Key metrics: (12May 4pm HK -> 19May 4pm HK):

  • BTC/USD -1.5% ($104,800-> $103,200) , ETH/USD -5.3% ($2,540 -> $2,405)

  • Having broken into the new higher spot range ($101–110k) the market has generally exhibited low volatility in both high-frequency and fix-to-fix as good two way spot price action has kept us well contained. In terms of the typcial consolidation cycle length, we note that most consolidations over the last 18 months tend to last between 14–20 days, and rarely extend much longer, which suggests to us that the market will likely see one side or the other getting exhausted in the next week or so. This means there’s a good chance that we either test the all-time highs once again or we correct into a longer consolidation closer to $90–95k.

  • While our base case has been that we would see some retracement before this consolidation we have experienced, it is noteworthy how well supported spot has been and this lends credibility to the idea that the final large push to $125k could be well underway and that we could have a much faster move than initially expected. The jury is still out on this, but we think the market will be inclined to chase the move should we manage to clear $110k

Market Themes

  • Risk on sentiment in markets last week as US and China rolled back tariff rates to their starting point before the whole escalation (was it all a bad dream?), while US macro data was also risk-friendly with a slightly softer CPI print. US equities have now unwound the entire trade-war induced sell-off and also began to unwind some of the ‘US economic slowdown’ revaluations as well. Moody’s downgrade of US debt from AAA to AA1 was only a minor bump in the road as the knee-jerk sell-off in US equities was quickly faded, though the US dollar and long term US treasuries have repriced accordingly lower. Ultimately any further extension higher from here in US equities is a ‘pain trade’ with the market being forced to cover shorts/rebuild underweights in the past week at levels that most people remain cautious/bearish on from a ‘fundamental macro’ perspective

  • Crypto remained fairly range-bound with Saylor continuing to accumulate every dip in BTC, purchasing another 7,390 coins last week at an average of around $103.5k. There still remains good offers up in the $105–107k region, with a brief test up there Monday morning quickly faded and driving prices back down to $102k, before eventually recovering back into the middle of the $101–107k range that has trapped us for the past couple of weeks. ETH also slowed down its ascent after a brief look at offers ahead of $3,000, topping out ~$2,800 before pulling back and stabilising around the $2,500 level

BTC$ ATM implied vols:

  • Another week of low realised volatility, clocking down to the low 30s before the quick round-trip on Monday morning. This weighed heavy on implied volatility levels throughout last week, while the Monday morning reflation was also quickly faded. Ultimately the market feels long vol from heavy overlay selling both sides of spot, and while we remain contained in the $101–107k range, end user demand for options will be muted

  • The roll down on the term structure remains punitively steep, with June and July volatility levels rolling down 1–1.5vols/week on a static basis, meaning holding optionality in this environment even on a longer dated basis is very challenging (despite the low implied levels in absolute terms). It seems market makers are long in those buckets and struggling to fund their positions, which is why shorter-dated contracts remain heavily offered (to the point of screening almost cheap vs even the low realised base)

BTC$ Skew/Convexity:

  • After fairly static prices last week, skew attempted to move sharply for calls as we first broke through $106k on Monday morning, before the aggressive high-realised pullback to $102k drove skew prices back down. However with decent demand in spot ahead of $101–100k again, the market continues to be more concerned about a volatile move higher through ATH and skew prices have moved back further for calls again

  • Convexity remained broadly sideways after bouncing off very low levels, with the overlay supply still providing some wings to the market, but the market is also very aware of the potential for a shift in the realised regime outside the $101–107k and is therefore less eager to sell options outside the range too cheaply

Good luck for the week ahead!