Key metrics: (6Jul 4pm HK -> 13Jul 4pm HK):
BTC/USD +0.0% ($62,900-> $62,900), ETH/USD +1.1% ($1,765 -> $1,785) BTC/USD Spot Technical Outlook:
Spot price action showed consolidation last week, in-line with the broader technical picture that we have been tracking for the past few weeks. Locally, support was found ahead of $61k after the knee-jerk negative reaction to the news MSTR sold BTC, while heavy resistance was seen in the $64-64.5k zone towards the end of the week
For now we continue to expect a sideways drift higher, with one more test of $60-61k likely to be followed by a more gradual rise towards $68k in the coming 4-6 weeks. Should the $60-61k support level on the downside fail to hold, we will likely re-visit $58k first and potentially set up for a sub-wave completion move down to $50-55k. On the other hand, a clean break of the resistance around $64.5-65k would see an initial test of $68k followed by a move to bigger resistance around $74k, where the market will finally have to decide whether the low is already in and we power on higher, or whether we turn back and make one final revisit below $60k before setting up for a more material rally later in the year
Market Themes
General risk-on sentiment last week, despite some flare-ups on the US-Iran situation, with initial re-escalation last week broadly ignored by the market as talks remained ‘ongoing’. However developments over the weekend point to further escalation in the conflict and the market is duly taking note today with renewed risk-off sentiment as oil revisits the highs of last week after almost entirely unwinding the initial spike higher. While the global economy has shown flexibility to adapt to the situation, with the likes of China relying on stockpiled reserves rather than buying oil at the peak levels seen over the first stages of the conflict, ultimately this situation could offer a headwind for risk assets over the summer, with prolonged uncertainty due to no obvious resolution in sight (else we would’ve arguably already found one in the past few rounds of negotiations)
Crypto sentiment broadly improved last week despite MSTR announcing in their weekly filings that they sold ~3,500BTC the prior week. The market saw some ETF inflows for the first time in weeks, though heavy resistance was seen in the $64-64.5k range and the broader risk-off sentiment is dragging spot prices lower again today. Positioning feels very light with short-term players clearly covering shorts on the squeezes to $64k, while medium-term players have clearly exited holdings in the past 4-6 weeks, as we continue to see a trend of miners selling. This continues to set up for a broader consolidation in the $60-65k range for now, barring a material escalation in the Middle-East conflict which could open up the downside once more
BTC$ ATM implied vols:
Implied vols trended lower last week after realised vol trended lower, particularly on a fix-to-fix basis (1w fix-to-fix realised around 20v, compared to 38 for high-frequency), despite some initial choppiness on a high frequency basis after MSTR headlines. Ranges compressed too, with spot holding in a $61.3-$64.6k range over the course of the week, gravitating around the $63k mark at most fixings. This tends to be indicative of light flows in spot/perps and a market that is locally long gamma
The term structure of the curve has begun to steepen out as we now move into the seasonal-summer months and spot begins to find a new equilibrium range. We still anticipate a pick up in realised vol from September onwards particularly given the mid-term elections and the macro backdrop (potential timing of Fed first cut has been pushed back from July/Aug to Sep/Oct now)
BTC$ Skew/Convexity:
Skew prices remained broadly static last week. There remains continued indiscriminate supply of topside from overlay sellers, so the market is reluctant to price up call-side volatility given the one-way flows there. However, with sideways consolidatory spot price action, it’s very expensive to hold local skew at these elevated levels. As such we continue to expect skew prices to stabilise around these levels
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 (MSTR selling and the market digesting is removing the downside fat-tail arguably). Last week prices remained fairly static in the belly of the curve, while very front-end convexity remained under pressure given the faster decay rate and the short-dated overlay wing sellers Good luck for the week ahead!
