Crypto Markets Daily Dec 12 2024

Bitcoin’s Recovery, Europe’s Slowdown

The market has interpreted the results of yesterday’s CPI data as a green light for a rate cut in December, raising the probability of 25bps to 98.1%. This has coincided with a broad based recovery rally in crypto-assets. Bitcoin has successfully regained and held its position above the $100,000 mark, and Ethereum appears set to reclaim its $4,000 threshold, a level it briefly lost earlier in the week.

This positive shift in sentiment is reflected in the behaviour of implied volatility smiles. At short tenors, traders are signalling an increased interest in capturing potential short-term upward movements in spot prices through OTM call options. Meanwhile, for longer tenors, the skew levels remain positive and elevated, indicating a sustained bullish sentiment. While traders are more optimistic about near-term price action, but have expressed a continuous preference for upside exposure at longer-tenors throughout the pullback.

Parallel to the major cryptocurrencies, altcoins have also performed well – smart-contract platform challenger Sui achieved an all-time high within the past 24 hours, peaking at $4.86. Smaller market-cap altcoins have also outperformed the broader market on the way up after underperforming on the way down.

This shift is evidenced by the growth in the market share of small-cap altcoins (ex-BTC, ETH, XRP, SOL, BNB, DOGE, ADA, and stables USDC and USDT), which increased significantly from 16.04% on December 10, 2024, to 21.06% by December 12, 2024. The data shows that altcoins are outperforming majors somewhat, including ETH – which, traditionally, we would have expected to see as the first round of capital rotation away from BTC gains assets.

Continuing on the ETH theme – excluding yesterday evening and today’s price performance, a notable detachment has emerged between ETH’s spot price and its Spot ETF inflows. As illustrated in the chart below, the period following the U.S. election on November 5th marked a surge in inflows to ETH Spot ETFs. These inflows coincided with a period of robust price performance, suggesting a strong alignment between investor demand through ETFs and upward price momentum.

This week, however, while inflow levels have remained consistently strong, ETH’s spot price has drifted downward. This divergence signals a potential decoupling between ETF-driven demand and immediate spot market price movements, raising questions about sustained institutional interest if price continues to lag.

Finally, in macro, with the Federal Reserve’s interest rate decision now considered a foregone conclusion by the market, attention today shifted to the European Central Bank (ECB), which cut its deposit facility rate by another 25bps down to 3%. Europe finds itself in a challenging position: its major economies are grappling with political uncertainty, Eurozone inflation climbed to 2.3% in November, exceeding the ECB’s 2% target, and the potential for tariffs from President-elect Trump threatens to disrupt the ECB’s plans further. Against this backdrop, ECB projections for European growth for 2025 were revised down to 1.1% from their June estimates of 1.4%. This is even lower than the 1.3% 2025 growth forecast recently made by the OECD for the Euro Area. Looking ahead to the next year, market sentiment increasingly reflects a larger 50 bps cut at some point in the year.