Crypto Markets Daily Dec 17 2024

As BTC pushed its all-time high even further last night to $107,822, we explore the daily change in at-the-money implied volatility and implied volatility skews across BTC and ETH. Alongside, we share key announcements on 2 new stable coins: the RLUSD launch and the USDtb and outline upcoming macro data releases which set the economic background for crypto markets.

Crypto

Derivatives

DeFi

Macro

New ATHs, Disconnected Derivatives

Bitcoin’s spot price soared through $107K (ATH $107,822) yesterday, amid price action that saw Bitcoin Spot ETFs mark their 12th consecutive day of positive inflows, attracting $636.9M on Monday alone. The ETH Spot ETFs netted inflows of $51.1M, a figure lower than some of the levels we saw last week. In contrast to BTC’s new highs, ETH’s spot price continues to oscillate around the $4K level.

Meanwhile, MicroStrategy, led by Bitcoin advocate Michael Saylor, reaffirmed its aggressive accumulation strategy with yet another substantial purchase of Bitcoin announced in a filing on Monday. MSTR bought 15,350 bitcoins between 9 and 15 Dec, at an average price of $100,386. This brings the corporation's total holdings to 439,000 BTC ~ 2.1% of total supply.

Despite BTC rallying again to another ATH, derivatives markets have shown a disconnect with the bullish spot movements that we had come to expect in the price action following the election. Implied vol at the front end of the term structure has fallen, which is antithetical to the correlation between spot rallies and inversion of the term structure that we had observed. Smiles also skewed less strongly towards calls after the ATH was reached, with OTM puts being at a volatility premium briefly.

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

Figure 2. BTC implied volatility skew for selected constant tenors. *Source: Deribit, Block Scholes*

As shown in the volatility smile displayed below, the rally first caused higher implied vol levels to drop at all strikes, with puts briefly trading at a slight volatility premium over calls before they dropped and the skew returned to a positive tilt towards OTM calls.

Figure 3. BTC volatility smile for selected constant tenors. *Source: Deribit, Block Scholes*

This matches the subdued behaviour of perpetual swap funding rates, which have not returned to their exuberant highs despite the return of spot to ATH-breaking. The leverage flushout in the early hours of Dec 6 appears healthy in hindsight, as price has now pushed on to new ATHs without the build-up of expensive leveraged long positions that risk exacerbating corrections with liquidation spirals.

Meanwhile, Ripple has announced the launch of their widely anticipated stablecoin RLUSD available from today. XRP has rallied +13% (24h) and the new stable coin will be recorded on the XRP Ledger and Ethereum blockchain.

Ethena, recently attracting headlines for their stable coin USDe which claims to offer over 20% annualised yields in bull markets, has announced the release of a new stable coin - USDtb, also pegged to the dollar. This new stable coin intends to generate a more stable return particularly in bearish markets, and the underlying yield generation will be supported by a proposed 90% investment in BUIDL- BlackRock and Securitize's tokenized money market fund.

Still to come this week, key macro data events include central bank meetings, notably an expected 25bps cut from the FOMC and an unchanged rate from Bank of Japan and Bank of England. UK CPI (expected: 2.6%, was 2.3%), will be released tomorrow and is expected to confirm a persistently sticky inflation. This adds to the weakening economy as the UK already faces low growth expectations (0.9% in 2024 and 1.7% expected by the OECD in 2025.)

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