BTC Volatility Weekly Review (December 9 - December 16)
Key Indicators: (December 9 4 PM -> December 16 4 PM Hong Kong Time)
BTC against USD increased by 5.3% (99,600 thousand USD -> 104,880 thousand USD), ETH against USD increased by 1.5% (3,910 thousand USD -> 3,970 thousand USD)
BTC against USD December (year-end) ATM volatility remained unchanged (55.2 -> 55.2), December 25 d skew decreased by 2.5 points (4.2 -> 1.7)
Spot Key Technical Indicators:
The price trend has shifted from a unilateral correction to a restrained upward movement. We see the highest price continuously refreshed in a very balanced manner, suggesting that the current process will peak in the coming weeks, with a target price in the range of 110-115 thousand USD, rather than our original target of 115-120 thousand USD.
If the price falls below 100 thousand USD again before this, it may lead to a price retreat to the 90-95 thousand USD range, which would mean that the current rise is just part of a longer correction, with the final rise expected to come next year. On the other hand, if the price quickly breaks through 106.5 thousand USD, it may trigger a more turbulent explosive rise.
Market Themes:
In the absence of significant short-term catalysts to reverse the upward trend, risk assets continue to see slight growth before the year-end. The U.S. Consumer Price Index met expectations. Although core figures remain above the Federal Reserve's ultimate target, market expectations for a 100% chance of a 25 basis point rate cut this week have not changed.
The macro backdrop supporting cryptocurrencies has greatly benefited Bitcoin. Bitcoin prices were bought up as soon as they fell below 100 thousand USD, and reached new highs again this week. The news of Nasdaq including MSTR in its index drove the price up over the weekend, while Taylor himself hinted at more buyers entering the market, stimulating the price to finally break through the key resistance level of 104 thousand USD. The funding rates for Bitcoin and other altcoins returned to normal this week, indicating that positions in this category began to liquidate after a good year.
ATM Implied Volatility
Despite the relatively volatile BTCUSD spot price this week, which ultimately reached a new high, the actual volatility did not see a significant increase. It feels like there are relatively few positions opened in the market at year-end, which is also reflected in the return to normal funding rates and basis. This has created selling pressure on contracts before year-end, with the implied volatility for contracts expiring on December 27 briefly dropping by 50 points over the weekend. However, contracts expiring in January next year still maintain strong buying interest. The market has seen significant demand for the upper range (130 thousand - 150 thousand USD) for February/March, as well as demand for the lower range (70 thousand - 75 thousand USD) for February/March. The former is likely a transfer of spot long positions to Q1 options, while the latter is to hedge core Bitcoin longs.
We expect implied volatility to return to lower levels in January. Currently, the market pricing for Q1 is above an average of 60 points implied volatility per week, a level that is historically difficult to maintain. During this period, the market has retained some risk premium on implied volatility to guard against the impact of liquidity shortages around the New Year.
BTC Skew/Kurtosis
Although the level of implied volatility has risen with the increase in spot prices, skew has shown a downward trend this week. This is mainly driven by demand for lower strike prices expiring in February and March (likely hedging flows), while classic call spreads have reserved Vega longs for market makers in the 105-110 thousand USD range.
As the correlation between price and skew is broken at the current price level, kurtosis has also been adjusted downward overall. The market has priced volatility more in the range of 90-120 thousand USD, suggesting that the price will likely remain within this range over the next month.
