the curve.
• With the election outcome still at 50/50, election volatility pricing has slightly decreased, consistent with the overall reduction in premium across the volatility curve; as the election approaches, we expect volatility to rise.
• The slight decrease in election volatility pricing aligns with the reduction in premium on the overall volatility curve. Given that the current probability of the election outcome remains 50/50, we anticipate that volatility will rise again as the event nears.

Skew/Convexity:

• This week's volatility skew and convexity trends have been relatively stable, with the market focusing on localized option demand for this month's events.
• Due to the lack of a clear correlation between implied volatility and spot price movements (i.e., implied volatility does not significantly react to increases or decreases in spot prices), it is difficult to see any major price adjustments before the election. Given the uncertainty of the election outcome (50/50) and its significant impact on spot prices, we expect the market to make more adjustments to localized strike price volatility before the election.

Wishing everyone good luck next week, and have fun to those attending Token 2049!