Crypto Markets Daily Nov 28 2024

To Cut or Not to Cut?

Yesterday we got more news on inflation in the U.S. – PCE (the Fed’s preferred gauge) rose 2.3% in line with expectations in October. Core PCE, on the other hand, rose to 2.8% and has been sticky around 2.7% for the past six months – still well above the 2% goal. Markets are still forecasting a 25bps cut in December, and then a pause in January, which aligns with Fed comments earlier in the week emphasising that the path to 2% is likely to be “bumpy”, but still on track.

Bumpy is right – volatility seen in market expectations ahead of September’s meeting (the 25bps or 50bps dilemma) is set to continue in December (25bps or no cut at all?). The trend in disinflation, particularly in core inflation, has clearly stalled, and further uncertainty around President-elect Trump’s tariff and trade policies may be enough to justify a pause and reevaluation in January.

While stocks ended the trading day lower following the news (S&P closed 0.42% down), BTC wasted little time and rallied to $96k, before now having pulled back slightly.

The effect on the derivatives market has been minimal so far – pulling BTC short-tenor skew back to neutral after a raft of put-buying saw it skew (quite severely) negative on the run down to $92K. BTC perps and futures remain bullish though with a positive funding rate and healthy 18% basis at a 7-day tenor respectively – if the market is bearish on another run towards $100K, they’re not showing in derivatives markets.

In contrast, ETH derivatives markets are even more bullish across the key metrics – yields, skew, and funding rates – and options markets show a still inverted term structure, in contrast to BTC’s relatively steep shape (7-day tenor vols are 5 vols below 6-months).

Derivatives markets (as they have since the election) reflect the nature of short-term spot moves: Ethereum continues to steal the limelight away from Bitcoin, up over 10% since yesterday and at its highest level in the past 5 months. It is the best performing altcoin in the top 10 by market cap too – the gap between BTC and ETH performance is getting narrower and as we have maintained, it is key to see this sustained.

The Spot ETFs are certainly reflecting this, with ETH ETF inflows having their 7th best day since launch ($90.1 million inflows), signalling renewed institutional interest into the blockchain – as we highlighted yesterday, this is likely to continue as long as ETH boasts a higher basis over spot to be captured by institutional investors via the ETFs.