Key metrics: (2Jun 4pm HK -> 9Jun 4pm HK)

  • BTC/USD +0.2% ($105,400 -> $105,650) , ETH/USD -0.6% ($2,510 -> $2,495)

  • The market tested the support level $99–101k last week but bounced swiftly off this level, reverting back to $105–106k quickly. This strongly suggests a re-test of the resistance above and ultimately the highs is fairly imminent. If we fail here, it could mean the move is going to be more drawn out and that we could be reverting back to $90–95k first. Otherwise, we expect a break higher through this resistance to open us up for a move towards our target zone of ~$125k. We would expect a break above the ATHs to push up realised vol from these compressed levels

Market Themes

  • It’s the final month of a turbulent Q2 and we’ve started in much the same fashion that May finished, with a continued decline in cross-asset volatility and a grind higher in risk prices. SPX finally breached above the psychological resistance of $6k last Friday, fuelled by better than expected jobs data, after a brief wobble ahead of the level on Thursday night after Trump and Musk took their feud into the public domain. In the past 9 weeks, $VIX has declined from 45.3 to 16.8, a 63% decline marking the steepest 9week decline on record (even surpassing the 58% 9-week decline from 65.5 end March 2020 to 27.5 end May 2020 after the COVID shock!). Ultimately the macro/fundamentals remain conducive to a grind higher in risk assets for the near-term and the market is becoming more comfortable with the noise from Trump’s administration around trade tariffs, though from these now normalised low levels of volatility we could expect short-term wobbles as we approach the July 90-day deadline

  • Bitcoin’s correction from ATH continued last week, with a brief test of the key $100–101k support zone (triggered by Trump-Elon headlines), which held very well and spot subsequently reclaimed $105k within 24 hours of the low print at $100.4k. Ultimately we find ourselves firmly back in the middle of this $100–110k ‘upper range’ of spot that we have traded in for quite some time since the US election last year

BTC$ ATM implied vols

  • Realised volatility broadly based last week, though ultimately failed to pick up significantly from the low-mid 30s despite a test of the support at $100k (and subsequent reversal), and with a fairly muted reaction on NFP also failing to catalyse realised. This continued to weigh heavy on implied volatility across the term structure as we consolidated back in the middle of the $100–110k trading range. Demand for optionality remains very muted heading into the summer months, and the market seemingly remains long volatility and funding books with shorter dated expiries, which are now approaching thin value from the short side with the upcoming events for the rest of the month.

  • The term structure has begun 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. Ultimately the roll down on the longer-dated vols is much less punitive now, and given the asymmetric nature at these levels — that is, any range-break or spike in realised could lead to a very swift repricing of implied vega levels — we think Vega tenors are approaching good value to accumulate

BTC$ Skew/Convexity

  • Skew prices moved broadly sideways last week, even despite the move lower in spot towards $100k. Ultimately it seems the market is uninterested in playing for a downside break in this environment, and as such demand for downside optionality remains limited. This is continuing to keep skew prices supported for calls across the term structure

  • Convexity traded broadly sideways last week, though interestingly longer dated convexity picked up as ATM prices moved lower, with the market reluctant to price out too much variance in the tails yet given the historic high vol-of-vol nature of the asset, while local variance continues to price lower with the market comfortable in this $100–110k range of spot. We think this repricing ultimately makes sense and we continue to advocate owning flies in shorter expiries for more explosive repricing on a range-break

Good luck for the week ahead!