BTC Volatility Weekly Review (June 29 - July 6)

Key Metrics: (June 29 16:00 -> July 6 16:00 Hong Kong Time)
BTC/USD +4.8% ($60,000 -> $62,900), ETH/USD +11.7% ($1,580 -> $1,765) BTC/USD Spot Technical Outlook:

Last week's spot price movement felt relatively restrained overall. Although it briefly dipped to a local low around $58k, it did not trigger panic buying of bearish put options as a hedge, which reinforced our sense that spot holdings in the market at this level have significantly decreased. While MSTR’s ability as the "last buyer of last resort" has weakened, this simultaneously reduces the risk of a terrifying downside spiral mid-term that could disrupt the entire BTC narrative. From a technical perspective, the final decline most clearly exhibited a 5-subwave structure, thus appearing to complete the downward move since mid-May. The next question is whether this is wave A of the final ABC structure in a "WXYXZ triple zigzag," or an extended wave Y of a "WXY double zigzag" from the start. Trading over the next month or so will clarify this. We remain bullish on the "future" dimension, as the market is generally not far from the February lows and has largely been in a sideways but corrective pattern since then. Technically, this sets the stage for the market to resume an upward trend after a trough period of about 10-12 months post the peak, whether that peak is orthodox or unorthodox. Market Themes Last week, equity markets relieved pressure after a chaotic month-end/quarter-end rebalancing. Subsequently, the US nonfarm payrolls data came in soft, while Waller acknowledged that recent inflation data had pulled back, though he still stated that inflation "remains too high." US rates pulled back from recent highs, and the dollar partially gave back its strong June gains. Gold found support below $4,000/oz and bounced nearly 5% from its lows within 48 hours. Overall, the market seems to be entering a pre-summer wait-and-see mode. The rate/dollar "shock" following Waller's first FOMC meeting is fading, while equity markets remain supported by strong earnings and a benign macro backdrop. However, sharp pullbacks after recent excessive exuberance and concerns about overvaluation may temporarily cap upside. The crypto market appears to have found a near-term bottom. Entering the month-end/quarter-end, ETF outflows were sustained and heavy, but eventually moderated, with BTC showing particularly good demand around $58k. MSTR officially confirmed it will sell $1.2 billion worth of Bitcoin at "some point" in the coming months to replenish share buyback funds (after previously selling $1.2 billion in stock to raise funds for STRC dividend obligations). The market generally views this as positive for MSTR and STRC, though it still represents structural pressure on BTC. After a short squeeze early this week pushed prices toward $64k, we expect prices to likely pull back to the $60-62k range before potentially grinding higher in a more controlled manner if the macro backdrop remains supportive, with a first target at the $66-68k resistance zone. The market will closely watch MSTR's filing tonight to confirm whether it sold any BTC last week. Implied Volatility

Implied volatility overall declined last week. Despite spot repeatedly testing the $58k low, the market absorbed these sell pressures well; on the other hand, realized volatility remained generally subdued even amid sensitive flows and spot positioning. Overall, the market did not see new options demand, especially for downside options, indicating that spot positions are cleaner and sentiment is generally indifferent around current levels. The supply of upside selling pressure from hedging strategies continued to be released, particularly noticeable during spot rebounds. The market seems to be gradually accepting a range of roughly $55-70k over the coming months: MSTR's potential pressure caps upside, while players needing or wanting to exit BTC positions are likely fully sold out, reflected in the sustained and heavy ETF outflows since May. As the market enters seasonal summer months and spot begins to find a new equilibrium range, the term structure has started to steepen again. We still expect realized volatility to pick up from September, especially considering midterm elections and the macro backdrop; additionally, the potential timing of the first Fed rate cut has now been pushed back from July/August to September/October. BTC USD Skew/Kurtosis

Skew prices have started to normalize from extreme levels. Despite spot making several attempts lower, even briefly breaking below $58k to new local lows, realized volatility remained contained and did not see the typical surge in implied volatility because market demand for options never truly materialized. Moreover, the MSTR news arguably reduced downside tail variance in the near term, as given its existing cash reserves, the market has clearly deemed a forced panic sale of BTC unlikely in the short run. Meanwhile, on the upside, there remains persistent indiscriminate selling pressure from hedging strategies, so given the one-sided flow in that direction, the market is reluctant to price up upside volatility. Overall, we expect skew prices to stabilize around current levels. However, it is worth noting that holding single-legged puts at these levels is very costly, especially as the market enters summer consolidation. Kurtosis prices have generally continued to decline, as the market is absorbing the ongoing supply of upside wings from hedging strategies; at the same time, pricing for downside fat tails has also started to come down due to high holding costs and a more supportive macro backdrop. Wishing everyone a smooth week of trading!