BTC Volatility Weekly Review (October 27 - November 3)

Core Metrics (October 27, 16:00 HKT - November 3, 16:00 HKT)

• BTC/USD down 7.3% ($115,600 -> $107,200)
• ETH/USD down 12.1% ($4,200 -> $3,690)

• The market continues to oscillate within the $104k/$105k to $115k/$116k range. Although the absolute volatility has narrowed, the actual volatility remains high—indicating that the market is struggling to find a balance, confused by the disconnect between cryptocurrencies and tech stocks/high-beta individual stocks, and concerned that gold/precious metals may experience a more substantial correction. From a technical perspective, we expect the market to begin another wave down to complete the current flat adjustment wave (which could be the first segment of a potential multi-month (or multi-year?) three-part flat adjustment), but we may also see the market continue to oscillate within the range in the coming weeks.

Market Themes

• Over the past week, the market focus has been on the FOMC meeting, U.S. earnings reports, and the Trump-Xi meeting. The outcomes of these three events have maintained the overall environment for risk appetite: the Federal Reserve cut rates by 25 basis points as expected/needed, although Powell attempted to downplay expectations for a December rate cut ("not a foregone conclusion"), this was just a minor episode and did not significantly affect market expectations; despite concerns about a slowdown in the "real economy," U.S. corporate earnings reports have been generally robust; and the Trump-Xi meeting ultimately achieved a breakthrough, with tariff rates being lowered and some concessions made, making an agreement now seem almost certain.
• Nevertheless, cryptocurrencies have once again struggled to find their footing, with original "whales" continuing to sell off their holdings, making it difficult for BTC and ETH to hold above $115,000 and $4,000, respectively. As the S&P 500/NASDAQ and high-beta AI stocks continue to hit new highs, the opportunity cost of holding cryptocurrencies remains high. Meanwhile, as gold fell below $4,000, there was a relief rebound in the dollar, with market expectations for a 25 basis point rate cut in December dropping from 90% to nearly 50%, leading to a general strengthening of the dollar against G10 currencies. Many DAT companies' net asset values have also compressed to (or below) 1.0 times, and this narrative has lost its appeal.

BTC Implied Volatility

• This week, implied volatility has generally consolidated, with actual volatility remaining in the low 40s (hourly high frequency), confirming the correctness of the implied volatility resetting to this level. That said, most of the actual volatility was driven by last week's reactions to events (FOMC meeting and Trump-Xi meeting), and on a lower frequency basis, as price fluctuations were suppressed to a narrower range of $106k to $112k, actual volatility has been weakening. This has put some selling pressure on the short-term Gamma expiry before the weekend, but as prices returned to $107k on Monday, the selling pressure quickly dissipated, as market liquidity remains thinner than before.
• The term structure of implied volatility has generally remained unchanged, with steepness supported by macro dynamics, as November's U.S. data is expected to be overall light (with no FOMC meeting), while December is gradually becoming a busy month for events as the year comes to a close.

BTC/USD Skew/Kurtosis

• Last week, the skew of put options generally deepened, as the actual volatility on the upside remained sluggish, with a large amount of selling pressure in the $112k to $116k range, while downside volatility continued to exhibit higher actual volatility. The market seems to have a significant amount of risk below $106k, leading to a sharp drop in skew on Thursday to very deep levels, but unless we see a substantial breakout in the price range, it is difficult for this depth to be sustained.
• As last week's spot activity gradually locked in the range of $106k to $112k, the kurtosis price continued to decline, with good liquidity support on both sides of the range (i.e., when the price approaches the edge of the range, there have been no extreme movements). There remains a large number of put/call spread trades building directional risk exposure, which also provides selling pressure for kurtosis. The volatility of volatility remains slightly high within a local range, but not as extreme as in previous weeks, which also helps to temporarily suppress kurtosis.

Wishing you a successful trading week ahead!