Crypto Markets Daily Jan 09 2025

It’s Not Just Crypto That’s Falling Slowly…

While BTC’s spot price has been dropping closer towards the $90K region, ETH has been falling at a slower pace, down (just) 1.5% on the day, against BTC’s 2% fall. This is happening alongside some interesting moves in derivatives markets. For example, activity in futures spot yields for ETH shows higher levels at the front-end of the term structure, which signifies heightened leveraged long exposure compared to BTC.

Volatility smiles are currently showing a cautionary tale too – for both assets, vol smiles are skewed strongly to puts for short-dated options, however even more so for BTC than for ETH.

The majority of the large-cap tokens are down today too, though with less ferocity as we saw yesterday. Solana has given up its New Year’s gains and is now trading at levels last seen in late December. That same story describes ADA and DOGE – highlighting that the recent altcoin rally and fall is driven more by overall crypto market sentiment than by asset-specific drivers. However, one standout coin is SUI. Despite having fallen from a recently achieved new ATH upwards of $5, the token is up 1.6% today, finding a temporary floor at $4.50 showing resilient demand.

Whilst containing no major surprises, the FOMC’s December Meeting Minutes have not helped to change the bearish sentiment. Some of the FOMC participants stated that there was “merit in keeping the target range for the federal funds rate unchanged” and several of the members noted that the process of disinflation “may have stalled temporarily or noted the risk that it could”, citing uncertainty regarding the policies of the new Trump administration. The Meeting Minutes also add to the views of two Fed officials who spoke over the weekend: Governor Kugler stated that “we know the job is not done” and San Francisco President Daly suggested the Fed may be entering a phase of a stronger trade-off between the labour market and inflation in order to bring the latter down to target. 

Whilst the U.S. is battling an inflation adversary unwilling to fall, China is tackling the opposite and arguably more difficult problem of deflation. CPI data in the region released today showed an inflation rate of 0.1% year-over-year for December. This was in line with expectations and follows 27 straight months of PPI falling in China too.

The inflation and deflationary nature of each region is one piece of a larger puzzle which has seen the interest-rate differential between the U.S. and China widen significantly over the latter end of 2024. The prospects of heavy tariffs slowing down China’s already dampened economy as well as continued uncertainty regarding when the fiscal deficit of the U.S. might reach a breaking part are amongst other factors. See in the chart below, how this interest-rate differential has held up against BTC’s spot price over the past year.