Key metrics: (16Jun 4pm HK -> 23Jun 4pm HK)
BTC/USD -4.7% ($107,000 -> $102,000) , ETH/USD -11.5% ($2,630-> $2,320)
After testing and rejecting the pivotal support at $99–101k once again over the weekend, it seems we could have a springboard set-up for a re-test of the highs once more, similar to the price action from a couple of weeks ago. On a technical basis it seems that the end of wave 4 is hopefully in sight, though there are clearly decent stacked offers ahead of the prior highs and as a result the market will need some decent momentum to really punch through to fresh highs
Should the market accomplish that, we would expect a fairly swift move up to our eventual target of $125k, which we think will mark a secular high for this cycle (with some potential for an overshoot to $130k)
Market Themes
Eventful week driven by geopolitical developments as Israel launched an attack on Iran’s nuclear facilities, drawing retaliation from Iran and eventually targeted involvement from the US after some back-and-forth from Trump. For the most part, the reaction in markets was fairly muted (‘another war’…), with Oil the obvious exception spiking higher over the course of the week, especially with threats from Iran to close the Strait of Hormuz. Tensions reached a peak over the weekend after the US involvement, though within 24hours this resulted in a telegraphed response from Iran and a temporary ceasefire brokered by the US, leaving a minimal net impact on the week on markets (and NASDAQ closing at an ATH eventually!)
Crypto markets were exposed by virtue of being open and tradable over the weekend’s developments, with Bitcoin eventually dropping below the psychological $100k level to test a low of $98k on Sunday night, before swiftly regaining ground and eventually closing above $105k by Monday night as news of the ceasefire hit. Given most of the move was during the weekend (not during the IBIT/ETF trading hours), it seems core long positions remained broadly unscathed and the nature of the shallow dip and the swift recovery will give comfort to bulls. ETH also held above the psychological $2k level, dipping briefly to $2.1k before quick rallying back to the recent equilibrium zone of $2.4k
BTC$ ATM implied vols
Realised volatility picked up last week over the course of the geopolitical developments, with high frequency realised clocking up to around 43–44 vols by the end of Monday’s NY session. Despite this, spot remained broadly contained in the $108–100k range with a fleeting dip below $100k, and as such demand for optionality was limited outside of a few tactical hedges over the weekend. The market is not attributing any premium to a potential regime shift in volatility any-time soon, with longer dated volatility levels continuing to drift lower as the market anticipates a quiet and range-bound summer
The term structure continues to flatten out as the market loses patience on longer dated vol length, given the lack of demand and the existing inventory from overlay selling. Moreover, funding the book with gamma expiries has proved a losing trade also given the high realised last week over the headlines, while the reaction in longer dated vols was also muted. With the roll down on longer-dated vols much less punitive now, and with absolute implieds approaching levels that realised performance has consistently outperformed on a 3 month to 12 month look-back, it is fair to say we are approaching levels that locally look oversold (we do not discount the possibility of a quiet few weeks ahead into summer, though again this is well within the market’s pricing at these levels)
BTC$ Skew/Convexity
Skew prices moved broadly sideways last week, with a brief move lower in gamma tenors as we plunged below $100k but this quickly reversed as the market reclaimed $100k and there was a lack of demand for an extension of a move lower below $100k. Skew in vega tenors starting to normalise back towards par/calls over, as the market continues to look for the next break/regime shift to be on fresh highs in spot
Convexity traded broadly sideways and then eventually lower last week, as the market continues to receive wing supply from overlay sellers both sides of spot, and looks to fund their vol longs more efficiently. However, given the propensity for a realised vol regime shift and high vol-of-vol on a range-break, we think flies continue to remain a buy on dips in this environment (especially as local realised volatility generally continues to underperform)
Good luck for the week ahead!
