BTC Volatility Weekly Review (November 3 - 10)

Core Data (Hong Kong Time November 3, 16:00 → November 10, 16:00)

• BTC/USD: -1.0% ($107,200 → $106,200)
• ETH/USD: -1.9% ($3,690 → $3,620)

• After finally breaking through the psychological barrier of $100,000 last week, positive news from Washington over the weekend drove the market to rebound at the beginning of this week, testing the previous support (now turned resistance) level/range of $104,000-$107,000. If it breaks through the $107,000-$108,000 range, given that $108,000-$114,000 is a key/consolidation range, we expect the market to experience some upward acceleration.
• If the price effectively breaks through the resistance level, it indicates that this long-term adjustment may have been completed, and the market may be preparing to quickly and erratically test the historical highs. We believe this will trigger a larger and more sustained adjustment (possibly a sideways consolidation lasting several months).
• If it fails to break through $107k, it indicates that the market may revisit the $100,000 support level, with a more "complete" downward breakout point near $95,000. However, considering that the low has touched the $98,000 range, we are just a step away from that level. We believe that probing down to $100,000 or below will be an opportunity to increase positions, and one should operate cautiously and calmly, leaving ample space to prevent intensified downward pressure due to stop-loss/liquidation before a larger turning point arrives.

Market Themes

• Risk assets experienced a turbulent week, as the extension of the U.S. government shutdown raised widespread concerns about its impact on the U.S. economy. Additionally, despite the overall robustness of U.S. corporate earnings, the market began to worry about the overvaluation of artificial intelligence, especially considering the massive expenditures and investments some companies are making to continue developing and integrating AI (e.g., Meta… what if all these expenditures ultimately fail to generate the expected revenues?). Ultimately, so far these investments have been yielding dividends, so this price movement feels more like a chase of narratives, and given the significant rise of some stocks this year, it may just be a healthy correction.
• Cryptocurrency has underperformed risk assets (and gold) throughout the year, and as risk assets shift overall, its situation has become fragile. BTC eventually fell below $100,000, but selling pressure in the $98,000-$100,000 range was well absorbed, while ETH dipped down to the $3,000 mark before finding some support. The end of the government shutdown and the possibility of the Federal Reserve cutting rates again in December (especially considering the recent shutdown's impact on the U.S. economy) should support risk assets until the end of the year and may lead to a release rebound. However, after a challenging year and the high opportunity cost of cryptocurrencies, Bitcoin still feels like a "high-risk, low-reward" asset in the absence of any specific catalysts. Therefore, if risk assets unexpectedly turn again before the end of the year, the situation for cryptocurrencies may once again become fragile.

BTC Implied Volatility

• Implied volatility consolidated overall this week, as (high-frequency) actual volatility remained in the low 40% range, confirming that we have reset to a new baseline level. Early in the week, implied volatility briefly dropped but found support after the spot price fell below $100,000. However, due to a lack of follow-up below this key level, implied volatility gradually declined before finding support again as the spot price quickly rebounded from the lows entering the new week.
• The term structure of implied volatility has begun to steepen. In the short term, actual volatility has started to weaken as the spot price consolidates in a range without immediate catalysts triggering changes. Directional trading (bullish side) has adjusted positions to December and beyond to give the market more time to digest recent price movements.

BTC USD Skew/Kurtosis

• As it fell below $100,000, the skew deepened downward but then found good support, and after the news of the end of the U.S. government shutdown over the weekend, a rapid release rebound occurred, with the skew beginning to correct from the bearish side as technical bullish option buying emerged. Structurally, the correlation between price and volatility remains evident (implied/actual volatility increases when the price drops), and BTC's correlation with traditional stocks/risk assets has become stronger in this characteristic.
• The kurtosis price declined as the price briefly fell below $100,000 and then rebounded to a wide range of $104,000-$112,000. The volatility of volatility remains high, but the market seems to be seeking a balance within this new price range, as the price has dipped and found strong support in the $98,000-$100,000 range. Any substantial breakout of the $98,000-$117,000 wide range will structurally trigger a repricing of the skew and bring kurtosis back into focus.

Wishing you a successful trading week ahead!