BTC Vol — Week in Review 10–17Nov

Key metrics: (10Nov 4pm HK -> 17Nov 4pm HK)

• BTC/USD -10.0% ($106,200-> $95,600), ETH/USD -11.6% ($3,620 -> $3,200)

• The rally on the US government reopening news was short lived and the market turned, retesting and breaking the $98–100k support zone. This resulted in a move down to test the support at $93–94k which so far has managed to absorb supply and hold. At this point the breakdown from $112.5–115k post the October flash crash looks to be mostly played out and while it is hard to call the exact lows, we consider dips below here to provide good buying opportunities. More broadly the ABC move from $123k → $107k → $126k → current/$93k looks almost completely played out, however we could see market re-testing the $93–94k, looking for a print down towards $90k, given the growing bearish sentiment
• Positioning seems lighter out there and CTAs are likely short here, so we think the risk-reward of further downside in spot is shifting here. Below $93k, expect strong support at $89–90.5k. Should that break, there’s isn’t much strong support until we reach $79k (some limited support $83–85k) since <$90k area was a very choppy “pivot” level back in March/April this year. On the top side resistance comes in around $98–101k initially and then again at $104–107k. We think that in general realised volatility will remain elevated whether spot is going up or down, though market will likely try to sell down implied vols initially on the relief in spot (especially if we get back above $107k)

Market Themes

• Extension of risk-off sentiment particularly in US Tech/AI names this week, as the end of the government shutdown proved to be a ‘buy the rumour sell the fact’ event for markets, with the initial relief rally in risk last week fading very quickly. Concerns around AI valuations and spending/investment arose once more while Fedspeak was broadly on the more hawkish side as the market continued to walk back pricing of the December rate cut, from over 90% priced a month ago to a coin-toss 50%/50% as per current pricing. Interestingly though, the pick-up in VIX was fairly muted compared to e.g October, as US equities indexes broadly held in fairly well, with most of the pain felt in AI names specifically
• Crypto was not spared from the sell-off in risk assets as BTC plunged back below $100k and took out key support at $98k, trading down to a low of $92.9k over the weekend before finding some temporary equilibrium closer to $95k. ETH also traded down to test $3k again though found some good support again ahead of that level, gravitating back towards the $3.2k that seems to have been a more stable equilibrium for it in the past few sessions. Overall after this latest sell-off, the risk-reward dynamics for accumulating crypto at these levels seems relatively more attractive and we would expect to see a bit more 2-way in the absence of a more protracted sell-off in broader risk assets (or a more material spike in VIX). However native sentiment seems noticeably poor so it will be the resolve of IBIT holders/buyers that will be tested most closely in the coming sessions

BTC$ ATM implied vols

• Implied vols rallied in line with the recent spot-vol correlation of higher volatility on lower spot, as we plunged back below $100k and took out key support of $98k. Realised volatility continued to remain high both on a high frequency basis but also on a fix-to-fix, with an 90+ vol observation between Thursday and Friday expiry on fix-to-fix. This extended period of high realised volatility is causing some stress in the market and driving a natural reflation of volatility further out the curve, as the market begins to price a higher structural vol base for the asset after an abnormally low period of realised vol over the recent summer months
• The term structure of implied vols has flattened up driven by higher front-ends as gamma performance remains elevated. The curve moves have been relatively weighted in fashion (i.e. back end vols have still repriced higher but just by a lower beta vs front-end) as the market continues to feel relatively short vol overall. There has been decent demand observed for January/March/June strangles in the past week as the market looks to cover some legacy short vol positions that were put on when the term structure was much steeper

BTC$ Skew/Convexity

• Skew prices broadly moved deeper for puts on the break of $100k and remains fairly bid for puts in gamma tenors as the downside remains the more vulnerable side of the distribution for now. However the market is cognisant of more 2-way risks from this level of spot, particularly on a slightly longer term basis, and this is keeping skew prices fairly stable in tenors further out, as we have begun to see some demand for topside for year-end and out at this lower spot entry level
• Convexity prices moved lower as local gamma performed admirably in the past few sessions, while the market is starting to discount the extreme wing observations here as positioning seems to be cleaner and many feel we are coming to the last leg of the sell-off. Directional demand for an extension lower has been seen the in the form of put spreads (e.g. year-end 90k/70k put spreads) while topside plays also seem to be in call-spread format (e.g $110k/125k call spreads) — again adding further supply of convexity to the market. Overall at these levels and given the high vol-of-vol that we have witnessed we think flies are approaching value zone

Good luck for the week ahead!

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