BTC Volatility: Week in Review August 5–12, 2024

Key indicators: (August 5, 4pm -> August 12, 4pm Hong Kong time)

• BTC/USD +11% ($52,700 -> $58,500), ETH/USD +8% ($2,360 -> $2,550)

• BTC/USD December (end of year) ATM volatility decreased by 0.5% (62 -> 61.5), December 25 day RR volatility increased by 0.3% (3.3 -> 3.6)

• The global risk reversal caused the BTC price to quickly fall below the key support level of 58k-59k, causing stop-loss orders to be triggered, leading to a drop to the main support level of 50k.

• BTC price subsequently recovered above 54k, so the current trading range price is expected to be between 54k and 64k.

• Short term support is expected at 57k and resistance at 63k.

Market Events

• After experiencing a low point where volatility had risen sharply and caused stop-loss orders to be triggered in traditional financial markets, the market has gradually returned. As the realized volatility of global assets has risen recently, the market has shown volatility in the late stage, trying to readjust its positions.

• Last week was relatively geopolitically quiet, with much of the intra-week volatility appearing to be driven by illiquid market flows rather than by major shifts in overall market sentiment.

• The BTC market had strong buying demand around 50k, likely from Accumulator products that bought twice as much below 50k, in turn increasing demand for BTC. ETH’s over-opening dragged down the market, causing it to not recover as quickly as Bitcoin (based on volatility, you’d expect it to rise around 15% instead of 8%).

• The cryptocurrency markets Vega showed strong buying for most of the week as traders seemed to be slightly misled by the markets volatility and took short volatility positions. However, a new round of selling on Thursday night and Friday seemed to have them fill their positions, causing Vega to gradually fall before the weekend. As spot and perpetual contract liquidity remains scarce, realized volatility remains at a high level.

ATM Implied Volatility:

• Over the past week, the peaks of the front-end implied volatility have continued to decline as the spot price has moved, but overall volatility levels have remained high until selling pressure eased on Thursday and Friday.

• In traditional financial markets, the VIX volatility index spiked to a high of 65 on Monday before retreating to a range of 22-28 for the rest of the day, closing at 20.6.

• Ahead of the CPI data release, front-end volatility has recovered from weekend lows; if the CPI release is quiet and the market remains in the current range, we expect front-end volatility to return to late July levels. In this case, we expect belly FVAs to perform better.

Skewness/Convexity:

• After the market experienced panic buying on Monday night, it quickly pulled back as spot prices recovered. Butterflies and risk reversals gradually retreated during the week and are now back in long-term trend ranges. There was a slight squeeze in the front-end period ahead of the CPI release on Monday morning, but it eased in the morning trading session.

• The spot-volatility correlation is significantly negative in some areas; that is, when the spot price retreats from a high level, the implied volatility is quickly pushed up. As sentiment remains tight, some overlay supply makes traders more willing to mark volatility to a lower level at a higher spot price.

• Market demand/bid for upper Vega persists, while supply above is likely to decrease towards year end amid lower spot prices.

Good luck with your trading this week!

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