🌳 US Inflation Surges Beyond Expectations; Bitcoin ETFs Launch with Record Trading Volumes

12 Jan 2024, Friday

3:00 AM

🌳 US Inflation Surges Beyond Expectations; Bitcoin ETFs Launch with Record Trading Volumes

BTC

ETH

S&P Futures 500

$46,318.37

$2,603.11

$4,805.50

(-0.74%)

 (-0.03%)

(-0.41%)

Note: All percentages shown above are referenced to the previous business work day's 09:00 (GMT+8)


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Our Daily View

What We Are Covering Today

  • US inflation exceeds forecasts; Taiwanese elections pose risks to global market stability (More in Macro & TradFi)
  • Bitcoin ETFs sees massive trading volume on first day; Circle files for IPO (More in DeFi & CeFi)
  • Whales withdraw ETH from Binance; Surge in development activity for ETH based projects post-ETF approvals (More in On-Chain)
  • BTC's IV shifts to contango; market sentiment shifts on CPI data impact (More in Crypto Derivatives)
  • BTC forms a double top pattern while ETH sees no immediate resistance in sight until the $2.95K level (More in Crypto Technical Analysis)

Macro & TradFi

In December, US inflation surpassed expectations, rising to 3.4% annually, contrary to the anticipated 3.2%. This development has cast doubts on the likelihood of interest rate reductions as early as March, a sentiment previously held by the market. The core inflation rate also exceeded forecasts, affirming the Federal Reserve's hesitation to lower rates from their 23-year peak. Following this report, US stocks experienced a slight decline, and the bond market showed volatility. Despite this rise, overall price pressures in 2023 significantly decreased from their 2022 peak, with President Joe Biden highlighting the reduction in prices for essential household goods. This inflation data, though higher than expected, indicates an ongoing challenge for the Federal Reserve in achieving its 2% inflation target, requiring a cautious approach to monetary policy adjustments.

In other news, the upcoming Taiwanese presidential and parliamentary elections present a crucial geopolitical challenge for global investors, potentially impacting US-China relations and international markets. Experts anticipate a gradual, rather than immediate, market response, contingent on the election outcomes and the reactions from Beijing and Washington. Safe-haven assets like the dollar, yen, gold, and developed-market sovereign bonds are seen as viable protections against escalating geopolitical risks. The election's impact could extend to emerging economies, with countries like Indonesia possibly benefiting from supply chain diversification, while South Korea faces potential difficulties. A win for the pro-independence Democratic Progressive Party could significantly affect President Xi Jinping's unification efforts. Additionally, the response from Beijing, especially in scenarios of heightened tensions, is expected to play a pivotal role in shaping the regional economic landscape.

Yesterday, US equity markets experienced fluctuations following the release of higher-than-expected inflation data, which dampened expectations of a Federal Reserve rate cut in March. The Nasdaq Composite Index marginally increased by 0.17%, while the S&P 500 saw a slight decline of 0.07%, and the Dow Jones Industrial Average marginally rose by 0.04%. Despite a recent pullback in the first days of January, the average yield on a US junk bond index remains at approximately 8%, down from 9.4% in early November, as per Ice BofA data. Citigroup's shares fell by 1.75% after the company forecasted a probable fourth-quarter loss, attributed to the Argentine peso's depreciation and restructuring expenses. Looking ahead, investors are keenly awaiting the release of inflation data from China, scheduled for 09:30 SGT today, which could provide further insights into global economic trends and influence market movements.

DeFi & CeFi

  • BTC ETFs have a collective trading volume of $4.5B
  • Circle files for IPO in the US
  • NEAR announces a 40% reduction of staff despite being in good financial conditions
  • Bitcoin Layer 2 Bitfinity raises token round at $130M valuation
  • Vanguard blocks its clients from buying the newly launched Bitcoin ETFs
  • Hedera and Algorand partner to develop decentralized wallet recovery system

The launch of the spot Bitcoin exchange-traded funds (ETFs) marked a significant day in the cryptocurrency market, with a collective trading volume exceeding $4.5 billion on their first day of trading. Key players like BlackRock, Grayscale, and Fidelity led the charge. BlackRock's iShares Bitcoin Trust (IBIT) emerged as the top performer, accounting for 22% of the group's total volume, while Fidelity's and Grayscale's ETFs followed. These high trading volumes, while indicative of significant interest, don't clearly distinguish between buying and selling activities. Analysts speculate that a large part of the trading, particularly for Grayscale's GBTC and ProShares Futures Bitcoin ETF (BITO), involved selling as investors shifted to newer, more cost-effective ETF options. An estimated purchase of 47K BTC is needed on the spot market to account for the ETF buying activity.

Meanwhile, Circle Internet Financial, the company behind the stablecoin USDC, has also made a strategic move towards becoming a publicly traded company by confidentially filing for an initial public offering (IPO) in the United States. Despite not disclosing the number of shares or their proposed price range, the Boston-based firm, which controls the issuance and governance of the U.S. dollar-pegged USDC, is progressing with its IPO plans, awaiting the Securities and Exchange Commission's review process completion. This decision follows the termination of a previous $9 billion deal to go public via a special-purpose acquisition company in 2022. USDC stands as the second-largest stablecoin by market capitalization and the seventh-largest cryptocurrency, with approximately $25B tokens in circulation, showcasing its significant role in the fluctuating crypto industry marked by rapid growth and notable downturns, including the recent collapse of crypto exchange FTX.

On-Chain

There is a notable trend of ETH withdrawals from Binance, as seen from the address 0xAA15 removing 5,762 ETH (valued at $15.06M) and acquiring 50,733 ETH ($99.2M) since Sep 19, 2023. This indicates a whale accumulation, as analyzed by Lookonchain. This pattern of moving large ETH holdings away from centralized exchanges like Binance signals a preference among these whales to mitigate centralization risks, potentially in anticipation of long-term investment strategies. Furthermore, this relocated ETH may serve dual purposes: it could be staked on-chain to earn rewards or used to cover gas fees in DeFi applications, reflecting a deeper engagement with the Ethereum ecosystem.

In an analysis by Santiment, there is a noticeably stronger commitment to building on the ETH network, as seen in a surge in development activities on Ethereum, coming in behind Status and Chainlink. The amount of developer interest currently concentrated on the ETH network shows a positive sign of resources being dedicated to it, coupled with the anticipation of an ETH ETF approval, which suggests a sustained interest in ETH. This suggests there are ongoing enhancements to decentralized applications and infrastructure on ETH, possibly leading to innovative products within the Ethereum network in the near future. 


Crypto Derivatives

  • Funding rates remained positive for BTC and ETH. 
  • Deribit Implied Volatility Index (DVOL) for BTC and ETH fell to 57.18% and 64.26%, respectively.
  • The 30-day 25-delta skew (C-P) for BTC dropped to -1.95%, while that of ETH dropped to -1.36%.
  • The futures market witnessed $227.04M liquidations, with longs representing 51.18%.

Top 3 USDT Perpetual Funding Rate Arbitrage Opportunities

Net Annualized APR

Perp (USDT pair)

Long on

Short On

32.13%

SOL

Binance

dYdX

26.47%

BNB

Binance

OKX

​​18.56%

BTC

OKX

dYdX

Source: @CexyArbBot Telegram Bot

Notes:

1) Pairs observed include BTC, ETH, SOL, BNB, XRP, LTC, and DOGE vs. USDT perps. 

2) CEXs observed include Binance, Bybit, OKX & dYdX.

3) Lookback period is 24 hours.


The BTC market has witnessed a notable contraction in volatility expectations over the past week. The 7-day Implied Volatility (IV) metric for Bitcoin has experienced another significant decline, culminating at a level of 52.97%. In parallel, the 30-day IV has diminished, aligning at 54.28%. This reduction in volatility can be primarily attributed to a lack of market-moving Bitcoin-centric events as we approach the Halving event scheduled for April. Market participants may also be adopting a 'wait-and-see' approach for the BTC ETF interests over the long term, leading to a tempering of volatility forecasts in the short term.

Meanwhile, the term structure for BTC has mostly reverted to a state of contango, highlighted by a more pronounced reduction in IV for contracts nearing expiration. The acute change in the near-term volatility profile reflects the market's reaction to BTC’s recent price behavior, which, after a turbulent session that saw a surge to $49K followed by a swift retraction to $46K, has entered a period of relative stasis. This dampened volatility is indicative of a temporary equilibrium being reached, as both buyers and sellers reassess their positions in the aftermath of the significant price swings.

In a recent shift of market sentiment, the 25-delta call-put skews for BTC and ETH have shown significant declines. Specifically, BTC's 30-day skew has fallen to -2.13%, and its 7-day skew to -4.27%, while ETH's 30-day and 7-day skews are now at -1.36% and -0.99%, respectively. This trend which is likely to be a response to the latest CPI data, revealed a 3.4% inflation rate which exceeded expectations, hence, suggesting investor caution. The data's potential impact on the Federal Reserve's decision regarding delayed interest rate cuts has raised concerns about further price declines in these cryptocurrencies.

During US Session Hours, @Paradigm underscored option activity, particularly noting significant interest in downside protection and structured plays. For BTC, top transactions included the purchase of 1025x 29-Mar-24 50/60K Call Spreads and the acquisition of 1000x 26-Jan-24 50K Calls. Meanwhile, leading ETH strategies involved the execution of 5500x 26-Jan-24 3K Calls, complemented by the sale of 3550x 28-Jun-24 3500/4500 Call Spreads.

Crypto Technical Analysis

Shifting to technical analysis, BTC underwent another abrupt surge as the ETFs initiated their first trading session. Although it briefly surpassed $48K, the price swiftly retraced in the subsequent hours as the initial excitement subdued. Consequently, BTC retreated to the previously identified channel, with its current price hovering around the upper boundary. Additionally, the price action from yesterday has seemingly formed a double-top pattern, as it failed to convincingly breakout above the $47.5K resistance on two occasions. Therefore, a potential reversal may occur, leading the price down to approximately $43K, representing the immediate support at the lower boundary. Conversely, if the bulls regain control, the price is likely to retest the $47.5K resistance for a third time.

Meanwhile, ETH has also encountered slight retracements after swiftly breaking above its prior resistance and reaching a yearly high. Currently, there is no immediate resistance in sight, except for the trendline formed by the higher highs since late 2022. Should the bullish momentum persist, the price is likely to encounter this resistance at around the $2.95K level, reflecting a 14% potential upside from the current price. However, it's important to note that the RSI of 68.58 has remained close to the overbought territory, hinting at a potential impending price correction. In the event of a reversal, ETH may retreat toward the $2.52K level, previously acting as resistance at the channel's upper boundary, representing approximately a 3% downside.

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