BTC Volatility Weekly Review (November 11 - November 18)
Key Indicators (November 11, 4 PM - November 18, 4 PM Hong Kong Time)
BTC/USD price increased by 13.0% (from 81.2k to 91.75k USD), while ETH/USD price decreased by 0.3% (from 3.14k to 3.13k USD)
BTC/USD year-end (December) ATM volatility rose by 5.2 points (from 51.8 to 57.0), and December 25d skew increased by 2.7 points (from 3.2 to 5.9)
Spot Technical Indicators Overview
In the past week, the market began to accelerate upward, with any initial signs of overbought being replaced by strong momentum. The market likely accumulated a significant amount of Gamma around the 90k level, as it faced multiple rejections at this point before attempting to break upward and eventually reaching 93.25k USD. Currently, 91.75k-93.5k USD will be our top resistance level.
Referencing the above chart, the first support level is a diagonal support slightly below the current price level, which will continue to exert pressure guiding the market to test price highs. If the price fully breaks down below this support level, we will find good support again around 85k-86.25k USD. However, further down, we expect to see a wave of fierce position liquidations.
The daily and hourly volatility ranges have begun to show signs of contraction. If the price fails to break through 93.5k USD, we expect to see a reduction in actual volatility. We maintain a long-term bullish outlook and reasonably predict a target of 105k-115k USD in the first quarter of next year. However, during this period, we expect the market to gradually stabilize and take a slight breather over the next six months. If we see stronger evidence supporting the contraction of the volatility range in the next week or two (at least in the short term), this view will be confirmed and begin to exert pressure on Gamma positions.
Market Themes
This week, the "Trump trade" continues to be in full swing. The US dollar continues to rise against other fiat currencies, while US Treasury yields are also climbing. Cryptocurrencies once again demonstrated performance that is completely unrelated to the dollar. Bitcoin surged above 90k USD, while other altcoins also experienced remarkable gains. The US stock market had a good week and saw a sharp decline in the VIX index, followed by a slight correction over the weekend. However, this is merely a minor correction within the current bull market trend.
Everyone's focus is now on Trump's cabinet selections, with cryptocurrency attention centered on the upcoming announcement of the Treasury Secretary appointment. Scott Bessent initially appeared to be the most promising candidate, but Elon Musk expressed support for Howard Lutnick over the weekend. Both can be considered pro-cryptocurrency candidates, although Lutnick more so. However, it seems that the final selection is still far from being finalized, as Kevin Warsh and Mark Rowan have also been added to the candidate list in the past 24 hours.
It appears that MSTR's announcement of purchasing over 27,000 Bitcoins before and after the election has led to sustained buying demand. The company's stock price continues to trade at a peak, with its net asset premium being 2.5 times the spot price of Bitcoin. The BTC to USD price has received good support during each pullback. Even with ETF fund outflows from ARKB and BITB on Thursday and Friday, the price still managed to reclaim the 90k USD level over the weekend.
ATM Implied Volatility
After a strong breakout above the resistance level of 80k-82k USD last Monday evening, the price surged upward, while implied volatility levels rose sharply across the board. As the market reached 93k USD, high-frequency actual volatility was pushed to the 60s, and then the price returned to the range of 87k-93k USD with significant oscillation levels.
The price volatility arrived earlier than the market expected, while the rapidly rising actual volatility led to a quick inversion of the volatility term structure. The ATM implied volatility for November 29 rose from a low of 47-48 ten days ago to a high of 65. The volatility levels further out on the curve were also dragged higher in a time-weighted manner.
There is a structural argument that volatility will gradually weaken under the new circumstances. If Trump successfully pushes for regulation of cryptocurrencies, a wave of funds will flow in and ultimately support the price, further weakening volatility. Moreover, the current price level has largely already factored in these aspects. Although the price remains highly volatile, actual volatility has not exceeded the 60s, while the implied volatility for the day of expiration continues to fluctuate between the low 50s and high 60s (the average for this year is 45-50). However, at present, bullish momentum has stimulated demand for the price range of 100k-150k from the end of this year to the end of January next year, while also providing support for implied volatility.
Skew/Kurtosis
This week, skew continued to rise (mainly on the bullish side), primarily due to the market's anticipation of further upward breakthroughs in price. Implied volatility continues to show a positive correlation with the price. When the price dropped to the 87-88k range, implied volatility was compressed across the curve, but whenever the price attempted to break upward again in the 91.5k-93.5k USD range, sellers quickly retreated. Additionally, the unwinding of in-the-money call spreads and rollovers also contributed to the rise in skew.
As actual volatility surged rapidly, kurtosis also increased significantly. This week saw an increase in demand for the upside wings, especially above 100k USD. The market also observed some demand for downside wings in the shorter term, mainly used to protect spot or margin positions.
Wishing everyone good luck in the coming week!
