BTC Volatility Weekly Review (February 16 - February 23)

Key Indicators: (February 16, 4:00 PM Hong Kong Time -> February 23, 4:00 PM Hong Kong Time) BTC/USD -4.0% ($68,500 -> $65,750), ETH/USD -5.0% ($1,970 -> $1,870)

Since breaking below the long-term support level of approximately $73,000–$74,000, the market has generally been consolidating. Most non-long-term bullish positions have been liquidated, and momentum strategies are more likely to hold short positions. The market is at a crossroads, with an approximately equal chance of short-term decline or rise. Fibonacci technical indicators suggest that before re-entering a long-term uptrend, prices may continue to decline; that said, recent price movements have also cleared out many positions, meaning any further decline would need to be driven by long-term holders reducing or closing their positions. If the price falls below $62,000 or $60,000 support levels, it could trigger a drop to $55,000–$54,000; conversely, regaining and holding above $75,000 could trigger a shift in medium-term momentum strategies from bearish to bullish.

Market Themes Due to geopolitical tensions (US-Iran tensions / Trump tariffs) and concerns over a valuation bubble in artificial intelligence, risk aversion sentiment flooded the market last week. Increasing uncertainty prompted investors to de-risk. From a fundamental perspective, the macro environment has not materially worsened, although the hawkish tilt of the FOMC meeting has pushed back expectations for the Fed’s next rate cut. Emerging market equities performed relatively well, mainly as funds moved out of the US, driven by uncertainties related to AI and Trump policies — thus, the market remains selectively deploying risk assets, though the overall tone remains cautious. Cryptocurrencies continued to be under pressure: BTC failed to hold above $70,000, and most of last week saw sideways decline, mainly due to persistent outflows from IBIT and heightened risk aversion. With extremely pessimistic market sentiment and significantly reduced positions, spot prices have been largely contained, supported around $65,000, with some relief around $68,000 before the weekend. However, as the new week begins, market sentiment remains unfavorable, with large sell-offs in Asia on Monday amid low liquidity, causing spot prices to break below $65,000. Overall sentiment remains fragile, and buyers seem hesitant to re-enter in large numbers.

BTC Volatility Last week, implied volatility mostly ranged sideways or declined, despite some price oscillations. Actual volatility mostly dropped into the low 40s for most of the week. The implied volatility term structure continued to steepen last week, with front-end implied daily volatility pricing in the mid-40% range, consistent with recent realized volatility, putting pressure on the 2-week to 1-month maturities (which still price around 50% daily volatility). However, the drop below $65,000 on Monday caused most of last week’s volatility premium to be unwound, though the volatility-of-volatility remains high. The market has begun pricing additional volatility risk for contracts expiring on March 6, as Trump announced last Thursday that Iran needs to reach an agreement within roughly “10 days” before “very bad things happen.” Polymarket shows the probability of the US striking Iran before March 6 has risen to about 35%, compared to only 10% by the end of this week.

BTC Skewness/Kurtosis Skewness remains highly sensitive to spot direction. On Monday, as spot broke below $65,000, demand for put options surged. Overall, these changes are mostly limited to short-term maturities within one month, with no structural demand for long-term put options in the market. However, given this round of liquidation, leverage in the market is minimal, and without a true catalyst, skewness is unlikely to sustain such extreme downward levels and tends to retract quickly with slight rebounds in spot prices. Kurtosis is generally trending upward, as the market remains nervous about breaking out of current price ranges, and volatility-of-volatility remains elevated. Directional trading and spot hedging demand create interest in low-strike options on both sides, further pushing kurtosis higher. However, the currently high kurtosis level is inconsistent with the baseline implied volatility (which remains “moderate” in terms of realized volatility), and it more reflects market stress. For investors with directional views, constructing put/call spread strategies now can offer good leverage.

Wishing you a smooth trading week!