Key metrics: (January 20, 4pm -> January 27, 4pm Hong Kong time)
BTC/USD fell 7.9% (107.3k USD -> 98.8k USD), ETH/USD fell 9.2% (3.38 -> 3.07k USD)
BTC/USD prices surged ahead of Trumps inauguration, but settled largely unchanged on Friday after a fairly volatile week. Then, after a quiet weekend, there was a fierce sell-off on Monday morning, seemingly related to the sluggish US tech stocks. The price of the currency eventually tested the support range of $98-100k. If this support level is broken, we may see a larger deviation in a corrective trend, which has dominated from mid-December to mid-January.
Our basic judgment is that the support level of $98,000 is sufficient to support a significant increase in the price of the currency in the next few weeks, so we still hold a bullish view. However, if the price of the currency is dragged back to the fluctuation range of $92-98,000, we need to re-evaluate.
Market Theme
All the focus this week was on Trumps inauguration and the executive terms that followed. Overall, there were no surprises in the terms, with the only major surprise being a softening of the tariff stance (especially on China), which led to a partial elimination of the previously unanimous bullish view on the US dollar against the G10 and the RMB. US stocks continued to maintain their upward momentum against the backdrop of the America First policy. The cryptocurrency market was clearly over-enthusiastic before the terms were announced, and despite some medium-term positive news including work on developing cryptocurrencies as US government reserves, we ultimately failed to break through the historical highs and fell back into a range.
Over the weekend before the Chinese New Year, we were fortunate to witness DeepSeek’s R 1 model (and ByteDance’s Doubao 1.5), further highlighting the ongoing AI arms race and causing a massive liquidation of US tech/AI stocks, with Nvidia (NVDA) falling more than 15% yesterday. Whether this situation will continue to cause US stock valuations to fall remains to be seen - but there is no doubt that this is undoubtedly a painful trade for many traditional financial funds as everyone has reached a consensus on the arrival of the Trump era. But this incident clearly shows that there is still a close correlation between cryptocurrencies and US stocks. Bitcoin and Ethereum fell more than 6% during the thin liquidity in the early Asian trading hours, but later recovered some of their losses.
BTC Implied Volatility
In terms of implied volatility, the uncertainty of the inauguration event initially dominated. Implied volatility peaked at 140 points for the day covering Trumps speech. But the front end quickly fell back after crypto was not mentioned in the inaugural speech. However, the risk premium of uncertainty about subsequent executive terms still exists in the term structure, which keeps the expiration dates on January 31 and early February in particular elevated. On Thursday, rumors that cryptocurrency terms would be signed later in the day caused both the coin price and volatility to surge, but it was short-lived. Although some constructive terms were indeed issued, the enthusiasm fell back as the coin price failed to break through $106k, and finally led to a continuous decline in implied volatility for short-term expiration dates over the weekend as the coin price range gradually stabilized and bullish volatility positions prepared for the event were gradually liquidated. Since then, the price decline driven by the DeepSeek news on Monday has pushed implied volatility higher again.
Overall, volatility in short-term maturities has fluctuated quite sharply this week, with the implied volatility for the January 31st maturities fluctuating from 76->58->65->50->63. At the far end of the term structure, implied volatility has fallen more gently as the tail uncertainty of the immediate effect of US savings policy has disappeared. However, there is reasonable bilateral trading at slightly lower implied volatility levels and it has limited the collapse of implied volatility.
It is worth noting that except for the surge before the inauguration last Monday, realized volatility has been gradually declining all week. Despite some breaking news and localized fluctuations, high-frequency and hourly realized volatility is locked in the low 40s. This is still the case even considering the large fluctuations on Monday. Therefore, it is reasonable to guess that realized volatility will be between 40-50 at present, and the current 55-60 vol implied volatility level seen on the surface may be adjusted down by 5-7 points.
BTC Skewness/Kurtosis
The skewness remained fairly quiet this week. While the market lacked a substantial breakout to the top, most players still viewed the crypto executive terms as sentimentally positive. So in theory, as the US thaws regulation allowing more money to flow into the crypto space, the market will continue to see upward momentum on pullbacks. The only exception was the downside correction on Monday morning due to the repricing of US stocks, which caused the short-term skewness to reverse sharply to bearish.
Kurtosis is quite flat at the far end, except for the short-term inauguration-related expiration dates. In the short term, players mostly trade the price above the price with call spreads or call butterflies, which puts selling pressure on the markets kurtosis. However, considering that the fluctuations in realized volatility are quite high, and our local volatility range will be between $90-110k, we think it is worth shorting strikes in the range and long strikes outside the range. The short-term kurtosis has risen sharply when the spot price fell on Monday, mainly due to the market buying cheaper strikes below to protect structural cash long positions.
Wishing you all good luck this week and a happy holiday!
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