BTC Volatility: A Weekly Review from October 28, 2024 to November 04, 2024
Key Indicators: (October 28, 4 PM -> November 4, 4 PM Hong Kong Time)
BTC/USD price increased by +0.15% ($68,500 -> $68,600), ETH/USD price decreased by -2.4% ($2,520 -> $2,460)
BTC/USD year-end (December) ATM volatility increased by +3.7 points (54.3 -> 58.0), year-end 25 delta skew decreased by -0.6 points (3.7 -> 3.1)
Spot Technical Indicators Overview:
On Wednesday, the coin price reached an all-time high, initially making us feel that the potential of the spot market to explode before the election was underestimated. However, the coin price ultimately failed to sustain at the peak and quickly retreated, with the $70k price becoming the main resistance level. Meanwhile, the highest price reached will become the target for the next round of competition in the market, provided that Trump wins the election.
Currently, we believe that in the next few days, the coin price may fluctuate between $66k and $70k until the election situation guides the next major movement.
If Harris wins, the coin price may break down below the flag support level of $63.5k to $64k and decline to $60k. It is even possible to slide below the support range to around $54k in the coming days. On the other hand, if Trump wins, the coin price will break above $74k, with potential to rise to $77k to $78k.
Market Themes:
With the fluctuations in the odds of the U.S. election on Polymarket, trading activity in the cryptocurrency space has increased. When the odds of Trump winning rose to 67%, the BTCUSD spot price briefly broke above $73.6k, setting a new all-time high. Subsequently, when weekend polls pushed the odds back to 55%, the coin price retreated and tested $67.5k. The odds of the Republican Party dominating seats also dropped from 48% to 37%. Despite the narrowing odds gap, the price movements in various markets still reflect a bullish sentiment and preparation for Trump's victory.
The U.S. Non-Farm Payroll (NFP) data showed an increase of 12,000, far below the expected 100,000. However, the market generally shrugged this off, attributing it to recent hurricanes and labor strikes. The BTCUSD spot market saw some fresh inflows after the data release, briefly pushing the price up to $71.5k but then giving back the entire gain. The market remains cautious about chasing prices during the election period.
Microstrategy announced a three-year $4.2 billion Bitcoin investment plan in last week's earnings report, primarily raising funds through stock and convertible bond issuance to increase Bitcoin holdings. While this should drive prices in the medium term, short-term price movements are mainly influenced by the election.
BTC Implied Volatility:
This week, actual volatility increased, mainly due to changes in Polymarket election odds. The odds fluctuated from 58% to 67% and then back to 54% (with Trump leading). High-frequency actual volatility rose to a moderate level in the 40s, which must be acknowledged as not particularly high in Bitcoin's history but clearly higher than in previous weeks. Additionally, the price changes after the November 1 expiration indicate that the market's short gamma positions are increasing ahead of the election.
This week, the level of implied volatility received strong support as the market saw a surge in demand for November expiration options, primarily targeting the expiration date after the U.S. election. Demand was mainly concentrated on upward strike prices between $75k and $80k, but we also saw some pure trading volatility straddles/strangles. Influenced by significant demand, volatility rebounded from recent lows.
The market's pricing of event volatility for election day decreased to recent lows over the weekend, as visible high volatility roll data and theta data encouraged retail investors to hold short positions over the weekend. Given that the volatility of straddle combinations expiring on the Friday after the election and FOMC was only at a 7% premium, we believe holding long gamma in event volatility should have sufficient profit potential. The mere change in odds from 67% to 54% prompted the coin price to drop from a high of $73.5k to a low of $67.5k last week, suggesting that a rise to $75k after a Trump victory or a drop to $60k after a Harris victory should not be difficult.
Skew/Kurtosis:
This week, skew continued to decline, seemingly tracking the changes in spot prices and election odds. The skew for the November 8 expiration date actually reversed sharply downward, reflecting the market's preparation for a Trump victory and the belief that if Harris "unexpectedly" wins, it would lead to a larger price drop.
Kurtosis gradually rose from its low this week, as buyers appeared on both sides of the real-time price, especially for the November expiration date.
Wishing everyone good luck in the coming week!
