BTC Volatility Weekly Review (September 22 - October 6)

Key Metrics (September 22, 4 PM HKT -> October 6, 4 PM HKT)

• BTC/USD up +9.2% ($113,000 -> $123,450)
• ETH/USD up +8.6% ($4,180 -> $4,540)

• After dipping to around $108,000 due to month-end/quarter-end profit-taking in the previous week, BTC prices rebounded sharply this week and reached new highs. Technically, the "extension?" plus sideways adjustment we have been anticipating seems to have begun. Given that the price movement is generally consistent with our long-term level expectations, we continue to believe that a sideways adjustment is the most likely price trend, and thus we expect the peak to form around $129,000-$130,000; if this range is broken, we will need to reassess this wave, which may signal the start of the next gradual upward trend. We expect initial strong support during a pullback to be in the $120,000-$118,000 range, but any movement below this range could indicate the onset of the final expected sharp C-wave decline (below $100,000).

Market Themes

• A lot has happened in the cryptocurrency market over the past two weeks. Month-end/quarter-end profit-taking pushed BTC down to around $108,000, ETH briefly fell below $3,900, and SOL plummeted to $190 after losing the $250 level. However, once "Golden October" began, market sentiment quickly reversed, and prices rebounded rapidly to the previous high of $117,800-$118,000 (where prices received good support after the Jackson Hole meeting and FOMC meeting), triggering some short stop-losses and ultimately leading BTC to probe and break through its historical high, briefly reaching $125,000. This surge is largely attributed to the "catch-up" with gold prices, which are hitting new highs daily, mainly due to the U.S. government shutdown and heightened concerns over stubborn inflation (especially in an environment where most G10 central banks are cutting rates). The stock market also shed the pressure from month-end profit-taking, with optimism around AI and data center investments continuing to brew.

BTC/USD Implied Volatility

• Despite the large price fluctuations over the past two weeks, with movements from $113,000 -> $108,000 -> $125,000, the high-frequency actual volatility has remained quite moderate, staying within the range of 25-35 points. Ultimately, we did not see any gap movements in the prices, as spot liquidity remains ample within this range, and the market seems to be holding some long Gamma positions, mainly due to the persistent Gamma selling pressure in recent weeks, which also helps to suppress local volatility in prices.
• The lackluster actual volatility has offset the risk premium recovery we expected to see during price increases and range breakouts, leading the implied volatility curve for one month and longer terms to remain largely stagnant. Due to unexpected movements over the weekend, short-term implied volatility surged significantly, but given that spot prices are currently finding balance around $123,000-$124,000 and actual volatility remains moderate, we can expect that the implied volatility for these terms may quickly pull back. With the U.S. government shutdown, risks related to non-farm payroll data and CPI data remain "pending," as there is uncertainty regarding their release dates. Considering the inverted volatility curve, we tend to hold contracts expiring on October 31 to hedge against these data and FOMC meeting risks.

BTC/USD Skew/Kurtosis

• Skew has rebounded from deeply bearish levels over the past two weeks as spot buying funds have resumed after the month-end/quarter-end profit-taking ended, quickly alleviating market concerns about prices crashing below $100,000. Although actual volatility on the upside has remained low, some demand for call options has been observed in the market, and there is also an awareness that upward momentum may extend to "interesting" levels, which could lead to increased volatility. In contrast, it is clear that the "riskier" side of this asset is on the downside, as funding rates rise and leverage begins to accumulate, the market remains vigilant against downside washouts, so we have not yet seen skew enter the bullish zone (except for very short-term contracts).
• Kurtosis began to decline over the weekend as the market experienced wing-side selling pressure due to demand for call option spreads. Additionally, considering the current price levels, the market may anticipate new upward selling pressure, which suppresses the implied volatility levels on the upside. Meanwhile, after the price increase, some opportunistic downside wing-side selling pressure has also emerged. Notably, if the price cleanly breaks through either side of the $115,000-$130,000 range, it could lead to a sharp repricing of skew (for example, breaking above $130,000 would favor call options, while breaking below $115,000 would deeply favor put options), thus there is a skew Gamma dynamic adjustment that suppresses the level of kurtosis.

Wishing you a successful trading week ahead!