Week-over-week performance:
- BTCUSD: 105,488 / 2.87%
- ETHUSD: 2,535 / 3.17% US10Y: 4.45 / 2bps
- DXY: 100 / -1.6%
- GOLD (USD/OZ): 3,214 / -1.2%
- SPX: 5,963 / 2.29%
- NDX: 21,447 / 2.77%
- VIX: 18.35 / -0.16%
Looking ahead – economic calendar:
- Tuesday, 20 May 2025: RBA interest rate decision
- Thursday, 22 May 2025: Existing Home Sales, S&P Manufacturing PMI (May), S&P Services PMI (May)
- Friday, 23 May 2025: New Home Sales
- Sunday, 25 May 2025: Fed Chair Powell speech
On the macro side:
Markets experienced a significant rally last week, driven by positive inflation data and a temporary US-China trade ceasefire. The S&P 500 surged over 5%, while the Nasdaq Composite gained nearly 7%, marking one of the strongest weekly performances in recent months. This optimism was further supported by a 90-day tariff truce between the US and China, which alleviated some trade tensions and bolstered investor sentiment.
However, the positive momentum was tempered by Moody’s decision to downgrade the US credit rating from Aaa to Aa1, citing escalating federal debt and persistent fiscal deficits. This downgrade led to an initial spike in Treasury yields, with the 30-year yield rising above 5%—its highest level since late 2023—and exerted downward pressure on the US dollar. Equity markets opened lower in response, but as the day progressed, they recovered, and the VIX retraced much of its intraday move, settling around 19 levels. This suggests that, while the downgrade introduced some volatility, it did not fundamentally alter market expectations in the near term.
In response to market sentiment, the VIX term structure has returned to contango following a brief period of backwardation, indicating reduced short-term stress and a market that continues to price in a relatively stable volatility environment. However, the slight steepness at the front end of the curve points to lingering caution. Investors remain vigilant, balancing optimism with caution as they navigate the evolving economic landscape.
On the crypto side:
Over the past week, bitcoin has held steady above the key USD 100,000 level, supported by generally positive macroeconomic news. However, this momentum was insufficient to push BTC beyond its psychological all-time high near USD 109,000. The market’s cautious tone was further reinforced when Moody’s credit rating downgrade triggered a brief sell-off in BTC, as capital rotated toward higher-yielding assets like US Treasuries. BTC dropped sharply from around USD 107,000 to the USD 102,000 level within a few hours. Despite this, significant buying pressure emerged at these levels, signaling underlying strength and resilience in the face of negative macro headlines.
The standout move last week was in the ETH/BTC pair. After a 30% surge the previous week, it gained another 10% on Thursday before retracing some of those gains and entering a consolidation phase, with the market cautiously seeking a fair value range. Short-term positioning shows increased bearish hedging, as the 25-day risk reversal on a 7-day tenor dropped from -1.3 to -3.1. However, the 25- and 35-day risk reversals for end of year turned positive, signaling long-term optimism for ETH relative to BTC.
In my view, if bitcoin continues to struggle in breaking decisively above its all-time highs, ETH/BTC could face short-term headwinds despite its recent relative strength. However, if a broader bullish breakout occurs and BTC rallies convincingly, I expect altcoins—particularly Ethereum—to gain in dominance. Given ETH’s historically higher beta relative to BTC, a decisive move higher in Bitcoin could trigger an outsized response in ETH/BTC, leading to a significant upside surge and an extension of its recent momentum.
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