Key metrics: (24Mar 4pm HK -> 31Mar 4pm HK):

  • BTC/USD -1.8% ($83,500-> $82,000) , ETH/USD -5.3% ($1,900-> $1,800)

  • While we experienced some choppiness over the weekend, for the most part BTC has been fairly well contained in the broad $81–88k range, with realised vol declining to mid 30s for the last 7 days. ETF outflows appear to be stabilizing here, though we suspect we will see more outflows if we get back above $90k without sufficient upward momentum. Otherwise there appears to be continued concerns over the trade war between the US and their trading partners which has led to spot trading heavy again, testing support around $81–82k level, which appears to be fairly solid for now

  • In some ways price action here feels a little similar to that Sept/Oct price action last year, where price rallies were consistently sold into. A clean break below $81k will get more volatile and likely culminate in a test of recent lows, although the $77k-73k support zone should be expected to hold at first attempt; a breach of this could really open up the downside however to $60–65k and would leave us scrapping our medium term views. To the top side offers will be strong around $88.5–91k but above that the market might look to retest the $r100k level. We remain medium term bullish and expect the next quarters will see the market begin an ascent to $115–125k, but for the next few weeks or month there could be continued sideways price action.

Market Themes

  • Cross-asset markets were fairly calm for the first half of the week, even despite the looming tariff deadline and some drip feed information about what to expect at Trump’s ‘liberation day’ on 2Apr. However negative sentiment accelerated into the weekend as the market showed no appetite to buy risk ahead of month/quarter-end and with such an important tariff deadline approaching. Ultimately it feels as though this is a function of the market being in a position of weakness after what has been a very challenging quarter for most, and it seems most would rather remained sidelined until we navigate this upcoming week. Throw in some disappointing US data with growth metrics worsening and inflation remaining sticky, and the market is likely to remain defensive in the near term. However ultimately it feels as though weak leverage has been cleaned out from the market and the market cannot sustainably trade back-and-forth headlines over tariffs, so the bar for a low vol relief grind higher in April for risk assets seems low

  • As for crypto, after briefly popping its head above the $2k parapet, ETH finds itself back below $1,800 as the market sentiment remains poor. BTC fared better relatively, testing short-term resistance at $88.5k and triggering some stops, before retracing back to $82k. While Gold is up 18% YTD, BTC is down 13% with some arguing that the combo of easy monetary policy + risk off favours Gold, while easy monetary policy + risk on favours Bitcoin. Monetary policy is certainly moving further towards the easy stance so if we get a significant pivot from Fed and/or risk assets rally, we could expect that to be the next catalyst to drive BTC impulsively higher

BTC$ ATM implied vols

  • Quite drastic vol-of vol once again this week as implied levels headed towards local lows in the first half of last week, driven by low realised volatility as the market clearly had a pocket of long gamma for the quarter end expiry on 28Mar. Realised volatility clocked in the low-mid 30s for most of last week, before picking up into the weekend (though even then only to a mid-40 handle realised). The market clearly has been delivered short gamma from a combination of the long strikes rolling off on Friday and some outright downside buying which has become more gamma intensive given the spot move lower. What is also surprising is the the 25April expiry has also rallied almost 9 vols off the lows of last week, with the market clearly scrambling to cover the intraweek notional/gamma shorts. Ultimately the baseline realised regime remains in the 35–50 range and any spikes above this are likely to be short lived, as we saw in the first half of March

  • The implied volatility term structure flattened out significantly as a result of the front-end led moves, with a lot of supply hitting the market in June-Dec expiries last week. Moreover, structural Vega demand remains less prevalent in a market where spot is trending lower and that is also reducing the upward pressure on longer-dated expiries

BTC$ Skew/Convexity

  • Skew prices moved quite aggressively for downside towards the end of the week, after the relief rally to $88k showed no impulsive momentum higher and spot/vol prices accelerated lower on Friday. It has long been our view that in the absence of crypto specific catalysts, the skew particularly for shorter dated expiries in BTC should correlate to that of SPX (i.e. in favour of downside) given the strong local correlation/risky asset behaviour. While it is not surprising to see front-end downside better bid in light of this, we think locally the move is a bit extreme given the realised volatility has been fairly contained on this move lower, indicated some real depth of liquidity on the bid-side ahead of $81–80k

  • Convexity broadly ended the week unchanged after again spiking for gamma contracts with the market looking to own low delta downside in the event of another round of liquidations should tradfi markets continue with their risk off tone. We still think given the high levels of vol-of-vol and risky vs spot correlation that flies are structurally underpriced

Good luck for the week/month/quarter ahead!