SignalPlus Volatility Column (20240124): BTC rebounds back to 40K, market has a negative attitude towards recent upward potential

2024-01-25 11:40:42

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Yesterday, BTC fell below 40,000 under pressure, triggering some panic. The short-term implied volatility surface briefly flattened and moved upward, but as the price rebounded back to around 40,000, the IV also retraced all of its previous gains. In terms of trading, the market clearly showed a pessimistic attitude towards price increases before the end of February.

Yesterday (23 JAN), the Bank of Japan maintained its widely expected accommodative monetary policy while lowering its core inflation forecast for this fiscal year from 2.8% to 2.4%. Governor Ueda mentioned that if the inflation target is reached, there is hope for an end to negative interest rate policy, especially as labor unions demand higher wages. The central bank clearly stated that it will consider raising interest rates in April, leading to a rise in Japanese government bond yields. In Europe and the U.S., the issuance of European bonds reached a new high with good market response; the market demand for the record 2-year U.S. Treasury auction was also strong, with the issuance price at 4.365%, matching the screen price, unaffected by the recent rebound in oil prices impacting inflation risks. Overall, U.S. Treasury yields declined, with current two-year/ten-year yields at 4.318% / 4.102%. The three major U.S. stock indices showed mixed results, with the Dow down 0.25%, while the S&P and Nasdaq rose 0.29% / 0.43%.

Source: SignalPlus, Economic Calendar

Source: Binance \& TradingView

In the cryptocurrency sector, BTC fell below 40K under pressure yesterday, triggering some panic sentiment, with a significant flattening of the short-term implied volatility surface. However, as the price rebounded back to around 40K, the IV also retraced all previous gains. In trading, the market clearly showed a pessimistic attitude towards price increases before the end of February, exemplified by the triangular spread represented by BTC Short 23 FEB-40000-C vs Long 29 Mar 24-43000-C, as well as Long Put Spreads like BTC 23 FEB 41000-P vs 36000-P and ETH 23 FEB 2300-P vs 1900-P. However, there were exceptions, such as a bullish short-term ETH 26 JAN 2450 vs 2600 Long Call Spread, which saw about (one leg) 18,000 ETH traded, concentrated around 2200 at the time of the trade, marking a local low yesterday. Additionally, there was a rare large forward bullish option for 27 DEC 24-3500-C (Size: 10,000 ETH).