Key Indicators: (May 26th 4 PM -> June 2nd 4 PM Hong Kong Time)
BTC against USD dropped 4.4% ($110,200 -> $105,400), ETH against USD dropped 2.7% ($2,580 -> $2,510)
Despite Bitcoin's pullback from its high, the price has been basically consolidating and has not affected the overall upward trend. We continue to believe that the market will attempt to break upward again in the next few weeks or months, potentially pushing us to the final target of $120-130k. Of course, the exact timing is difficult to determine, and if the support level of $99-101k is not maintained, this wave of increase might be delayed until late summer. Currently, we believe that strategically increasing long positions or re-buying at a slight dip below the support level is advisable. If the price truly breaks below $99k, it could drop to the $93-94k range. Above the price, the first resistance appears at $108-109k, followed by a new high at $112k.
Market Themes
Last week, the US International Trade Court ruled that the Trump administration's implementation of comprehensive tariffs under the International Emergency Economic Powers Act (IEEPA) was illegal, leading to a brief rally in risk markets. However, the stock market did not continue to rise, and this risk rebound that started in early April seems to have reached its limit. Meanwhile, volatility across assets has hit new lows, further confirming that the market is exhausted and has significantly reduced positions. Overall, the market is anticipating the upcoming summer holiday, not worried about any potential surprises, and turning a deaf ear to negative news (such as Trump's tweet on Friday claiming China violated the trade agreement).
Bitcoin's remarkable surge finally lost momentum last week, ending the week with a decline for the first time in 2 months (calculated by New York Friday closing time). In May, the IBIT ETF had total inflows exceeding $6 billion. This correction is mainly technical, accompanied by some short-term leveraged longs being liquidated, but overall actual volatility remains at a low level. As long as this continues, we should continue to see passive capital inflows during small dips, especially considering the weakness in dollar-related markets due to US policy uncertainty.
BTC ATM Implied Volatility
The week before last, the price broke through key levels to reach historical highs, followed by a rapid decline due to Trump's comments on EU tariffs, causing a brief increase in actual volatility. Last week, actual volatility continued to decline. Despite significant price activity last week, high-frequency actual volatility was only around mid-30s. As the price returns to the $103-106k range that trapped us for weeks, we expect price activity to remain quiet unless there's an unexpected catalyst, continuing to suppress actual volatility and ultimately pressuring implied volatility, leading to more long Gamma in the market with strike prices outside the trading range.
The term structure remains steep, with the market still trying to support June to September longs with short-term shorts. Additionally, due to the Las Vegas conference failing to produce any unexpected surprises and actual volatility being very quiet, short-term expiration dates have again significantly dropped. This makes it more difficult to continue selling front-end support for forward contracts and further pressures volatility in June and July.
BTC Skew/Kurtosis
Skew this week is more biased downward, consistent with the short-term market momentum shift. Even when reaching historical highs, the market was reluctant to buy upside options, and continuously selling during small price increases to reduce exposure, resulting in an unwillingness to pay a premium for call options. Meanwhile, the market recognizes the potential danger below the price, and if the price breaks below the $99-101k support or risk asset sentiment changes, the price movement could be very volatile.
Kurtosis remained relatively flat last week, slightly declining. As people continue to sell wing strike prices and the market tries to support long positions at both middle and price-side strikes, they are willing to slightly sell both sides to mitigate Theta loss. Considering the current very restrained price movement and the rapid increase in actual volatility (and implied volatility, skew) after breaking the range, we believe holding long wing-side positions is very worthwhile.
Good luck this week!
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