Quick weekly comment:
Volatile week in macro markets as the liquidity drain ahead of upcoming IPOs was compounded initially by fears of accelerating inflation ahead of Wednesday’s CPI print, before re-escalation of rhetoric on the US/Israel - Iran war pushed equity markets another leg lower. However Trump quickly U-turned once more on Thursday before risk-off sentiment could materially extend, calling off strikes and promising a deal (for almost the 40th time in the past 6 weeks …).
For crypto, BTC price action was actually constructive this week ahead of the psychological support level of $60k, confirming our view that it was the first asset class to suffer the liquidity drain given its ongoing underperformance in the past 12-18 months. With positioning clearly lighter and some real demand seen around the $60k, spot was able to find a base and rally back above $63k despite the backdrop. Vols inflated significantly across the curve this week after the high realised of the prior 2 weeks fed through, but realised this week has already dropped back into the high 30s/ low 40s on a high frequency basis, again indicative of lighter positioning and flows out there. Skews have attempted to normalise (less bid for puts) as the worries of a liquidity event below 55-50k have eased , though spot vol correlation remains clear with implied vols softening to end the week with spot back above $63k. Barring any material re escalation on the geopolitical front, we anticipate cross asset markets will quieten down in the coming weeks as we approach the heart of summer and the World Cup kicks off, and this should see implied vols in the <3m expiries soften materially to price this seasonality. However given the broader macro landscape and the midterm elections, we are expecting Q4 to bring some volatility once more.