BTC Volatility: A Weekly Review from October 21 to October 28, 2024

Key Indicators: (21 Oct 4 pm Hong Kong Time -> 28 Oct 4 pm Hong Kong Time)

• BTC/USD price stable ($68,500 -> $68,500), ETH/USD price down -7.5% ($2,725 -> $2,520)
• BTC/USD year-end ATM vol down -1.6 points (55.9 -> 54.3), year-end 25 d skew down -0.6 points (4.3 -> 3.7)

Spot Technical Indicators Overview:

• The BTC spot market performed very restrained last week, holding between 69.5k and 65k. We continue to observe the market trapped between the support level of a long-term flag pattern and the resistance level above $70.25k. Therefore, we expect the market to continue to stay within this range in the coming days.
• Considering the current state of the market and the rising odds of Trump's election victory, we believe that the market will attempt to break out of this range upward in the week leading up to the election.

Market Themes:

• The global market remained calm throughout the week, with everyone eagerly watching the results of the U.S. election. Overall, "no news is good news." With data in the U.S. remaining relatively stable, risk assets continued to rise slightly.
• Although Israel launched rockets at Iranian military bases over the weekend in retaliation, the market generally viewed this as a de-escalation measure. This retaliation was very targeted, and Iran denied being affected. From this event, the influence of the U.S. on Israel prevailed, alleviating the tail risks posed by this geopolitical situation.
• The Wall Street Journal reported on Friday evening about the U.S. government's investigation into Tether, causing USDT to briefly drop below its peg and putting pressure on the entire cryptocurrency market. However, Tether's CEO denied this speculative report, and no further confirming news emerged over the weekend. The cryptocurrency market subsequently rebounded, with USDT's price returning to slightly below its pegged level.
• The odds of Trump's election victory continue to rise (support rate of 65-66%), while the odds of a Republican sweep have increased from 42% to 48%. Other markets have clearly begun to prepare for a Trump victory, but the cryptocurrency community is still waiting for further confirming news before attempting to break above BTC's historical highs.

BTC Implied Volatility:

• Another week of subdued actual volatility. Ahead of the election, Bitcoin prices remained stable between $65k and $70k. Bitcoin found good support when it dipped to the $65k to $66k range, while after several failed attempts to break above $69k, the price struggled to show any upward momentum.
• With a calm spot market and more selling pressure from year-end vs. March next year, implied volatility levels generally trended downward this week (excluding contracts expiring in November). Although the absolute level of implied volatility appears low, there remains a considerable premium compared to actual volatility.
• The implied volatility for contracts expiring in November rose against the trend from last week's lows. As the U.S. election approaches, market demand for options has begun to increase. Market interest ranges from purely buying straddles/strangles to buying call spreads and buying put protection. With the breakeven point still hovering around 6%, we expect that demand for November-expiring contracts will continue to increase in the coming week.

Skew/Kurtosis:

• Overall, the skew of prices has generally returned to the highs seen at the beginning of last week, with a slight drop after the Tether news, but ending the week only slightly lower than the beginning. The market generally lacks interest in options with strike prices in the $50k to $60k range (except possibly for short-term tail hedging for the election), which offsets the impact of actual volatility performing poorly at price highs. More specifically, the market is more interested in the upside risk of Bitcoin hitting historical highs after Trump's election/Republican victory, which supports the skew of volatility.
• The level of kurtosis has not changed much, with the market showing little interest in trading wings in a declining volatility environment. However, if there is significant price movement, changes in volatility and skew will manifest on both wings, providing support for kurtosis to remain at current levels.

Wishing everyone successful trading in the coming week!