Treading With Caution

Bond vigilantes, investors who sell bonds in response to unsustainable fiscal policies may have saddled up against the U.S. but recently turned their attention to another target: the UK, due to its ‘stagflationary’ outlook and limited fiscal headroom. The UK’s bond yields stand notably higher than those in other regions, but today caught some relief. The December CPI report – which came in below expectations at 2.5% – saw 10Y gilts fall from their high of 4.88% down to 4.81%. This has provided some relief for the BoE, with traders now pricing in an 80% chance of the central bank cutting rates in their next February meeting, up from 60%. 

There’s the potential for similar relief across the pond, as December’s CPI is also due to be released in the U.S. later today. However, current expectations are slightly different: economists expect core CPI year-over-year lingering at 3.3% for the fifth straight month and headline CPI ticking up to 2.9% from 2.7% in November. We believe that should the CPI figures surprise to the upside, Bitcoin is likely to experience a short, but sharp move downwards as a higher CPI and PPI reading (from yesterday) in combination with the strong macro data of last week provides additional evidence for a more cautious rate path ahead – something various Fed speakers have championed recently. 

Following yesterday’s spot move up from $90K to $97K, prices are now holding a stable sideways movement, however implied vol levels overall remain high. This has resulted in a slightly inverted term structure for ETH and a flat one for BTC, see this in the charts below.

Skew levels for both majors are solidly negative at the very front end – a result of implied vol dropping slightly for puts, but falling significantly more for calls. This is in contrast still with futures, which show high yields for short tenors and an inverted term structure.

As most of the market is holding at its current levels, XRP is up another 9%, eyeing the psychological $3 resistance level. Whilst still 16% away from the token’s ATH, the current spot price is the highest we’ve seen XRP in this entire cycle, and that differential is increasingly getting narrower. XRP has been bolstered by a continuation of speculation regarding a Spot ETF as well as a publication by JP Morgan highlighting the bullish tailwinds an ETF launch could provide the token with.

In other crypto news, Genius Group, a leading AI-powered, Bitcoin-first education group, decided to allocate $33M of a rights offering to increase the BTC treasury – a strategic move that invites the company to join a raft of others who are considering cryptocurrencies as a strategic treasury asset rather than a speculative investment.

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