Crypto Markets Daily Jan 06 2025

Despite BTC’s spot price moving firmly back into bullish territory at the turn of the year, the positive momentum of sentiment in derivatives markets did briefly falter. The slowing down in sentiment momentum however is more true for ETH than it is for BTC and ETH's funding rates and futures-implied yields show this despite remaining net-bullish. It is a big week for macro as NFP figures for December is expected to show a strong labour market and MicroStrategy has a new party trick to help fundraise further Bitcoin purchases.

Crypto

Derivatives

DeFi

Macro

Nearing $100K

Despite BTC’s spot price moving firmly back into bullish territory at the turn of the year, and currently trading inches from the $100K mark, the positive momentum of sentiment in derivatives markets did briefly falter. As BTC’s spot price moved up from $96K, at-the-money implied volatility levels initially fell more than 10 points from the 55% level down to 43%, before a further move up in spot to current levels saw ATM vol levels recover once again to last week’s levels.

Figure 1. BTC At-The-Money Implied Volatility level for selected tenors. *Source: Deribit, Block Scholes*

Figure 2. Block Scholes BTC Senti-Meter Index. *Source: Block Scholes*

Interestingly however, whilst the fall in ATM vol mirrored a fall in realised volatility, the latter has remained flat whilst implied vol has steadily risen back up as seen below over the weekend.

Figure 3. BTC Realised Volatility (yellow, LHS) and At-The-Money Implied Volatility at one-week tenor (blue, RHS). *Source: Deribit, Block Scholes*

The slowing in sentiment momentum is more true for ETH than it is for BTC. ETH's funding rates and futures-implied yields trade significantly below BTC's at short tenors(shown in the chart below), despite remaining net-bullish.

Figure 4. BTC (yellow) and ETH (purple) Futures-Implied Yields at selected tenors. *Source: Deribit, Block Scholes*

However, the slowing move is not indicative of a bearish flip in sentiment just yet – in fact, BTC's futures price-implied yield curve flipped back to an inverted shape on Dec 30, and still indicates exuberant demand for short-tenor long exposure today.

Figure 5. BTC Futures Implied Yield at selected tenors. *Source: Deribit, Block Scholes*

Moving to macro, the week ahead is set to be a big one in determining the policy path for the beginning of the year. Friday’s Nonfarm Payroll figures for December are expected to show the U.S. economy added 160,000 jobs – bringing the average monthly increase in 2024 to 180,000. Whilst this is lower than the average of previous years (for example in 2023, where it was 251,000), it is nonetheless a robust number of jobs which shows the labour market is not deteriorating or overheating. Richmond Fed President Tom Barkin stated on Friday that he expects continued strength in the jobs market and growth of the U.S. – that the current conditions in the labour market are “more likely to break toward hiring than toward firing”.

Should the NFP figures come in line with expectations, the report is unlikely to alter the market consensus of a pause in the January meeting. See below that the implied probability for a pause is currently 90%, with markets anticipating the next rate cut in March.

Figure 6. Fed Funds Futures Implied Probabilities for a rate cut and rate pause in January 29th FOMC Meeting. *Source: CME FedWatch*

As Chair Powell mentioned in the December meeting, the Fed is looking for more progress on the currently stalled out inflation before lowering the Federal Funds Rate any further. The FOMC Meeting Minutes for December due to be released this Wednesday will also be useful to gain further insight on the hawkish cut and the views of Cleveland Fed President Hammack – the one member who dissented, preferring no change to the policy rate.

Finally, MicroStrategy has announced its newest party trick to pursue further Bitcoin purchasing as part of its 21/21 Plan, in the form of issuing perpetual preferred stock of up to $2B. Whilst the details on the plan are currently light, perpetual preferred shares are a hybrid instrument providing buyers fixed dividend payments, with no end maturity date. Given that preferred shares do not come with voting rights, MicroStrategy will be able to use that equity to fund its Bitcoin program without giving up any voting control.

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