Key indicators: (February 24, 4pm - March 3, 4pm Hong Kong time)
BTC/USD fell 3.9% ($95,900 -> $92,200), ETH/USD fell 14.1% ($2,725 -> $2,430)
Market volatility has unexpectedly surged over the past week. The price of the coin fell first, and the support level of $89-91,000 that the market has relied on after the election collapsed, and then fell all the way to $79,000. But what is interesting is that from the overall perspective, this fluctuation can be considered as the end of the correction and sideways movement since November-December last year, preparing for a new wave of market conditions.
Then, the market sentiment quickly reversed over the weekend due to the news of the upcoming cryptocurrency conference and Trumps re-tweeting of the cryptocurrency reserve policy. From now on, the market will look for signs of price surges, especially if the price of the currency extends upward to $100k, we will soon start to hit the historical high. On the contrary, if the price of the currency reverses and falls, we will find support at $91.5-89.5k, then $79k, and finally $76-73k.
Market Theme:
This week has been quite volatile. The short-term narrative has been rapidly shifting on several fronts: weak US data and stagflation, Trumps trade war, month-end and US tax season rebalancing, and geopolitical tensions caused by the Russia-Ukraine war. But ultimately these narratives were just a catalyst or excuse to adjust positions that have been doing well since the election. It can be said that the market has experienced a healthy deleveraging as it approaches the last month of the quarter.
Crypto markets were also unsurprisingly affected by volatility and rebalancing flows. Due to the weak risk backdrop, the market began to liquidate and caused the price of Bitcoin to fall to $78k, almost 20% lower than the price at the beginning of the week. After falling too far, the price slightly corrected to above $80k, and finally ended the week close to $84k. Then Trump mentioned the cryptocurrency reserves on Twitter (although there was nothing new), which stimulated short CTA and momentum position liquidation and fundamental cash buying flows, temporarily pushing the spot price to $95k, almost completely offsetting the decline of the whole week. Interestingly, the futures basis remains depressed, suggesting that speculative strategies through perpetual and term futures trading have not yet started to go long.
BTC Implied Volatility:
Implied volatility has been trending higher this week and has been very volatile. The outsized move higher on Sunday came as the price broke through a key level below, triggering a wave of liquidations and high realized volatility. Short-term implied volatility has been quite sensitive as expected, but most of the surges in implied volatility have been very short-lived as the market is fairly clean in both spot and options positions after a round of liquidations and liquidations. On Monday, short-term volatility fell too far during the quiet Asian session. We expect implied volatility levels to rise rapidly in the coming days given the volatile macro backdrop.
Trump announced that he will hold the first cryptocurrency summit on Friday, March 7. The uncertainty of this event can only be observed on the expiration date of March 14 (which also includes the US non-farm data and consumer price index). Taking into account the total of these uncertainties, the market is pricing in a volatility of about 4% on Friday night, which is similar to the pricing level of Trumps speech in Nashville before the election last August.
The skewness moved sharply to the downside as the price dropped through key support levels, triggering liquidations and very high realized volatility. Then, as the price recovered from the lows, the skewness gradually moved upward and flattened after the explosive rise in the price on Sunday. The market expects that the upcoming White House summit may be a potential positive factor.
Kurtosis has gradually increased this week. However, considering the sharp fluctuations in realized volatility and the extreme movement of skewness under the influence of currency prices, we generally believe that the kurtosis should be higher in this market environment.
Good luck to everyone this week!
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