BTC Volatility Weekly Review (November 10 - 17)

November 17, 4 PM HKT) $95,600) ETH to USD: -11.6% ($3,620

The rebound brought by the news of the U.S. government's restart was short-lived. The market turned to test the support area of $98,000-$100,000 but then fell below it again. This led to a drop in price to the support level of $93,000-$94,000, which has successfully absorbed selling pressure and held up. Currently, it seems that the decline that started from $112,500-$115,000 after the flash crash in October has basically ended, although it is difficult to determine the exact low point, we believe that small dips below this provide good buying opportunities. More macroscopically, the ABC correction wave from $123,000 → $107,000 → $126,000 → currently down to $93,000 seems to be nearly complete, however, given the intensifying bearish sentiment, the market may reattempt to break through $93,000-$94,000, or even drop to $90,000. Market positions seem to have lightened, and the CTA strategy is currently estimated to hold short positions, therefore we believe the risk of further decline in the spot market is changing. If it falls below $93,000, strong support is expected at $89,000-$90,500. If this support is also broken, there will be no strong support until $79,000 (with limited support at $83,000-$85,000), as the <$90,000 region was a volatile “pivot” point in March and April this year. On the upside, initial resistance is at $98,000-$101,000, followed by $104,000-$107,000. We believe that regardless of the ups and downs of the spot market, actual volatility may remain high, although the market may attempt to sell volatility due to the easing of pressure in the spot market (especially if we return above $107,000). Market Theme Risk aversion sentiment is spreading, particularly evident in the US tech/AI sector. The end of the government shutdown has proven to be “buy the rumor, sell the fact,” with the rebound in risk assets at the beginning of last week quickly fading. Concerns about AI valuations and spending/investment have resurfaced, while Federal Reserve officials' comments have generally leaned hawkish, leading the market to continuously adjust the pricing for a rate cut in December, dropping from over 90% probability a month ago to the current 50-50 coin flip probability. Interestingly, compared to October, the rise in the VIX index has been relatively moderate, as US stock indices have performed reasonably well, with declines mainly concentrated in AI-related stocks. Cryptocurrencies have not been spared from the sell-off in risk assets, with BTC plummeting back below $100,000 and breaking through the critical support at $98,000, hitting a low of $92,900 over the weekend, and then finding temporary balance near $95,000. ETH also tested the downside of $3,000 again but found better support above that level, rebounding to around $3,200, which seems to be its more stable balance point 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, and we anticipate that if macro risk assets do not experience a more prolonged sell-off (or if the VIX does not spike significantly), market liquidity in both directions will increase. However, the inherent sentiment in cryptocurrencies is noticeably weak, so the determination of IBIT holders/buyers will be tested in the coming trading days. BTC/USD volatility

As the price fell back below $100,000 and broke through the key support of $98,000, implied volatility rose as expected, which is consistent with the recent correlation of “spot declines leading to volatility increases.” Actual volatility has remained high, both on an hourly and daily frequency, with more than 90 volatility points observed on the daily frequency from Thursday to Friday. This prolonged period of high actual volatility has put considerable pressure on the market and naturally pushed up forward volatility, as the market has priced in a higher structural volatility premium following the unusually low actual volatility during the summer. The term structure of implied volatility has flattened due to the rise in front-end volatility and persistently high Gamma performance. The curve's movement is time-weighted (even though the back-end volatility has also been repriced higher, Beta remains low relative to the front end), as the market overall still feels the pressure of holding short positions. Over the past week, there has been considerable demand for straddle options for January/March/June next year, as the market seeks to close out some legacy short volatility positions established when the term structure was steep. BTC/USD Skew/Kurtosis

As the $100,000 threshold was breached, the skew prices of put options have generally deepened, and there is still considerable buying interest in put options on the Gamma expiry, as the downside in coin prices remains the weaker side. However, the market is also aware of the increased two-way risks at the current levels, especially on slightly longer timeframes, which keeps the skew prices for longer maturities relatively stable, as we have begun to see demand for options above the current lower prices for year-end and beyond. The kurtosis price has declined due to good localized Gamma performance over the past few trading days, while the market has started to discount the extreme wings, as linear market positions appear cleaner, and many feel we are approaching the final stages of the sell-off. Directional demand for further downside appears in the form of put option spreads (e.g., year-end $90,000/$70,000 put option spread), while upside strategies also seem to appear in the form of call spreads (e.g., $110,000/$125,000 call spread) — which in turn puts more kurtosis selling pressure on the market. Overall, at current levels, and considering the high volatility we have witnessed, we believe that the current kurtosis is close to a buy level. Wishing you a successful trading week ahead!