BTC Volatility Weekly Review

BTC Volatility Weekly Review (November 10 - 17)

Key Metrics (4:00 PM HKT, November 10 -> 4:00 PM HKT, November 17)

• BTC vs USD: -10.0% ($106,200 -> $95,600)
• ETH vs USD: -11.6% ($3,620 -> $3,200)

• The rebound triggered by news of the US government reopening was short-lived. The market shifted to test the $98,000-$100,000 support area but then broke below it. This led to a drop in price to the $93,000-$94,000 support level, which has so far successfully absorbed selling pressure and held firm. For now, it appears that the decline that began after October's flash crash from $112,500-$115,000 has largely run its course. Although it's difficult to pinpoint the exact bottom, we believe that minor dips below this level present good buying opportunities. On a broader scale, the ABC corrective wave from $123,000 → $107,000 → $126,000 → down to the current $93,000 seems nearly complete. However, given the intensifying bearish sentiment, the market may attempt to retest the $93,000-$94,000 level, or even move down to $90,000.
• Market positioning appears to have lightened, and CTA strategies are currently estimated to be holding short positions. Therefore, we believe the risk of further spot market declines is shifting. If $93,000 is breached, we expect strong support at $89,000-$90,500. If that support also fails, there is no strong support until $79,000 (with limited support at $83,000-$85,000), since the <$90,000 area served as a volatile "pivot" earlier this year in March and April. On the upside, initial resistance is at $98,000-$101,000, followed by $104,000-$107,000. We believe that regardless of spot price movement, realized volatility may remain elevated, though the market may attempt to sell volatility as spot market pressure eases (especially if we return above $107,000).

Market Themes

• Risk-off sentiment is spreading, especially evident in the US tech/AI sector. The end of the government shutdown proved to be a "buy the rumor, sell the fact" event, with the early-week rebound in risk assets quickly fading. Concerns over AI valuations and spending/investment have resurfaced, while statements from Federal Reserve officials have generally leaned hawkish. The market has continued to reprice the odds of a December rate cut, dropping from over 90% a month ago to a current coin-flip probability. Interestingly, compared to October, the rise in the VIX index has been relatively mild, as US stock indices have generally performed well, with declines mainly concentrated in AI-related stocks.
• Cryptocurrencies have not been spared from the sell-off in risk assets, with BTC plunging back below $100,000 and breaking through the key $98,000 support, hitting a weekend low of $92,900 before finding temporary balance near $95,000. ETH also retested $3,000 on the downside but found solid support above that level, rebounding to around $3,200, which appears to be its more stable equilibrium over the past few trading days. Overall, after this sell-off, the risk-reward for buying crypto assets at current levels appears relatively more attractive. We expect that if there is no more prolonged sell-off in macro risk assets (or no substantial spike in the VIX), two-way market liquidity will increase. However, native crypto sentiment remains noticeably weak, so the resolve of IBIT holders/buyers will be most tested in the coming days.

BTC/USD Volatility

• As the price fell back below $100,000 and broke the key $98,000 support, implied volatility rose as expected, consistent with the recent correlation of "spot declines driving volatility higher." Realized volatility remained high on both hourly and daily frequencies, with daily readings exceeding 90 volatility points from Thursday to Friday. This prolonged period of high realized volatility has put significant pressure on the market and naturally pushed up forward volatility, as the market is now pricing in a higher structural volatility premium following the unusually low realized volatility during the summer.
• The term structure of implied volatility flattened due to the rise in front-end volatility, with Gamma remaining elevated. The curve's movement is time-weighted (even though back-end volatility has also been repriced higher, its beta is lower relative to the front end), as the market overall still feels net short. Over the past week, there has been notable demand for straddles expiring in January/March/June next year, as the market seeks to close out legacy short volatility positions established when the term structure was steeper.

BTC/USD Skew/Kurtosis

• With the break below the $100,000 mark, put skew pricing has generally deepened, and on the Gamma tenor, there is still considerable demand for puts, as the downside remains the more vulnerable side for the coin price. However, the market is also aware of increased two-way risk at current levels, especially for longer tenors, which has kept longer-dated skew pricing relatively stable, as we have started to see demand for upside options at year-end and beyond at these lower prices.
• Kurtosis pricing has declined, as local Gamma has performed well over the past few trading days, and the market has started to discount extreme wings, as linear market positioning appears cleaner and many feel we are nearing the final stage of the sell-off. Further downside directional demand has appeared in the form of put spreads (e.g., year-end $90,000/$70,000 put spreads), while upside strategies also seem to be appearing as call spreads (e.g., $110,000/$125,000 call spreads)—this has added further selling pressure on kurtosis. Overall, at current levels, and considering the high volatility we have witnessed, we believe current kurtosis is approaching buy levels.

Wishing you a successful trading week ahead!