Crypto Markets Daily Jan 21 2025

President Trump's inauguration speech fell short of any mention of BTC or cryptocurrencies which has seen BTC price drop from its $109K level. BTC skew levels are still assigning a volatility premium for calls over puts, however funding rates have fallen significantly. The DXY fell as Trump also failed to announce any immediate tariffs.

Crypto

Derivatives

DeFi

Macro

Not On Day One?

Ahead of President Trump’s inauguration speech, BTC rallied to new highs amidst speculation that Trump would announce a Strategic Bitcoin Reserve. However, his inauguration speech underdelivered when it came to crypto announcements, lacking any mention of a strategic stockpile of bitcoins or any mention of the asset class at all, as many had hoped.

Figure 1. BTC intra-day spot price (orange, LHS) and Polymarket odds of a SBR (red, RHS). *Source: Polymarket, Block Scholes*

BTC subsequently dropped from its high of $109K, but it still holds up above the $100K psychological mark. In tandem, the inversion of BTC’s implied volatility term structure is now resolving, marking a return to the correlation between spot rallies and volatility term structure inversion that marked much of the market action in the month that followed President Trump’s election on Nov 5, 2024.

Figure 2. BTC at-the-money implied volatility at selected tenors. *Source: Deribit, Block Scholes*

BTC’s implied volatility smiles are still consistently bullish across all tenors, however, with skew levels persistently assigning a volatility premium for calls over puts – indicative that market participants still hold a positive outlook across all tenors.

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

Futures yields and perp swaps funding rate have fallen, however, with the latter falling significantly from a 8-hour rate of 0.086% to 0.013% – implying a decline in the leveraged long exposure sought by market participants. Our BTC Senti-Meter Index which is an aggregation of specific derivatives metrics, including perp funding rates and futures implied yields has in turn fallen from its value of 3 closer towards 2.5 – this is still an area of euphoria indicative of continued positive sentiment as supported by the skew of volatility smiles.

Figure 4. BTC (yellow) and ETH (blue) perpetual funding rates. *Source: Deribit, Block Scholes*

Figure 5. Bitcoin Senti-Meter Index. *Source: Block Scholes*

In macro news, the US Dollar fell by almost 1.1% after various news sources suggested the President would not announce any immediate tariffs on his first day in office. This helped foreign currencies such as the EUR and GBP to appreciate against the dollar. During his speech, President Trump announced various executive orders including declaring a national energy and border emergency but just as he failed to mention crypto, he fell short of announcing any immediate tariffs.

Figure 6. DXY intra-day performance. *Source: Bloomberg, Block Scholes*

A few hours later however, during a press conference in the Oval Office, Trump threatened to impose tariffs up to 25% on imports from Canada and Mexico potentially before the 1st of February. Additional threats were made on Chinese imports of up to 100% if China failed to agree on a deal to sell at least 50% of the TikTok app to a U.S. entity. This in turn pushed the dollar back up. However, Trump has still avoided setting in stone a particular date on when increased tariffs would be placed against China. Equally, during his speech Trump announced the External Revenue Service – a new agency to collect tariff revenues, which suggests a delay but not a denying of tariffs.

Trump’s Department of Governmental Efficiency also launched its official website, coinciding with a 10% increase in Dogecoin as shown below.