BTC Volatility: Week in Review August 12–August 19, 2024

Key Metrics (August 12, 4pm -> August 20, 4pm Hong Kong time):

BTC/USD +0.2% ($58,500 -> $58,600), ETH/USD +2.75% ($2,550 -> $2,620)

BTC/USD December (end of year) ATM volatility + 0.7% (61.5 -> 62.2), December 25 day risk reversal volatility + 0.5% (3.6 -> 4.1)

• Overall, global risk markets performed well, with BTC prices fluctuating in a very narrow price range. Although BTC volatility was not large, we still observed high-frequency volatility as the market repeatedly fluctuated in the key range of 58.5k-59.5k and was difficult to stabilize at an equilibrium level.

• BTC is expected to remain in the 54k to 64k price range in the short term.

• The market appears to be forming a tightening wedge/triangle pattern, which suggests we could see an inflection point by the end of the week. However, if prices fail to break out of this range, we would expect it to be difficult for realized volatility to rise significantly.

Market events:

• Traditional financial markets rebounded strongly last week, but interestingly, the cryptocurrency market lagged significantly. It is reminiscent of the trend of US Treasury yields (although it rebounded from the low point, it did not fluctuate significantly afterwards).

• This weekend the focus is on Powells speech at the Jackson Hole conference. The market is expecting at least one rate cut (even a 50 basis point cut is possible).

• Geopolitics was relatively quiet last week, and markets are starting to take on more of a summer vibe as the U.S. Labor Day holiday approaches.

ATM Implied Volatility:

• Despite the high high frequency realized volatility, front end volatility continued to decline during the week, mainly due to the narrowing of the volatility range (i.e. terminal distribution). However, Vega received good buying in the early part of the week, which made the volatility curve steeper.

• As the market focuses on the election, there is more demand for Election Day Put Spreads. Overall, the weighting of the election impact reflected in the pricing looks quite reasonable.

• If the spot range remains stable, then volatility is expected to narrow further in August, making September steeper.

Skewness/Convexity:

• Convexity and skewness remain sideways this week; the front-end butterfly spread rises slightly as ATM volatility declines.

• Spot-volatility correlation remains locally negative but weaker than last week. Below 55-56k, gamma demand is expected, while at 61-62k, volatility is expected to remain weak.

Good luck with your trading this week!

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