Crypto Markets Daily Nov 14 2024

Derivatives Positioning Resilient Through Volatility

Derivatives market activity has remained bullish during the bull run that propelled Bitcoin prices above $90,000, and has remained stubbornly bullish too through each pause in the rally. Future implied yields remain at extended levels despite the pull back in spot to $85K and the volatility term structure is still inverted (strangely, without an explosion higher in longer-dated vols). BTC volatility smiles have skewed towards upside exposure across the term structure after, the brief pause in the rally saw the 14-day and 30-day tenors briefly lose their upside tilt.

The correlation between the S&P 500 and Bitcoin has grown post-election, suggesting that Bitcoin is still moving with the support of broader risk-on sentiment and may be sensitive to changes to the pace of rate cuts. This was indicated by the rally after the lack of an upward surprise in yesterday's CPI data (which matched market expectations of 2.6% YoY), causing  the market implied probability for a rate cut in December to rise from 58.7% to 82.5%.

Republicans completed their sweep of the White House, House of Representatives, and the Senate – further control over Congress will allow Trump to pass his expected crypto legislation and bills more easily. One notable bill that stands out is Senator Lummis’s BITCOIN Act, outlining a plan for the U.S. government to buy 1 million bitcoins, or 5% of the total supply over the next five years. This supports Trump’s statement back at the Bitcoin Conference in July where he proposed a National Bitcoin Stockpile.

The bullish sentiment is also apparent in Polymarket, which is pricing in a 76% chance that Bitcoin will hit $100,000 this year – currently trading at $91.1K. Bitcoin dominance remains unchanged, fluctuating between 50% and 60% of the total crypto market capitalization over the past three months. Dogecoin continued its rally above $0.40 per coin after Elon Musk, alongside Vivek Ramaswamy, was appointed head of the Department of Government Efficiency (DOGE), fulfilling a promise from Trump’s campaign. However, there is currently no indication that the agency will use the memecoin in any way beyond a nod to its name. This development is likely to fuel the memecoin fire a bit longer as we expect gains in Dogecoin to be recycled in search of the next moonshot.

Both the Bitcoin and Ethereum Spot ETFs maintain the high levels of inflows that we have seen since the election outcome. Yesterday, net inflows for the Bitcoin ETF were $510.1 million and $146.9 million for the Ethereum Spot ETF. Since the election, Bitcoin’s Spot ETFs have seen net inflows of $4.3 billion, accounting for 17% of the $28.2 billion recorded since launch.