Key indicators: (June 2, 4pm -> June 9, 4pm Hong Kong time)

• BTC/USD rose 0.2% (105.4 -> 105.65 thousand USD), ETH/USD fell 0.6% (2,510 -> 2,495 USD)

• Last week the market hit the $99k-101k support level but quickly rebounded back to the $105k-106k range, strongly suggesting that the price will try to break through to a new high again in the short term. If this breakout fails, the rise may be further delayed and we will return to the $90k-95k range first. Otherwise, we expect this breakout to lead us towards the expected $125k target, and at the same time, the realized volatility will rebound from the current low as the price reaches a new high.

Market Theme

• At the beginning of the last month of the second quarter of this year, the market is basically in line with the trend at the end of May. Cross-asset volatility continues to decline, and risk assets are gradually rising. Although the SPX continued to waver at the psychological level of $6,000 after Trump and Musk publicly tore each other apart last Thursday night, it finally broke through the next day due to the better-than-expected employment data. In the past nine weeks, the VIX fear index has fallen from 45.3 to 16.8, which is the largest 9-week drop in history (63%, even exceeding the 58.5% COVID drop from 65.5 at the end of March 2023 to 27.5 at the end of May 2023). Overall, the macro and fundamental factors are still favorable for the rise of risk assets in the short term, and the market has adapted to the Trump administration’s occasional remarks on tariffs. However, considering that the current return to normal low volatility levels, we expect market volatility levels to rise in the short term with the July tariff deadline.

• Bitcoin has been correcting downwards since hitting its all-time high last week, including the Trump-Elon news that triggered a hit to the key support level of $100-101k, but the price quickly found its footing and returned to $105k from the low of $100.4k in 24 hours. Finally, the price is back to the upper $100-110k range. We have been hovering here many times since the election.

BTC Implied Volatility

• Realized volatility was basically hovering at the bottom last week, failing to rise from the early 30s when the price fell to $100k (the price subsequently rebounded); the market's reaction to the non-farm data was also very flat, providing no support for realized volatility. As the price of the currency returns to the $100-110k range, all-term implied volatility will continue to be depressed. Demand for options has become scarce with the arrival of the summer vacation, and the market still looks to be holding a large number of long volatility positions, while selling short-term expiration dates to support, but considering the rest of the month, the front-end value has now become very low.

• The volatility term structure is starting to flatten out. Given the absence of buyers and continued selling pressure, the market is losing patience with forward positions. Now the rolling decline in the term structure is no longer that scary, and given that any range breakout could lead to a rapid rise in implied volatility along with realized volatility given the current low realized volatility - we think forward terms are starting to become worth holding.

BTC Skewness/Kurtosis

• The skewness was basically sideways last week. Even though the price of the currency fell to around $100,000, the market had no interest in buying below. This caused the skewness to be biased upward in the entire term structure.

• Last week, the kurtosis was generally flat. But interestingly, while the implied volatility of the ATM part fell, the kurtosis of the forward part rose. Because the market is reluctant to reduce the pricing of the tail due to the volatility of Bitcoin assets, the ATM part has gradually fallen due to the stability of the coin price at 100-110 thousand US dollars. We think that this pricing is reasonable in general, and continue to recommend holding kurtosis at a shorter term to protect the volatility increase when the coin price breaks out.

Good luck to everyone this week!

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