Crypto Markets Daily Dec 25 2024

It’s a quieter day in Trad-Fi as the market closes for Christmas day, but U.S. treasuries continue to feel the pressure with the 2s10s yield curve steepening further. Whilst Trad-Fi markets rest, crypto has had a relatively quieter day too, though we do see some signs of life as BTC looks ready to at least try close the year above the $100K mark. December’s end-of-year options expiration is poised to be one of the biggest yet though we believe that it is unlikely to create much volatility beyond Friday.

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All I want for Christmas is…

…BTC above $100K? Not quite, as Powell’s speech is the Christmas gift that keeps on giving. It’s a quieter day in Trad-Fi as the market closes for Christmas day, but U.S. treasuries continue to feel the pressure. Yields on the longer-term 10Y Treasury rose another 3 basis points in yesterday’s shortened session, reaching 4.62% and causing a further steepening in the 2s10s curve which we highlighted earlier here. The 10Y minus the 2Y Treasury (2s10s) is at its steepest level since summer 2022, as the chart below shows.

Figure 1. U.S. Treasuries 10Y and 2Y Yield Curve. *Source: Federal Reserve Bank of St. Louis*

The widening gap between short and long tenors has largely been driven by the expectation of a shorter cutting cycle by the Fed, who have been slowed down by sticky inflation and fiscal concerns in the new year when President-elect Trump is inaugurated. The DXY, dollar strength index, has remained close to its highs of this year on the back of the ‘higher for longer’ policy stance.

Whilst Trad-Fi markets rest, crypto has had a relatively quieter day. We do see some signs of life, though. BTC trades close to 5% up from its Christmas eve selloff and looks ready to at least try and close the year above the $100K mark. As we saw during the post-election exuberance, some of the best performing coins today are a combination of previous old-cycle larger caps and household memecoin names of the current cycle (VET is up 12%, SAND is up 8% and the Solana token ‘ai16z’, a meme-play on the venture capital fund is up over 30%).

Finally we also note that December’s end-of-year options expiration is poised to be one of the biggest yet, with much chatter about the sizeable chunk of options contracts set to expire this Friday across BTC and ETH markets. However, volatility expectations are basically ignoring the event, and we believe that it is unlikely to create much volatility beyond Friday. The vol term structure agrees – showing a steep shape for BTC and (a now normal) inversion in ETH’s.

Figure 2. BTC and ETH at-the-money implied volatility term structure. *Source: Deribit, Block Scholes*

This divergence between BTC and ETH is not limited to vol markets – Spot BTC ETFs yet again saw net outflows of $338.4M yesterday) whereas the Spot ETH ETFs pulled inflows of $53.6M, largely a result of BlackRock’s ETHA ETF which was responsible for over 3/4s of those inflows).

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