Key metrics: (21Oct 4pm HK -> 28Oct 4pm HK):
BTC/USD flat ($68,500 -> $68,500) , ETH/USD -7.5% ($2,725 -> $2,520)
BTC/USD Dec (year-end) ATM vol -1.6v (55.9-> 54.3), Dec 25d RR vol -0.6v (4.3 -> 3.7)
Spot Technical Outlook:
Spot market has been very contained over the last week, holding between 69.5k and 65k. We continue to see the market caught between the support of the broken long term flag and the resistance at 70.25k and so expect the market to hold within this range for the next few days
Given the market setup we think it is likelier that within the next week and into the election we might test the top of this range again as the Trump odds continue to push higher
Market Themes:
Quiet week across global markets as participants await the eagerly anticipated US election. ‘No news is good news’ in general as risk assets continue to drift higher, with US data remaining relatively stable
Despite Israel retaliating by firing rockets at military sites in Iran over the weekend, this was broadly seen as a de-escalation by the market with the strike very targeted and Iran denying its impact. It seems the US influence on Israel prevailed in this instance and as such this has removed an imminent tail risk on the geopolitical front
WSJ reported a US government investigation into Tether on Friday night, causing USDT to drop below the peg briefly and putting pressure on the complex on Friday night; however after the Tether CEO denied the speculative report and no further news confirming it emerged over the weekend, crypto prices reclaimed their losses and USDT returned back to just below the peg level
Betting odds continue to move firmly for Trump (65–66% favourite), while Republican sweep odds have also crept higher from 42% to 48%. There has been noticeable pre-positioning for a Trump win cross-market, though it still feels the crypto community is waiting affirmation before probing a test of ATH in BTC
ATM implied vols:
Another week of low realised volatility as Bitcoin finds comfort in the $65–70k range ahead of the election. Dips down to the $65.5–66k zone were well supported while spot struggled to show any momentum higher after testing and failing at $69k a couple of times
Implied volatility levels generally drifted lower over the course of the week (with the exception of November contracts) as activity levels remained muted and further supply of Dec-Mar contracts was seen in the market from overlay strategies. While outright levels of implied volatility look optically low, they are still pricing quite a high premium vs the realised regime
November expiries bucked the trend of lower implied volatility as US election variance began to pick up from low levels last week, with the event approaching quickly on the horizon and demand for optionality picking up. Interests varied from outright straddle/strangle buying to call-spread buying and outright put-protection buying. With the daily breakeven for the event still lingering in the 6–7% range we continue to expect demand for optionality in November expiries in the coming week
Skew/Convexity:
Skew prices generally backed off the highs versus the start of last week, and after a brief flush lower on the Tether news, ended only very slightly lower than where they started the week. Ultimately there is a lack of interest from the market to own optionality in the $50–60k strike range (aside from maybe short-dated tail hedges into the election) and this is offsetting the fact that the local spot-vol dynamics are not performing (i.e. implied vol is drifting lower on higher spot). More locally the market is interested in topside plays for a break of the ATH on Trump/Republican sweep which is supporting skew
Convexity traded sideways this week with the market reluctant to hold much wing premium in this environment of vol compression. Having said that the vol-of-vol and spot-riskie dynamics will perform both sides of the distribution if there is a large move and that is offering some support to convexity at these levels
Good luck for the week ahead!
