Something Has To Give

Crypto-assets are showing a slight recovery in the early hours of today, ahead of this afternoon’s much anticipated U.S. Nonfarm Payroll Report. Current expectations by economists for the report include 160,000 jobs being added by the U.S. economy in December, which (although it is below the November standout number of 227,000) is a sign of a robust labour market. 

However, some economists are expecting a much bigger blowout figure to the 160,000 expected – economists at Bloomberg are anticipating December’s nonfarm payrolls to increase by 268,000 which would exceed even November’s number. Given the reaction in risk-on assets to Tuesday’s unexpectedly strong JOLTS report and ISM Services Report that brought BTC down to $92K, we believe that a blowout number could shake risk-on assets up once again. What may put a band-aid on the bleeding in risk-on sentiment is if the unemployment rate rises above the expected 4.2%, which could cause Chair Powell and the FOMC to put some concerns for inflation aside to help the jobs market, as we saw it do back in August. 

In derivatives markets we are seeing some mixed messages as the market tries to price in these varying outcomes. Starting with futures spot yields: we see for BTC that the term structure for futures yields has slightly inverted compared to yesterday (with a stronger inversion for ETH). This inversion suggests heightened expectations for the short term with traders seeking more demand for long exposure at the shorter tenors; something we have seen frequently in recent bullish rallies. 

But options markets are definitely not showing the type of exuberance ETH’s futures yields are showing. ETH’s implied volatility term structure has briefly inverted in the past hours of this morning, and is now resulting in a flat curve. For BTC, despite the kink in futures term structure, implied volatility remains steep throughout, but we observe a steady rise in the past few days and skew is still negative. 

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Moving away from our two majors, most of the blue-chip altcoins have also returned back to where they opened yesterday morning. If any token felt like bucking that trend among the big players, perhaps one could guess it would be SUI – which is currently up 10% today and once again crossing a recently achieved $5 mark. 

This wider market recovery comes despite yesterday’s news that the DOJ was given the greenlight to sell 69,370 bitcoins ($6.5B) seized from the Silk Road Marketplace. Whilst a sell order of this size, or of any size for that matter, would be counterintuitive to much of the sentiment illustrated by the new administration regarding cryptocurrency, this isn’t the first of such events that we have seen. In the summer of 2024, the German government sold a similar amount of Bitcoin in increments and we did see selloffs of 15-20% from the March highs of that year. At that time however, additional volatility arose from the Mt.Gox sell pressure and the Yen carry trade unwind – this makes it more difficult to predict the potential drawdown should the DOJ hit the red button, though we note daily BTC trade volume currently exceeds the $60B mark – hence even a single sell order of all the DOJ’s BTC is still only 1/10th of that. 

Something else that is noteworthy is the isolated performance of AI related tokens and in particular, AI agent tokens. ‘ChainGPT’ has an almost vertical chart for today, up 65% and Freysa.AI, an autonomous AI agent game on Base Network, is up over 30%. As AI agents explode on the order books, Fetch.ai, a crypto based AI firm, has committed $10M worth of investment through the form of a start-up accelerator program. This is aimed at startups building AI agents, applying quantum computing strategies in crypto and similar strategies to break through the global market.

Google Search Interest could offer a partial explanation to this trend – as the chart below shows, AI agents search interest has well exceeded that of memecoins which in crypto generally takes top spot for attention. Given the appointment of David Sacks as both Crypto and AI Czar, this has likely provided some tailwinds for the AI sector which compared to larger-cap tokens is still a much smaller market. 

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