Markets React to Ceasefire

Daily Updates:

• Yesterday afternoon, Iran launched what its armed forces referred to as a “powerful and destructive missile strike on the United States’ Al-Udeid military base in Qatar”.
• The Al-Udeid Air Base is home to 10,000 US service members – the largest military base the US has in the Middle East.
• However, the attack from Iran has since been described as a more ‘symbolic’ and de-escalatory retaliation to the American airstrikes on three of its main nuclear facilities on Sunday, with the Iranian government giving advance warning to both Qatar and the US – “I want to thank Iran for giving us early notice, which made it possible for no lives to be lost, and nobody to be injured.”
• Only a few hours later, President Trump posted on his Truth Social Platform “It has been fully agreed by and between Israel and Iran that there will be a Complete and Total CEASEFIRE”, referring to the 12-day conflict as “‘THE 12 DAY WAR.’” – one that “could have gone on for years, and destroyed the entire Middle East, but it didn’t, and never will!”.

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• With Iran looking to de-escalate tensions through a choreographed attack with advance notice, oil prices, which typically surge during conflicts in the Middle East, plunged lower – that collapse extended further after Trump’s announcement of the ceasefire. Brent crude oil fell nearly 5% in early Asian trading hours, briefly dropping below the level of June 12, before Israel’s pre-emptive strike on Iran and currently trades around $67 a barrel.

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• Equity markets across the globe have rallied on optimism for peace in the region – the S&P 500 ended the day up nearly 1%, China’s CSI-300 rallied 1.2% today to its highest levels in just under a month. The Nikkei-225 also finished the day up 1.14%, while safe-haven assets such as the dollar and gold are both down today.

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• Front-end volatility for ETH options initially surged upwards to 83% on news of the Iranian strikes, steepening what was an already inverted term structure of volatility. Spot price for ETH fell below $2.2K and short-tenor volatility smiles more than doubled in their skew towards OTM puts in the space of a few hours (from -3.35% to -7.22%).
• For BTC, we saw its spot price drop below $100K with 7-day implied volatility surging to 45% – that seems to be the ceiling for short-tenor IV at least for the month of June. Just as we saw during the US strikes on Iran, the move up in implied volatility across tenors was not enough to invert BTC’s term structure of volatility.

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• Once markets digested the de-escalatory nature of Iran’s retaliation and Trump’s ceasefire news, sentiment U-turned.
• The crypto market is entirely green currently – with BTC up more than 3% over the past 24 hours, firmly above $100K, while Ether has rallied more than 6% to $2.4K. Among the top 10 assets, SOL has led the gains, up nearly 8%.
• The negative skew towards OTM puts for short-tenor BTC options, which has mostly been the case since June 12, is now close to neutral. Longer-tenor options have tilted more bullish over the past 24 hours, exceeding 2% for 120- and 180-day options.
• The rally in spot price has also seen a recovery in BTC funding rates back to a positive level of 0.002%, however interestingly, funding rates for ETH have dipped more negative to -0.005%.

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• In a more recent social media post earlier today, President Trump said “THE CEASEFIRE IS NOW IN EFFECT. PLEASE DO NOT VIOLATE IT! “.
• Iranian Foreign Minister Abbas Araghchi responded in a tweet of his own stating “As of now, there is NO ‘agreement’ on any ceasefire or cessation of military operations”. However, he added “provided that the Israeli regime stops its illegal aggression against the Iranian people no later than 4 am Tehran time, we have no intention to continue our response afterwards.”
• Since that tweet however, Israel has warned of new missile fire from Iran, vowing to retaliate – according to the Financial Times.
• Israel’s defence minister has “instructed the IDF to respond forcefully to Iran’s violation of the ceasefire”.

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• With the fall in Brent oil prices, US treasury yields also slid yesterday. The yield on the 10-year treasury fell to 4.34% as traders priced out the worry of an imminent passthrough of inflation. The drop in yields was also driven by further signs of division in Chair Powell’s Fed team. We commented that last Friday, Governor Waller had said the Fed could cut as early as July; yesterday the Fed’s vice-chair for financial supervision Michelle Bowman also indicated she would support a rate cut as early as July.
• “All considered, ongoing progress on trade and tariff negotiations has led to an economic environment that is now demonstrably less risky” according to Bowman. Therefore, “As we think about the path forward, it is time to consider adjusting the policy rate.”

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• If the diverging views from within the Fed were not enough pressure on Chair Powell, President Trump also took the opportunity yesterday to take another stab at Powell.
• The Chair is due to have his testimony before the House Financial Services Committee later today and before the Senate Banking Committee tomorrow. Trump said “‘Too Late’ Jerome Powell, of the Fed, will be in Congress today in order to explain, among other things, why he is refusing to lower the Rate. Europe has had 10 cuts, we have had ZERO. No inflation, great economy - We should be at least two to three points lower. Would save the USA 800 Billion Dollars Per Year, plus.”

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• The Smarter Web Company, a London-based tech firm specialising in AI-driven website creation, announced today that it added over $20.55M (£15M) worth of Bitcoin (196.90 BTC) to its growing crypto treasury. This latest purchase was made at an average of $103,290 per BTC under its ongoing “10 Year Plan” strategy.
• This brings their total BTC holdings to 543.52 BTC, acquired at a total average of $104,450 per currency.

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• Strategy has purchased an additional 245 BTC at an average price of $105,856 per coin, bringing the total holdings to 592,345 BTC, approximately $41.87 billion, at an average cost of $70,681 per bitcoin.

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• California Senator Adam Schiff introduces the COIN Act to “crack down on the president and people around him being able to profit from cryptocurrencies”
• It would prohibit presidents and close people from launching or endorsing a digital currency and require them to disclose their crypto holdings.

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• US based Solana accumulation treasury strategy, DeFi Development Corp. (Nasdaq: DFDV), has announced a partnership with Kraken to tokenize the stock on the Solana blockchain via Kraken’s upcoming xStocks platform (DFDVx).

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This Week’s Calendar:

Charts of the Day:

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Figure 1. BTC at-the-money implied volatility across selected tenors. Source: Deribit, Block Scholes

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Figure 2. ETH at-the-money implied volatility across selected tenors. Source: Deribit, Block Scholes

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Figure 3. BTC 25-delta put-call skew ratio across selected tenors. Source: Deribit, Block Scholes

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Figure 4. ETH 25-delta put-call skew ratio across selected tenors. Source: Deribit, Block Scholes

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