Key metrics: (26May 4pm HK -> 2Jun 4pm HK):

  • BTC/USD -4.4% ($110,200-> $105,400) , ETH/USD -2.7% ($2,580 -> $2,510)

  • While BTC spot did pull back from the highs in the past week, the price action was broadly corrective/sideways without compromising the general upward trend. We continue to think the market will be looking to re-test the topside in the coming weeks/months and that could open us up for a move to our terminal target of $125–130k. Exact timing is tricky of course and if the $99–101k support doesn’t hold, then this terminal completion/resolution of the upward price action could be pushed back to late summer. For now we think that dips ahead of that key support zone represent a good tactical level to add to longs or re-enter some otherwise unwound longs. Below $99k could see a move back to $93–94k. On the topside, initial resistance comes into play at $108–109k and then again at all time highs ahead of $112k

Market Themes

  • There was a brief pop in risk assets in the middle of last week, as the U.S. Court of International Trade ruled unanimously that the Trump administration’s use of the International Economic Emergency Powers Act (IEEPA) to institute sweeping tariffs is illegal. However, there was no follow-through higher in equities as ultimately the risk rally from the lows of early April is beginning to look exhausted, while we did see fresh lows in cross-asset volatility which is another sign of exhaustion/reduced positioning. Overall the market looks to be fairly sanguine about the near-term risks of anything ‘rocking the boat’ heading into summer, and the response function to negative headlines (such as Trump tweeting that China had violated their trade agreement on Friday) has been accordingly muted

  • Bitcoin’s impressive rally finally ran out of steam last week, posting its first down week in the past 2 months (on a Friday NY closing basis), with May ending up a record monthly inflow for IBIT ETF — at over $6bln! The correction seems mostly technical with some short-term leveraged longs flushed out in the process, but overall the realised volatility has been muted and as long as this holds we should continue to see passive inflows on dips, particularly with the broad USD weakness that is pervading through markets due to US policy uncertainty

BTC$ ATM implied vols

  • Realised volatility continued to trend lower last week, after a brief blip higher in the prior week due to the range-break/ATH and subsequent quick reversal on Trump’s EU tariff headlines. We are now clocking closer to mid-30s on a high frequency basis, even though the range of the spot move last week was relatively large. With spot pulling back to the $103–106 zone that contained us for a couple of weeks before, participation is likely to remain muted barring any unexpected catalysts, and this could cause a continued compression of realised volatility. Ultimately this lack of realised vol is putting pressure on implied volatility levels and overlay selling of options both sides of spot to monetise the range-bound environment has continued, resulting in a market that trades very long gamma

  • The term structure continues to remain steep as the market looks to fund its long vol positions in end-Jun-Sep expiries with shorter dates. With the Vegas Bitcoin conference failing to deliver any fireworks, and realised remaining muted, front-end contracts have turned heavy once more meaning the market is struggling to fund the higher vol base further out the curve with these expiries, and this has amounted to more pressure on Jun-July expiries in particular

BTC$ Skew/Convexity

  • Skew prices turned more for downside (BTC puts) over the course of last week, in line with the turn in short-term momentum of spot. The lack of interest for fresh calls even as we broke new ATH, and continued overlay selling of calls on pops in spot as a method of reducing delta, have both left the market unwilling to hold upside calls at a significant premium. Meanwhile, the market remains cognisant of the potential for slippery price action to the downside should the $99–101k support zone fail to hold, or if there is any turn in broad risk sentiment

  • Convexity traded broadly sideways with a slightly offered tone in past week, as overlay selling continued either side of spot, and 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, we think convexity offers good value in this environment

Good luck for the week ahead!