Key metrics: (13Jul 4pm HK -> 20Jul 4pm HK):
BTC/USD +2.0% ($62,900-> $64,150), ETH/USD +4.2% ($1,785 -> $1,860)
BTC/USD Spot Technical Outlook:
BTC (and ETH) spot price action showed relative strength last week, in-line with the broader technical picture that we have been tracking for the past few weeks but also boosted by increasing hopes of progress on Clarity Act ahead of Congress’s summer recess from 8Aug onwards. Locally, support was found ahead of $62k despite broader risk off on Kospi/AI-beta deleveraging trades in equities and despite escalation on the US-Iran war, while heavy resistance continues to be seen in the $64.5-65k zone
For now we continue to expect a sideways drift higher, while we note the encouraging signs of higher lows locally. With Clarity Act in focus there will be some headline noise that could disrupt the short-term technical picture, but we are watching the $60-61k support level on the downside - if this fails 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 this 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-off sentiment last week, despite a softer CPI print giving risk assets a small boost at the start of the week. Continued flare-ups on the US-Iran situation finally fed through to oil prices, with Brent pushing on above $90/barrel - a rise of just over 20% from recent lows. Meanwhile, there was continued de-leveraging in Kospi/AI-beta trades in equities, as retail bankruptcies were reported amongst the Korean young-adult population and authorities began to intervene with steps to prevent further leveraged trading short-term. Ultimately we view the latter as a healthy move for the market, while the former will likely remain a headwind for risk assets over the summer, with prolonged uncertainty on the geopolitical situation likely to cause higher oil and higher rates for longer. With no obvious resolution in sight, the tails of an escalation or mis-calculation are getting fatter
Crypto sentiment broadly improved last week as rhetoric from the White House brought optimism on Clarity Act, with the timeframe for approval narrowing ahead of summer recess (after which mid-terms will likely dominate and the passage could be delayed until 2027). The market saw continued ETF inflows, though heavy resistance was seen in the $64.5-65k range. Positioning feels very light with short-term players 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. While some topside positioning has been put on for the next 2 weeks, the market will likely be forced to chase an upside rally towards $68k, should we see the Clarity Act approved in the next 2-3 weeks (Polymarket odds are at 38%, suggesting upside if so). On the other hand, a combination of extended risk-off sentiment from the Middle East war, and a failure to pass the Clarity in the next 2-3 weeks, could see disappointment drag BTC back to $60-61k, while ETH might be more vulnerable to a flush back to $1600 having outperformed BTC so far on the rising optimism
BTC$ ATM implied vols:
ATM Implied Volatility for BTC$ (13Jul 4pm HK -> 20Jul 4pm HK)
Implied vols broadly trended lower last week, despite a small pick up in realised vols from the very low levels of the prior week - though most of this was event-related with CPI and Clarity Act optimism. Overall engagement in the market continues to dwindle into the heart of summer, as the market becomes more comfortable with the broad $60-66k range for now, with the only exception being some highly leveraged topside interest for the 31July expiry to cover a potential accelerated passage of Clarity Act before the summer recess (which has pushed this tenor higher). Even this remains a concentrated short-term bet, with no interest or expectation of a structural follow through on prices if we do get approval. On the flip side, with cash holdings clearly lighter out there, we have not seen any downside hedging demand, and overlay sellers have continued to sell options both sides of spot to enhance yield in this range-bound environment
The term structure of the curve has begun to steepen out as we now move into the seasonal-summer months and spot continues to cement its new equilibrium range. We still anticipate a pick up in realised vol from September onwards particularly given the mid-term elections and the macro backdrop (potential timing of Fed first cut has been pushed back from July/Aug to Sep/Oct now). The market is reluctant to play for this yet given we are approaching the heart of the summer months and this has pushed valuations of forward vols further out the curve to the lower end of the recent 2-year range, gradually approaching what we consider to be value levels for accumulation
BTC$ Skew/Convexity:
Skew prices moved less deep for puts last week, as spot showed relative strength in the face of external risk-off and short-dated demand for topside began to feed through to the curve. We also saw some overlay call sellers starting to add downside selling to their program, as they started to gain some confidence in the recent price action on the downside (higher lows)
Convexity prices have begun to found some support at current levels, as the repricing of skew has left downside looking relatively low vs recent levels, and the market is still wary of selling the downside tail too cheaply given the geopolitical backdrop and with Saylor still likely to need to sell in the coming months, given MSTR and STRC have not shown any material signs of recovery. On the upside the demand for outright calls (and tight call spreads) has net taken some of the topside wing vol out the market (which it was very long from overlay selling) and this reduction of overhang has also helped support convexity prices
Good luck for the week ahead!
