Key metrics: (24Feb 4pm HK -> 3Mar 4pm HK):
BTC/USD -3.9% ($95,900 -> $92,200) , ETH/USD -14.1% ($2,725-> $2,430)
The past week delivered some quite unexpected surges in volatility, initially on the downside as the support $89–91k that the market had been leaning on since the Election finally gave way and we traded down to $79k. Interestingly when viewing this move holistically, it could be interpreted as the consummation of the corrective and sideways price action seen since late Nov / Dec last year, setting the stage for a new wave.
The market quickly reversed over the weekend on news of the upcoming crypto conference and a Trump tweet re-hashing the reasons behind his Executive Order instructing US Stockpiling. From here we will be looking for confirmation of impulsive price action higher, notably if we extend to test $100k. Should this break, then we will quickly move to test the highs. If instead price action reverses lower, then we have initially strong support at $91.5–89.5k and then again at $79k and finally $76–73k
Market Themes
Volatile week across markets as the short-term narrative cycled rapidly between: weak US data and ‘stagflation’; Trump’s trade war; month-end/US tax season rebalancing flows; and geopolitical tensions over the Russia-Ukraine war. Ultimately a lot of the background noise was just an excuse/catalyst for some much needed positioning readjustments from trades that had performed well since Trump’s election, with arguably a healthy deleveraging as we approach the final month of the quarter
Crypto markets were no exception to the volatility/rebalancing flows as the weak risk backdrop started a positioning capitulation that drove BTC down to a low of $78k, almost 20% from where it started the week. Having overshot lower spot managed to find some footing and reclaimed $80k to close out the week closer to the $84k mark, before some positive words (albeit nothing new information wise) on US Stockpiling from Trump’s twitter sparked a liquidation of CTA/momentum shorts and some fundamental cash buying, driving spot back up to $95k briefly and unwinding almost the entire move lower on the week. Interestingly basis remained heavy suggesting that speculative positions in perps/futures has not started to flip long again
BTC$ ATM implied vols:
Implied volatility levels trended higher this week with some high vol-of-vol as the market broke through key support levels on the downside in spot, triggering bouts of liquidations and elevated pockets of realised performance, before an outsized squeeze higher on Sunday. Short-term contracts displayed the highest sensitivity as expected, though in most cases the spikes in implied levels were fairly short lived as both spot and option positioning in the market is cleaner now that liquidations and unwinds have happened. Gamma levels oversold quickly on a quiet Asia morning on Monday and we would expect those to quickly reflate higher in the coming days given the volatile backdrop
Trump announced an inaugural crypto summit at the White House for Friday 7Mar, so the extra variance for that event is currently only observable in the 14Mar expiry (which also contains US data in NFP and CPI) — roughly we see a 4% breakeven priced in for the combination of NFP and Crypto Summit on Friday night, which is comparable to the levels seen last August at Trump’s keynote speech at Nashville ahead of the election
BTC$ Skew/Convexity:
Skew prices moved aggressively for puts in gamma expiries as spot plunged through key support levels on the downside, triggering liquidations and high realised performance. As spot recovered off the lows, skew started to move less negative before the explosive move higher on Sunday pushed skew back towards flat as the market looked ahead towards a potential bullish catalyst in the upcoming White House summit
Convexity ticked higher this week, though considering the dramatic realised vol-of-vol, and also the extreme moves in skew corresponding to spot, overall we would expect structurally higher flies in this regime
Good luck for the week ahead!
