BTC Volatility Weekly Review (June 2-June 9)

Key Indicators: (4pm June 2 -> June 9th 4pm HKT)

• BTC rose 0.2% (105.4->105.65 thousand USD) against USD, ETH fell 0.6% (2, 510 -> 2, 495 USD)

• Last week, the market tested the $99-101 thousand support level, but then quickly rebounded back to the $105-106 thousand range, strongly suggesting that the price is about to try to break to new highs again in the near term. If this breakout fails, the rally may be extended for a longer period of time, and we will return to the $90-95 thousand range first. Otherwise, we expect this breakout to lead us towards our expected target of $125,000, while real volatility will rebound from current lows as the price reaches new highs.

Market Theme

• At the beginning of the last month of the second quarter of this year, the market moved in much the same way as it did at the end of May. Cross-asset volatility continued to decline, and risk assets gradually rose. While SPX continued to waver before the $6,000 psychological mark after Trump and Musk publicly tore their faces last Thursday night, it finally broke through the next day on the back of better-than-expected jobs data. Over the past nine weeks, the VIX Fear Index has dropped from 45.3 to 16.8, the largest nine-week decline ever (63%, even surpassing the 58.5% COVID drop from 65.5 at the end of March 2023 to 27.5 at the end of May 2023). Overall, macro and fundamentals remain favoured for the rally in risk assets in the near term, and markets have adapted to the Trump administration's occasional rhetoric about tariffs. However, given that the level of low volatility has now returned to normal, we expect the level of market volatility to increase in the near term with the arrival of the July tariff deadline.

• Bitcoin continued to revise downwards after hitting an all-time high last week, including the Trump-Elon news that triggered a shock to the key support level of $100-101 thousand, but the price quickly gained a foothold and returned to $105 thousand from a low of $100.4 thousand in 24 hours. In the end, the price returned to the upper part of the $100-110 thousand range. We've been wandering here many times since the election was over.

BTC implied volatility

• Actual volatility was largely hovering at the bottom last week, failing to raise from the early 30s level when the price fell to $100,000 (which subsequently rebounded); The market's reaction to the NFP data was also very lackluster, with no support for actual volatility. As the price returns to the $100-110 thousand range, the implied volatility of the whole maturity will continue to be depressed. Demand for options has become scarce with the summer holidays, and the market still looks to be holding a large long volatility position while selling short-term expiries to support it, but front-end value has now become very low given the rest of the month.

• The volatility term structure is starting to flatten out. Given the absence of buyers and the ongoing selling pressure, the market is gradually losing patience for taking forward positions. It now appears that the rolling decline in the term structure is no longer so intimidating, and given that any range breakout could lead to a rapid rise in implied volatility along with real volatility on top of the currently low real volatility – we think the forward horizon is starting to become worth holding.

BTC Skewness/Kurtosis

• Skewness was basically sideways last week, and even though the price of the coin fell to around $100,000 at one point, the market showed no interest in buying below. This results in skewness skewed upwards across the term structure.

• Last week's kurtosis was generally sideways. Interestingly, however, despite the decline in some of the implied volatility of the ATM, the kurtosis of the forward has increased. Given the volatility of the Bitcoin asset, the market is reluctant to lower the pricing of the tail, but the ATM segment is gradually declining as the coin price stabilizes at $100-110 thousand. We believe that this pricing is reasonable overall, and continue to recommend holding kurtosis over shorter maturities to protect against volatility upswings in the event of a price break.

Good luck to all this week!