Crypto Markets Daily Dec 3 2024

Rates, Risks and Rallies

We said it would be a big week for macro and, two days in, things are certainly playing out that way. 

Starting first in Europe – Marine Le Pen’s National Rally and leftist New Popular Front have both filed no-confidence motions following French Prime Minister Barnier’s bypass of a vote on the 2025 budget. 10Y French OATs have continued to rise, indicating traders are demanding a premium to hold French bonds and the French-German 10-year sovereign bond spread, a key proxy of market uncertainty, rose close to levels last seen during the eurozone 2012 debt crisis on Monday. 

Across the Atlantic, implied-odds of a 25 bps cut in the FOMC’s December meeting rose sharply overnight from 61.6% to 74.3%, following several Fed speeches. Notably, Governor Waller stated that despite there being a “risk but not a certainty” that inflation may have stalled, something we highlighted in this daily comment, he is still leaning “toward supporting a cut to the policy rate” in December. The overarching message from Fed officials points towards rates still being “restrictive” and further cuts being needed, though with some pauses along the way to slow things down.

On the theme of slowing down – Ethereum ETF inflows have lost some of their steam, registering only $24.2M on Dec 2, compared to the BTC Spot ETFs which saw $353.6M of inflows. This marked the return of the more common theme we have seen since both their launches: Bitcoin ETFs seeing significantly larger flows than Ethereum’s.

Large-cap altcoins from both the 2017-18 and 2020-21 cycle have continued to outperform in the past 24 hours, for the most part sidelining newer projects of the current cycle. IOTA and HBAR are both up over 40% on the day as well as AVAX, which continues its rally following the release of a major upgrade.

Total stablecoin supply also reached new highs yesterday -- this influx of stablecoin activity has historically led to increased activity in CEX and DEX market pairs, including Bitcoin and Ethereum as well as the wider altcoin market.

In derivatives, both BTC and ETH’s term structures have flattened, though BTC has exhibited a small increase in implied volatility at short tenors since the beginning of the month. On the 26th of Nov, when BTC tested the lower bound of the current $95-100k range, we highlighted that skew leaned towards short-tenor puts as a result of protective put buying during the leg down, rather than the selling of upside call positions.

We are observing a similar phenomenon now too – the implied volatility of short dated (1-week) puts are higher, whereas implied vol for short-dated calls are still the same as before, as you can see in both of the charts below.

Skew for ETH however is still indicates a strong demand for upside exposure to calls.