BTC Volatility Weekly Review (February 24 - March 3)
In the past week, market volatility has unexpectedly surged. The price first dropped, and after the collapse of the $89,000-$91,000 support level that the market had relied on since the election, it fell all the way down to $79,000. However, interestingly, this volatility can be seen as the end of the correction and consolidation since last November-December, preparing for a new wave of market movement.
Key Indicators: (February 24, 4 PM - March 3, 4 PM Hong Kong Time)
- BTC against USD fell by 3.9% (from $95,900 to $92,200), ETH against USD fell by 14.1% (from $2,725 to $2,430)
The market volatility surged unexpectedly over the past week. After the price drop, the support level of $89-91k, which the market relied on post-election, collapsed, leading to a drop to $79k. Interestingly, this volatility can be seen as a correction and the end of consolidation since last November-December, preparing for a new wave of market activity.
Subsequently, market sentiment quickly reversed over the weekend due to news of an upcoming cryptocurrency conference and Trump's renewed focus on cryptocurrency reserve policy on Twitter. From now on, the market will seek signals for price increases, especially if the price extends above $100k, we will soon start to challenge historical highs. Conversely, if the price reverses and falls, we will find support at $91.5-89.5k, followed by $79k, and finally down to $76-73k.
Market Themes:
The market was quite volatile this week. In the short term, narratives flipped rapidly in several ways: weak U.S. data and "stagflation," Trump's trade war, fund rebalancing due to month-end and U.S. tax season, and the tense geopolitical situation caused by the Russia-Ukraine war. Ultimately, these narratives served merely as catalysts or excuses to adjust positions that had performed well since the election. It can be said that the market underwent healthy deleveraging as it approached the last month of this quarter.
The cryptocurrency market was unsurprisingly affected by volatility and repositioning flows. Due to a weak risk backdrop, the market began to liquidate positions, causing Bitcoin's price to drop to $78k, nearly 20% lower than the price at the beginning of the week. After overshooting the decline, the price slightly rebounded above $80k, ultimately ending the week close to $84k. Subsequently, Trump's mention of cryptocurrency reserves on Twitter (despite no new content) stimulated short-covering by CTAs and momentum positions, along with cash buying on the fundamentals, temporarily pushing spot prices up to $95k, almost offsetting the entire week's decline. Interestingly, the futures basis remained sluggish, indicating that speculative strategies through perpetual and term futures trading have not yet begun to go long.
BTC ATM Implied Volatility:
Implied volatility trended upward this week and was highly volatile. As the price broke through key support levels, it triggered a wave of liquidations and high actual volatility, followed by an excessive rise on Sunday. Short-term implied volatility was quite sensitive as expected, but in most cases, the spike in implied volatility was very brief, as the market's spot and options positions were relatively clean after a round of liquidations and unwinding. On Monday, during the quiet Asian trading session, short-term volatility overshot to the downside. We expect that in the coming days, considering the macro backdrop of volatility, the level of implied volatility will rise rapidly.
Trump announced that the first cryptocurrency summit will be held on March 7 (Friday). The uncertainty surrounding this event can currently only be observed on the March 14 expiration date (which also includes U.S. non-farm payroll data and the consumer price index). Considering the accumulation of these uncertainties, the market is pricing in a volatility of about 4% for Friday night, comparable to the pricing level for Trump's speech event in Nashville before last August's election.
BTC Skew/Kurtosis:
As the price fell through key support levels, triggering liquidations and very high actual volatility, the skew shifted sharply downward. Subsequently, as the price rebounded from the lows, the skew gradually moved upward and flattened after the explosive price increase on Sunday. The market anticipates that the upcoming White House summit may be a potential positive factor.
Kurtosis gradually increased this week. However, considering the extreme fluctuations in actual volatility and the extreme movements in skew due to price impacts, we generally believe that kurtosis should be higher in this market environment.
Wishing everyone good luck this week!
