Crypto Markets Daily Dec 13 2024

Macroeconomic data from jobs to inflation is sending mixed signals for the U.S. economy, making the last stretch against inflation increasingly difficult. This uneasiness is reflected in derivatives — at-the-money options’ implied volatility levels are showing a decline at the front end of the term structure for BTC and ETH. The State of Texas provides some positive news for crypto.

Crypto

Derivatives

DeFi

Macro

Mixed Jobs Signals

Markets still solidly expect the Fed to cut by 25bps next Wednesday, but yesterday’s mixed macro news has been slightly more difficult for markets to digest for expectations of the policy path beyond that final meeting of the year. This uneasiness has been reflected in crypto markets too.

Jobless claims data, showed the number of Americans filing new applications for unemployment benefits unexpectedly spiked up to 242,000 for the week ending Dec 7, above the 220,000 forecasted, and up 17,000 from the week prior. However, these numbers have been clouded in some volatility due to the Thanksgiving holiday that will likely continue over the Christmas break. When considered with the recent uptick in unemployment and increased time taken for Americans to find jobs shown in the NFP report, it raises questions regarding the underlying resilience of the labour market beyond the headline data points.

On the other hand, the Producer Price Index (PPI) report of yesterday showed PPI for final demand advanced to 3% year-on-year in November, its highest level this year. The month-over-month figure rose 0.4% in November, against expectations of a 0.2% rise and on the back of a 0.2% increase in October. Given that PPI measures inflation from the producer’s point of view, it is often taken as a leading indicator for CPI. This is problematic given CPI has also been on the rise recently – and will become even more relevant with the onset of potentially inflationary tariff policies from President-elect Trump in the new year, making the last stretch against inflation increasingly difficult.

Spot prices of the majors BTC, ETH, XRP, SOL and the wider market are showing fragility on the back of the mixed macro news and without the same slew of positive crypto-specific catalysts, following a brief relief rally. Despite the weakened price action, Spot ETFs still brought in large inflows – BTC Spot ETFs pulled $597.5M yesterday, their highest for the week, and ETH Spot ETFs also exhibited strong positive flows of $273.7M. We covered this dislocation in ETH price and its Spot ETF inflows previously.

This weakening in activity can also be observed with at-the-money options’ implied volatility levels, which are showing a decline at the front end of the term structure for both major tokens. While ETH’s still remains more volatile, its term structure has also steepened after showing a strong inversion in the past week.

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

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

The calmer environment is reflected in futures too, with spot yields having effectively decreased at the front end and now with a term structure not so inverted like in the past days. As a result, we can no longer confidently point to a widening basis as a driver for strong ETF flows.

Figure 3. BTC (yellow) and ETH (purple) futures spot yields at different tenors. *Source: Deribit, Block Scholes*

Ending the week on a more positive note however, further legislation for a strategic Bitcoin Reserve for the state of Texas was introduced in the Texas House of Representatives yesterday. The legislation will allow the state to collect taxes, fees, and donations from Texas residents in bitcoins, which it would then hold as a reserve asset for at least five years.

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