Crypto Markets Daily Dec 5 2024

In the middle of a bull run, two quiet days of macro is rare. After a relatively quieter day for macro yesterday, a storm of events including Chair Powell's likening of Bitcoin to digital gold helped push BTC straight through the wall it has repeatedly tried and failed to breach since the election: the $100K mark. Implied vol skyrocketed at the front end of the term structure and perp funding rates jumped to extreme highs reaching 0.11% from just 0.015% indicating a strong willingness by traders to maintain their leveraged long exposure to BTC. Finally, despite crossing $100K, BTC’s post-halving performance is still the worst of any cycle so far — though any further action above current levels in the short term would likely push the current cycle above 2016’s.

Crypto

Derivatives

DeFi

Macro

Like Gold, Only It’s Digital

In the middle of a bull run, two quiet days of macro is rare. After a relatively quieter day for macro yesterday, a storm of events sent Bitcoin straight through the wall it has repeatedly tried and failed to breach since the election: the $100K mark. At its peak early on Thursday morning, BTC traded upwards of $103,800.

First and foremost, Chair Jerome Powell likened BTC to Gold during the NYT DealBook Summit, stating that BTC is “just like gold, only it’s digital” and that “it’s really a competitor for gold”. Just to put that statement into comparison, BTC’s current market cap just reached over $2T, whilst Gold’s market cap sits shy of $20T. Powell also reiterated his previous comments on the U.S. economy — that it is “in a very good place” but the fight against inflation is not over just yet. In his view, the Fed can be “more cautious” as it lowers down towards neutral.

If Chair Powell’s comments were not enough, President Putin asked “who can prohibit it? No one” during a conference speech yesterday. Finally, and perhaps most importantly, President-elect Trump officially confirmed his nomination for Paul Atkins as SEC Chair, another likely pro-crypto pick (you can find the full significance of this nomination in yesterday’s daily comment).

Derivatives markets could not help but to react to the plethora of bullish macro news. Implied volatility skyrocketed at the front end of the term structure – showcasing just how reactive market participants were to reposition themselves, especially given that the volatility term structure exhibited a steep curve ahead of the move.

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

In perps, funding rates jumped to extreme highs reaching 0.11% from just 0.015%. This strongly suggests traders willing to pay a substantial premium in order to maintain their leveraged long exposure to BTC. We do note however, funding rates are still below their 2024 March peak, where we saw rates of 0.14%.

Figure 2. Perpetual Swaps 8-hourly Funding Rates. *Source: Deribit, Block Scholes*

Figure 3. Perpetual Swap Funding Rate since January 2024. *Source: Deribit, Block Scholes*

Whilst $100k has a psychological effect, it is not the first of the round number walls BTC has faced. We think it is interesting to review price action following some of the previous BTC milestones. These milestones have historically preceded mixed results for BTC in the short term. After crossing each of $10, $100, $1K, and $10K, BTC has fallen back below the milestone 100 days after the event.

Figure 4. Performance of BTC BTC Returns into and out of significant round number price milestones. *Source: Block Scholes, Bloomberg*

Ultimately, $100K is just another (admittedly large) number. The market’s focus on such milestones is psychological at best, and is not a fair reflection of value in the long run. BTC has eventually outperformed every previous milestone so far, apart from this morning’s $103K.

Re-lensing its historical price path to look at post-halving performance, for example, tells a different story. Despite crossing a historic all-time high of $100K, in return terms, BTC’s post-halving performance is still the worst of any cycle so far. However, this is by a fine margin, as any further action above current levels in the short term would likely push the current cycle above 2016’s.

Figure 5. BTC spot price performance into and out of the halving of the Bitcoin block reward in each historical case. *Sources: Block Scholes, Bloomberg*

The move in BTC has widened its market cap to the rest of the altcoin market, a notable change given that in yesterday's comment we mentioned the outperformance of other coins (including ETH) during BTC’s brief sideways movement. The breakthrough of $100K has pressed pause on BTC dominance, if it didn’t quite reverse the moves we’ve seen over the last week.