Week-over-week performance:
- BTCUSD: 42,600 / -3.62%
- ETHUSD: 2,523 / +9.51% (!!)
- US10Y: 4.00% / -3 bps
- DXY: 102.98 / +0.66%
- GOLD (USD/OZ): 2,049 / 0.83%
- NDX: 16,832 / +1.10%
- VIX: 12.69 / -2.9%
On the macro side:
The US inflation readings for December showed mixed results, but they were generally mild, boosting confidence among equity investors as broader trends are still favourable overall.
The positive momentum was also fuelled by decent bank earnings, particularly from JP Morgan, signalling an optimistic start to the earnings season and raising investor expectations.
Market participants are currently anticipating a 25 bps rate cut at each Federal Reserve meeting from March onwards.
While this expectation may be reflected in the Fed Futures market, I believe it not been fully factored into risk assets.
This may explain the lack of risk-on market sentiment so far, with both SPX and NDX flirting with their ATH.
Looking ahead:
- Wednesday, 17 January: CNY GDP, UK GDP, EU CPI
- Thursday, 18 January: US Job figures
- Friday, 19 January: CH PPI
On the FX side:
As anticipated last week, we observed a rebound in USDCHF and EURCHF.
With the US Dollar Index (DXY) approaching a consolidation zone between 103 and 103.65, I anticipate a slight weakening of the EUR/USD.
However, my position remains long on USD/CHF and EUR/CHF, awaiting confirmation of the prevailing trend.
The macroeconomic justification for this stance is rooted in the SNB’s statement I mentioned last week.
Chart 1: DXY 1d
Nevertheless, given the current idiosyncratic risk phase in the cryptocurrency space, I expect the short-term correlation between BTC and DXY to diminish.
On the crypto side:
We have the ETF in place, but what comes next?
As I mentioned last week, the market was already in a risk-on mode, which partly explains the “buy the rumour and sell the news” effects (something like the ETH and the Merge).
However, a significant factor, in my opinion is the asymmetric rotation from Exchange Traded Products (ETPs) such as BITO and GBTC, into the new ETFs.
As ETFs are cash-settled, issuers cannot transfer BTC directly from one product to another; they must sell into the market and then buy back.
My inclination is that the selling will be quick, while the buying will take time.
Nevertheless, inflows into the ETFs have been somewhat disappointing so far.
With ETHBTC outperforming nicely, we have seen basis, volatility, and funding rates on BTC decrease while remaining robust for ETH and other altcoins.
This suggests the prevalence of L/S strategies with BTC as the short leg.
The failure of ETHBTC to sustain levels above 0.06 confirms this trend, leading me to expect ETHBTC to form a rounding top to reclaim the trend line at 0.057.
Overall, the narrative remains bullish, and I find accumulating BTC and high-quality alts during rapid downtrends appealing, especially as volatility-of-volatility remains high.
Shifting focus to ETHUSD, I believe the ETF narrative for Ethereum may have run its course.
Unlike bitcoin, ethereum’s commodity nature is under regulatory scrutiny, particularly from the SEC.
While BTC ETFs have been approved by three out of five SEC members, including Gary Gensler, the recent wording regarding “Crypto Asset Securities” in Gensler’s statement raises caution and suggests a more reserved stance on the potential approval of ETH ETFs in May.
Therefore, I prefer to rotate from ETH to BTC now.
Chart 2: ETHBTC 1d
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