Key indicators: (February 24, 4 PM - March 3, 4 PM Hong Kong time)
BTC against USD fell by 3.9% (from $95,900 to $92,200), ETH against USD fell by 14.1% (from $2,725 to $2,430)
Market volatility unexpectedly surged over the past week. The price of the coin first dropped, and after the collapse of the $89-91k support level that the market had relied on since the election, it fell all the way down to $79k. Interestingly, this volatility can be seen as the end of the correction and sideways movement since last November-December, preparing for a new wave of trends.
Subsequently, market sentiment quickly reversed over the weekend due to news of an upcoming cryptocurrency conference and Trump mentioning cryptocurrency reserve policy again on Twitter. From now on, the market will seek signals for a price surge, especially if the price extends upwards to $100k, we will soon begin to challenge historical highs. Conversely, if the price reverses and falls, we will find support at $91.5-89.5k, followed by $79k, and finally down to $76-73k.
Market theme:
The market was quite volatile this week. Narratives flipped rapidly in several aspects: weak U.S. data and 'stagflation', Trump's trade war, fund rebalancing due to month-end and U.S. tax season, and the tense geopolitical situation caused by the Russia-Ukraine war. Ultimately, these narratives served only as catalysts or excuses to adjust positions that had performed well since the election. It can be said that the market underwent a healthy deleveraging as it approached the last month of this quarter.
The cryptocurrency market was unsurprisingly affected by volatility and rebalancing flows. Due to a weak risk backdrop, the market began to unwind positions, causing the Bitcoin price to drop to $78k, nearly 20% lower than the price at the beginning of the week. After overselling, the price slightly adjusted back above $80k, ultimately ending the week close to $84k. Subsequently, Trump mentioned cryptocurrency reserves on Twitter (despite no new content), stimulating short CTA and momentum positions to unwind, as well as fundamental cash buying flows, temporarily pushing the spot price up to $95k, nearly offsetting the entire week's decline. Interestingly, the futures basis remains sluggish, suggesting that speculative strategies through perpetual and term futures trading have yet to start buying.
BTC Implied Volatility:
Implied volatility showed an upward trend this week and was very high. The price of the coin broke through a critical support level, triggering a wave of liquidations and a surge in actual volatility, followed by an excessive rise on Sunday. Short-term implied volatility was quite sensitive as expected, but in most cases, the spike in implied volatility was very short-lived, as the market's spot and options positions were quite clean after a round of liquidations and unwinding. On Monday, during the quiet Asian trading session, short-term volatility fell too much. We expect that in the coming days, considering the macro context of volatility, the level of implied volatility will rise rapidly.
Trump announced that the first cryptocurrency summit will be held on March 7 (Friday). The uncertainty surrounding this event can currently only be observed on the expiration date of March 14 (which also includes the U.S. non-farm payroll data and consumer price index). Considering the accumulation of these uncertainties, the market is pricing in volatility for Friday night at about 4%, which is comparable to the pricing level for Trump's speech event in Nashville before last August's election.
As the price of the coin broke through critical support levels and triggered liquidations and very high actual volatility, the skew tilted sharply downwards. Subsequently, as the price of the coin rebounded from the lows, the skew gradually moved upwards and flattened after the explosive rise in price on Sunday. The market anticipates that the upcoming White House summit may be a potential positive factor.
Kurtosis gradually increased this week. However, considering the extreme fluctuations in actual volatility and the extreme movements in skew due to the price of the coin, overall we believe that kurtosis should be higher in this market environment.
Wishing everyone good luck this week!
