Key metrics: (19May 4pm HK -> 26May 4pm HK):

  • BTC/USD +6.8% ($103,200-> $110,200) , ETH/USD +7.3% ($2,405 -> $2,580)

  • A new all-time high for BTC! After taking out the prior highs we traded up to $111.9k before an eventual reversal as Trump tariff headlines + heavy supply/offers pushed us briefly back below the support/resistance pivot $108.25-109.75k, but we have been sitting in a tight range since then. From here we continue to lean towards the notion that the market will likely continue to grind higher in a contained (if locally choppy) manner, and this could take us to our terminal target of $125k fairly soon. The good two-way spot action here could keep us sideways for a few sessions, especially if the market is not given any lead from the Bitcoin conference in the coming days, but we think that another test of the highs is likely coming soon. If we do see a trend reversal, then a break below $100-101k key support could lead to a move down to $93-94k

Market Themes

  • Risk on sentiment generally continued in markets, though momentum began to fizzle out, with a downturn in US equities as US treasury yields pushed higher and Trump also threatened 50% tariffs on EU starting from early June, though he quickly reversed the threat for now, with a 9July deadline to make progress on a deal. Uncertainty over US policy continues to weigh on the USD in particular, with Gold climbing back to near $3400 while G10 currencies continued to gain ground against the USD

  • Bitcoin benefited from the extended pressure on the USD this week, despite the weakness in US equities, pushing to an ATH of $112k before finding some resistance. The brief risk-off turn on Trump’s initial 50% EU tariff headline saw a capitulation of short-term longs, driving spot back to $107k, though the dip was ultimately well supported and we find ourselves back at $109k ahead of the Bitcoin conference this week. ETH found relative stability in the $2,400-2,700 range, with positioning clearly a lot lighter/cleaner there now. Positive developments continue in the stablecoin space, and ETF inflows remain robust, though a further extension higher in prices from here will likely require a fresh catalyst

BTC$ ATM implied vols

  • Realised volatility picked up last week from a very low base, as highly leveraged short-term positions began building up as spot gained momentum higher, before being flushed out on Trump’s EU tariff headline on Friday. Despite the local high frequency realised picking up to high 40s/low 50s, ultimately we remained very well contained within the broader $105-112k range, and actually fix-to-fix realised numbers were significantly lower, suggesting that the market remains in mean-reversion state with long gamma causing short-term fluctuations to normalise quickly. As such, there has been a lack of directional interest in this environment and this has kept implied vol levels muted despite the pick-up in local realised

  • The term structure continues to remain steep as the market looks to fund its long vol positions in Jun-Sep expiries with shorter dates. The exception comes in the intraweek where the market is pricing in some additional variance for the upcoming Bitcoin conference in Vegas, with the 28May expiry covering the first day of speakers and pricing in a spot gap of around 2%, which is on the lower-end of recent ‘events’ for Bitcoin though the significance is admittedly less clear for this particular event

BTC$ Skew/Convexity

  • After fairly static prices last week, skew attempted to move higher on the break of ATH, but with the spot price action quickly reversing the move in skew was unable to sustain. Shorter dated skew then tried to move aggressively lower on the Trump EU Tariff headline on Friday, with a pick-up in realised (and implied) volatility on lower spot admittedly justifying the move. However with spot quickly retracing after Trump’s U-turn, and with focus on potential positives from the upcoming Vegas conference, skews in the front-ends have moved quickly back for calls once more

  • Convexity traded very heavy in the past week as overlay selling both sides of spot continued in earnest, with the market struggling to fund its position of long vol and long wings and therefore willing to sell wings down to low levels to mitigate decay. Given the contained price action locally in spot and the potential for a sharp pick up in realised (and implied vol) and also skew on a range break (e.g. Friday’s flush lower as a good example), we think convexity offers very good value in this environment

Good luck for the week ahead!