Crypto Markets Daily Dec 16 2024

Record Spot, Measured Sentiment

Bitcoin (BTC) glided through $105k and rallied to a new all-time high (ATH) of $106,443 late Sunday night into early Monday, affirming a previously set bullish outlook.

This breakthrough brought with it a rebound in implied volatility at short tenors from a sharp weekend decline, with levels now having risen significantly at the front end of the structure.

When BTC first broke through the $100k threshold, implied volatility skews moved in tandem with overall implied volatility. But this time, the market narrative is different. Despite the new all-time-high and rapid change in implied volatility, skew levels have taken a more subdued trajectory, moving sideways with a slight decrease at longer tenors.

While traders continue to favour OTM calls across the term structure, a classic signal of bullish positioning, there’s a notable absence of increased bullish sentiment despite the recent price surge.

BTC’s move to $106k has been fueled by a combination of factors adding to the maintained bullish sentiment. On Friday, Nasdaq Global Indexes announced the addition of MicroStrategy (MSTR), the largest corporate holder of BTC, to the Nasdaq 100 (NDX), effective Dec 23, 2024. This addition could attract a new wave of investors, particularly from institutional traders who track the indexes, in turn driving the share price higher of the underlying MSTR stock and also increasing liquidity. This would enable the acceleration of further BTC purchases by the company – a potential tailwind for BTC’s price.

Although ETH rallied to $4k alongside BTC’s rally, it has rejected this level once again and its implied volatility activity remains comparatively subdued. Short tenor skew levels have turned negative, reflecting a clear preference among traders for OTM puts, signalling a bearish outlook.

Although ETH’s price increase remained modest, across altcoins we saw other coins rally alongside Bitcoin including Ondo (+10.8%, 24h), Virtuals Protocol (+19.1%, 24h) and Aave (+4.2%, 24h). In DeFi, SUI announced a partnership with Ant Digital Technologies to bring tokenized ESG real world assets (RWA) assets onchain with an initial focus on sustainable energy companies.

Progressing on the central bank digital currency (CBDC) front, Kyrgyzstan’s parliament has approved a draft law which outlines the framework of the Digital Som. The Digital Som will be centralised by the National Bank who will control issuance. Key features include offline usability and integrated usage of smart contracts. With prototype testing set to start next year (2025), the Kyrgyzstan National Bank is anticipated to make a decision on the official roll out of the digital coin as soon as the end of 2026.

Looking ahead into this week, the Fed is widely expected to deliver another rate cut, bringing its target range for the Federal Funds Rate down to 4.25-4.5%. Given the overall resilience of the U.S. economy, we expect a revision to the September SEP dot plot to reflect the view of a likely higher neutral rate. Chair Powell may potentially provide forward guidance on a potential pause in January and a slower pace of rate cuts which, taken together, suggest the message will be more hawkish compared to those earlier in the year.

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