Volatility Is Flaring Up

Daily Updates:

• Early yesterday morning President Trump confirmed that American warplanes and submarines had struck three key Iranian nuclear sites: Fordow, Natanz, and Esfahan, directly bringing the US into Israel’s war against Iran.
• In a televised address to the nation, Trump said Iran’s “key nuclear enrichment facilities have been completely and totally obliterated” while also threatening “far greater” attacks if Iran failed to make peace.
• Iran’s foreign minister, Abbas Araghchi, has however responded that the US’s move was “outrageous and will have everlasting consequences.”

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• The move marks an extraordinary escalation from when Israel hit Iran with a series of preemptive airstrikes last Friday on June 13. Only last week, President Trump’s team had said he would make a decision on whether to intervene within two weeks.
• The Iranian parliament has also since reportedly voted to shut the Strait of Hormuz — a channel that separates Iran and Oman and is a vital gateway for petroleum shipments from Persian Gulf countries. In fact, 20% of the world’s daily oil supply — or equivalently, 20M barrels of oil pass through the route per day.

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• While the final decision is in the hands of the country's Supreme National Security Council and Iranian leader Ayatollah Ali Khamenei, fears of the Strait closing resulted in a jump of 5% in Brent crude oil prices earlier today, though those gains were quickly pared back. Crude prices are however up more than 10% since Israel first struck Iran on June 13.
• According to a research report by the Federal Reserve based on cross-panel data from 27 advanced economies between 2000 and 2022, “a 10 percent increase in the price of oil raises headline CPI by almost 0.4 percent in total” — that increase takes place over a total of 8 quarters.

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• Coinciding with Trump’s social media posts and reports that Iran would shut off the Strait of Hormuz, Bitcoin dropped sharply, finding a local floor of $98K – the first time since May 8 that the largest cryptocurrency had fallen below $100K.
• Ether has led declines however – yesterday it fell as much as 12% before recovering some of those losses late in the evening and into Asia’s market open. Currently ETH trades around $2,200, its lowest intra-day level since May 9.
• ETH’s options markets reflected the more dramatic decline in ETH’s spot price relative to BTC’s too.
• Its flat term structure of volatility sharply inverted first in the morning yesterday at 01:00 AM UTC, immediately after President Trump confirmed the strikes on Truth Social. The 7-day ETH tenor rose to trade with an implied volatility as high as 77%. That inversion across maturities eased slightly before then surging up once more to an even steeper shape after local Iranian news reported the parliament’s decision to close Hormuz.
• Volatility smiles across all tenors expiring in less than 60 days for ETH remain skewed towards OTM puts. The 25-delta put-call skew for 7-day ETH options briefly assigned a volatility premium of 15 percentage points to OTM puts relative to calls; a level we last saw in early April. That skew has however eased to a lower, yet still significant -4.3%.

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• Despite an increase in volatility led by the front-end, BTC’s term structure of volatility, on the other hand, has not yet inverted. The highest that the implied volatility for the 7-day expiry rose to was 45% which brought it exactly in line with the implied volatility of the 180-day maturity.
• The longer tenor has remained at 45%, while a drop in front-end volatility back below 40% means BTC’s volatility curve is upward sloping once more.

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• In last week’s FOMC meeting, members voted to leave the benchmark federal funds rate unchanged for the fourth time this year. The SEP, however, showed a larger divergence on the eventual stopping point for the FFR, as well as on the number of rate cuts left for the remainder of the year.
• That divergence was well displayed last Friday too.
• Speaking in an interview on CNBC, Governor Christopher Waller said the Fed could cut rates “ as early as July”. According to Waller, “We’ve got room to bring it down, and then we can kind of see what happens with inflation,” adding that the central bank could pause cuts if needed.
• San Francisco President Mary Daly said on Friday, however, that the monetary policy stance is currently “in a good place” where the risks to employment and price stability are roughly equal. For that reason, Daly looks “more to the fall” for a rate cut.  
• “By then, we’ll have quite a bit more information, and businesses are telling me that’s what they’re going to look to for some resolution.”

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• Texas has officially become the third state in the US to establish a strategic bitcoin reserve, following the footsteps of New Hampshire and Arizona. Governor Greg Abbott signed SB 21, which authorises a Texas Strategic Bitcoin Reserve – the reserve will be a state-managed fund separate to the state’s regular treasury system and will allow for the purchase of crypto assets that have a market capitalisation above $500B – which, as of now, means Texas can only purchase Bitcoin in the fund. The fund can also grow through forks, airdrops, investment gains, and crypto donations from the public however.
• The news also follows an announcement from two senior ETF analysts at Bloomberg, Erich Balchunas and James Seyffart, that “very positive” engagement from the SEC has led them to raise their odds for a vast majority of crypto ETFs, include Litecoin, Solana, Ripple and DOGE to “90% or higher”.
  
  
• Metaplanet, the first Japan-based public company to hold Bitcoin, has once again made the announcement of the strategic addition of 1,111 BTC to its growing Bitcoin treasury, now totalling 11,111 BTC. Acquired at an average price of $106,408 per BTC, this latest purchase brings the company beyond its original 2025 year-end target.
• Earlier today, the CEO of the company, Simon Gerovich, has outlined Metaplanet’s roadmap on his X account, stating new accumulation targets: 30,000 BTC by the end of 2025, 100,00 BTC by 2026, and 210,000 BTC by 2027.

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• The Solana Foundation has partnered with the Kazakhstan government to launch a Solana Economic Zone, a government-backed initiative to foster blockchain innovation. This zone will support tokenized capital markets, Web3 developer training, and infrastructure for crypto businesses.

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• Tether minted $2B in USDT on the TRON blockchain yesterday, just days after its June 18th $1B issuance, with the tokens held in treasury for future use and chain swaps.

This Week’s Calendar:

Charts of the Day:

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

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

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

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

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