Key metrics: (29Jun 4pm HK -> 6Jul 4pm HK):
BTC/USD +4.8% ($60,000-> $62,900), ETH/USD +11.7% ($1,580 -> $1,765) BTC/USD Spot Technical Outlook:
Spot price action felt somewhat contained last week, as we tested the local lows ~$58k without triggering any panic put hedging/buying, leaving us with a strong sense that positioning overall is much lighter down here. While MSTR developments appear to be leaving them less capable as buyer of last resort, they are also making it less likely that we trigger a terrifying downward spiral that could in the medium term de-rail the whole BTC narrative
Technically, the final move lower appeared most visibly as 5-sub-wave structure, which then appears to be a completion of the move that began in mid-May. From here the question becomes whether that was ‘A’ of a final ‘ABC’ within a ‘WXYXZ triple’, or whether this was all along an elongated ‘Y’ of ‘WXY double correction'. This will become evident on how we trade from here over the next month or so. We continue to be bullish in “fwd-fwd" terms, with the market ultimately not moving far from lows in Feb and generally moving sideways but correctively since then. This technically sets us up for a movement higher off the trough in ~10-12months since the highs (orthodox or otherwise)
Market Themes
Broader relief rally in equity markets last week after a messy month/quarter-end rebalance was followed by softer US NFP data and Warsh acknowledging that inflation prints had recently come down (even though he stated inflation ‘remains too high’). US rates backed off recent highs while the USD partly reversed its strong gains from June, and gold found support below $4000/oz before rallying almost 5% off the lows in the space of 48 hours. Overall markets are suggesting a holding pattern heading into summer with the initial rates/USD ‘shock’ post Warsh’s first FOMC meeting subsiding, while equities ultimately remain underpinned by strong earnings and a benign macro backdrop, though the sharp pullback from recent over-exuberance and fears of excessive valuations are likely to keep upside controlled for now
Crypto seems to have found a short-term base after continued heavy ETF outflows into month/quarter-end finally abated, with good demand seen in BTC particularly around the $58k mark. MSTR formalised an approval program to sell $1.2bn worth of Bitcoin ‘at some point’ in the coming months to re-capitalise share buybacks ($1.2bn of shares were sold to raise capital to cover off STRC dividend obligations) - this was broadly taken as a positive for MSTR and STRC by the market, though it remains a structural overhang on BTC. After a short squeeze up towards the $64k level to start the week, we would anticipate a likely pullback towards $60-62k before a more controlled grind higher should the macro backdrop remain supportive, with a first target up towards $66-68k resistance. All eyes will be on MSTR filings later tonight to see if any BTC were sold last week
BTC$ ATM implied vols:
Implied vols trended lower last week after the repeated tests of lows at $58k were well-absorbed and realised volatility remained broadly subdued despite the flows and the location of spot. Ultimately demand for fresh optionality (particularly on the downside) was not seen, suggestive of much cleaner positioning out there and a market that is currently broadly apathetic in this vicinity of spot. Supply via overlay calls continue in full force especially on pops in spot, with the market seemingly settling on this broad $55-70k range for the coming months with the MSTR overhang capping rallies, while anyone that has needed/wanted to exit the space by now has most probably acted accordingly (as seen in the heavy continuous ETF outflows since May)
The term structure of the curve has begun to steepen out as we now move into the seasonal-summer months and spot begins to find a new equilibrium range. We still anticipate a pick up in realised vol from September onwards particularly given the mid-term elections and the macro backdrop (potential timing of Fed first cut has been pushed back from July/Aug to Sep/Oct now)
BTC$ Skew/Convexity:
Skew prices have started normalise from extreme levels after realised vol was broadly contained despite testing lows (and briefly making a fresh local low under $58k), while the usual spike in implied vol was not seen down there as demand for optionality didn’t materialise. Also the MSTR news has arguably reduced the variance for the downside tail at least in the short term with it clear that no forced panic selling of BTC will be seen anytime soon given existing cash reserves. Against this all there is continued indiscriminate supply of topside from overlay, so the market is reluctant to price up call-side volatility given the one-way flows there. So overall we would expect skew prices to stabilise around these levels, though it should be noted that the cost of holding outright puts at these levels, especially if the market consolidates over summer, is very high
Convexity prices have broadly been trending lower as the market digests continued overlay supply of (topside) wings, while the fat-tail on the downside has started to price lower given the punitive cost of holding and the more supportive background factors
Good luck for the week ahead!
