Crypto Markets Daily Dec 30 2024

Spot Impasse, Debt Impasse

2024 may have been a landmark year for Bitcoin and the cryptocurrency industry as a whole, characterised by ups and downs in the macro environment such as easier global liquidity conditions and Central Bank rate cuts on one end, and major selloffs and liquidations on the other (like we saw in August). However, if anything appears to be certain, it is that the month of December seems hellbent on ending with a markedly less bullish note than at the start of the month. 

BTC is currently ranging at $93.8K, down nearly 1.5% from $95K yesterday. ETH is also moving sideways trailing within a tight range from $3.3-3.5K. The rest of the market remains a sea of red, picking up exactly where it left off last week. 

At-the-money implied volatility levels at all tenors for both BTC and ETH have fallen slightly from Friday, particularly at shorter-tenors and more so for BTC than for ETH which you can see in the chart below. This largely reflects the lull in trading over the festive season however also indicates a stabilisation of price in this bearish period.

The chart below highlights that whilst at-the-money implied vol levels for short-tenors have oscillated within a tight band of 50-55% realised volatility in the same period has cratered from levels upwards of 65% down to 45% amidst the bearish spot price activity. 

Skew levels for BTC at short-tenors (7 and 14 days) have largely remained flat, however, longer-term they have been steadily moving upwards – this mirrors a pattern we have noted on multiple previous occasions that market participants are expecting and positioning themselves for better times ahead. 

Skew levels for ETH have jumped up more significantly across all tenors, with skew at a 7-day tenor reaching 5%, aligning with ETH’s outperformance over the past 24 hours. While on the whole, ETH has underperformed relative to its expectations this year, particularly as users and new capital flowed to alternative layer-1’s such as Sui and Solana, it is still the second-largest crypto by market-cap and the main beneficiary of capital rotation from the Spot BTC ETFs into its own Spot ETF products.

On the topic of alternative L1s, SUI, down -3.7% (24h) will unlock 64.19 million tokens on January 1, 2025 which at the current market rate is valued at approximately $332.65M, or 2.79% of the token’s current market cap. SUI’s token unlock schedule is published in advance detailing all future releases and beneficiaries allowing for market participants to price in the action. Therefore the current drop in token price cannot be directly attributed to the token unlock and is instead consistent with the overall bear market. On the assumption that market cap stays the same, this will approximate to an overnight 2.19% increase of market cap on January 1, 2025 following the release. A portion of this unlock can be expected to be directed straight onto the books, increasing selling pressure. However, with the expected lack of liquidity on new years day, it will be a decision for the holders on if, when and how to distribute the selling of unlocked tokens.

In macro, we are yet again in the midst of a game of political brinkmanship as over the weekend Janet Yellen warned Congress that the U.S. government could reach its debt ceiling between January 14 and 23, 2025, unless either Congress takes action or the Treasury Department implements “extraordinary measures”. The debt ceiling was temporarily suspended under President Biden in June 2023 until January 2, 2025 and President-elect Trump has previously said he supports removing the debt ceiling completely. Congress is ultimately likely to either vote to lift the ceiling higher or suspend it to prevent any chance of the U.S. defaulting, though taking it this close to the wire provides just another reason for market participants' reluctance to take on any extra risk before year end.