Key metrics: (2Sep 4pm HK -> 9Sep 4pm HK):
- BTC/USD -4.1% ($57,400 -> $55,080) , ETH/USD -4.9% ($2,440 -> $2,320)
- BTC/USD Dec (year-end) ATM vol +1.6v (60.8-> 62.4), Dec 25d RR vol +0.2v (2.3 -> 2.5)
Spot Technical Outlook
- Spot continued its downward move to test the range support at $53.6k and after briefly trading below, the market has now comfortably traded back higher. This is potentially a notable rejection of the break lower, satisfying the market’s need to test the other side of the range having failed to break above 65k last month
- From here the technical bias is for basing before a move back higher, reclaiming the pivot zone (expect choppiness as we cross back above $58–60k region)
- If the $53–53.6k support does fail to hold here we would initially expect a fairly quick test of the sub-$50k major support level, but given that the market seems to have quite a lot of buying demand there, in the absence of a major risk-off move across global markets we would expect strong support for spot at those levels
Market Themes:
- ‘Rektember’ finally arrived and with it the return of implied volatility across markets and especially in crypto
- Cross-market risk-off price action meant crypto prices struggled for upward momentum once again. BTC/USD eventually tested the lower end of the the $53–65k range though found some support there. Meanwhile ETH/USD tested a local low of $2,150 before also finding some respite
- US betting odds remain close to 50–50 between Trump and Harris, with a lot of attention on the upcoming presidential debate in Philadelphia on 10Sep
- The market remains split between a 25bp or 50bp cut for the FOMC meeting this September, though ultimately crypto is not really responding to this locally, taking its cue from the price action in US equities and VIX instead
- Should the Fed actually deliver a 50bp cut we would expect crypto prices to rise quickly from these depressed levels, as although that might suggest panic with regards to the growth outlook, the implications for a weaker USD are clear with the tail of a resurgence in inflation in the US opening up, should the Fed cut rates too aggressively
ATM implied vols:
- Realised volatility was actually fairly subdued on a high frequency and fix-to-fix basis this week, clocking in the mid-high 40s; however with the levels of risk aversion and the heavy event calendar ahead (NFP last week, US CPI, US presidential debate, FOMC), implied volatility rose gradually into the mid 50s over the week in the front end and gradually higher further out post-election
- As focus shifted towards the near-term ‘Rektember’ events, demand was seen for all sorts of formats — directionally primarily via downside options in the $52–54k region, while the market also saw some pure volatility demand via straddles and strangles covering the events of the month. Roughly the market has around 3–3.5% extra gap variance for the US presidential debate on 10Sep, while CPI and FOMC closer to the 2% gap mark
- The US election premium was out of focus with the market focused on the imminent data points. The market did see some supply of December downside, which led to flattening of the term structure post election. Given the shape of volatility term structure in other asset classes, with November implied volatility levels higher than December onwards for FX/Equities, we continue to think that the market will push towards inversion of the curve eventually
Skew/Convexity:
- Fairly static price action in both skew and convexity this week, as market focused on local optionality covering the events of this month
- While very short term skews did move deeply for downside due to directional demand of 52–54k type strikes, this did not translate to skews further out the curve, with the market still aware of bullish upside tails further down the line, with Fed cutting cycle imminent and Trump still the very marginal favourite for the election
Good luck for the week ahead!
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