Following its early December surge past $40k, BTC experienced a sideways month in December, consistently moving between the $40k and $45k bands. As the anticipated decision on the spot ETF approval now draws near (expected to be made sometime between today and 10 January), and with widespread anticipation of a favourable outcome, BTC managed to break above the $45k level last Tuesday night, marking its highest point since April 2022. Despite breaching the $45k level for a day, BTC quickly retreated amid the bearish “buy the rumour, sell the news” sentiment that spread across social media. It plunged to just over $40k on some exchanges, with many investors blaming the downturn on a Matrixport report predicting the SEC’s rejection of all spot BTC ETFs in January.
However, after several positive weeks, this plunge seems rather to be a typical liquidity grab and a shakeout of over-leveraged positions and late crypto market entrants. Liquidations of over $600m, the second highest since FTX (with the highest in August last year), alongside a $1.6bn decrease in open interest, paint a more definitive picture of the market’s state as also funding rates came down massively. BTC then quickly retreated above the $42k level, and the retest on Wednesday night was bought up strongly and there was not much to get below $42k. By yesterday, BTC had almost reached its December high, just under $45k, before it dipped to retest the $42.7k mark during early Asia trading today. It is currently trading around $44k. It will find initial support at $42.5k and will face resistance near this week’s high at around $45k.
Meanwhile, ETH remains weak compared to BTC, underperforming this week with the ETH/BTC ratio finding its first support at 0.051 (next at around 0.05) and resistance at 0.057, indicating that it is not yet primed for a rally.
From a barbell portfolio perspective, I am inclined towards Solana, and adding Solana to the majors. Given that the SOL/ETH ratio maintains a bullish trend (albeit possibly late to the party), I favour underweighting ETH in support of a larger allocation in SOL. My bias is further reinforced by the 25-delta skew, which is consistently positive for BTC across all timeframes, yet shows a negative short-term outlook for ETH, indicating prevailing bearish sentiment towards ETH in the near term. Regarding volatility metrics, bitcoin’s 30-day implied volatility stands at 66%, and Ethereum’s is at 69%, marking an increase of over 10% for both since Christmas.
On the macro side, the week started with December’s ISM Manufacturing PMI on Wednesday, which rose to 47.4, exceeding the anticipated 47.1 and November’s 46.7. Yet, despite these gains, the US manufacturing sector remains in decline, as indicated by the ISM Manufacturing Prices registering at 45.2, below the forecasted 47.5 and also the JOLTs Job Openings, which also came in lower than expected. Concurrently, the FOMC Meeting Minutes indicated a growing belief among members that inflation is becoming manageable, alongside a heightened concerns about the potential economic dangers of an excessively tight monetary policy. Accordingly, traders still price in a total of 6 rate cuts by the Federal Reserve this year.
On Thursday, the ADP Nonfarm Employment Change came in at 164k, better than the consensus of 164k. On the interest rate side, traders remained very dovish, but the anticipated timing of the initial rate cut is being pushed further out, with year-end rates on the decline.
This afternoon, traders will focus on the US Nonfarm Payrolls (exp. 170k), Unemployment Rate (exp. 3.8%), and ISM Non-Manufacturing PMI and Prices data a little bit later. Key economic events next week will be US CPI data on Thursday and UK GDP (MoM) as well as US PPI (MoM) on Friday.
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