Week-over-week performance:
BTCUSD: 63,146 / +7.61%
ETHUSD: 2,628 / +14.16% (!)
US10Y: 3.75% / +12 bps
DXY: 100.92 / +0.20%
GOLD (USD/OZ): 2,633 / +2.09% (!)
SPX: 5,718 / +1.51%
NDX: 19,852 / +2.21%
DVOL: 50.99 / -5.78%
VIX: 15.90 / -7.23%
Looking Ahead – Economic Calendar:
Tuesday 24 September 2024: Caroline Ellison (former CEO of Alameda Research) sentence
Wednesday, 25 September 2024: US New Home Sales, European Blockchain Convention starts
Thursday 26 September 2024: SNB Interest Rate Decision, US GDP, US Jobless claims, Fed Chair Powell Speaks
Friday, 27 September 2024: US PCE
Saturday, 28 September 2024: CZ release
On the macro side:
There was a 50 bps rate cut from the Fed, with only Michelle Bowman dissenting in favour of a 25 bps cut.
Historically, Fed easing has often preceded a recession, as the Fed tends to act too late and fail to achieve a “soft landing.”,Will this time be different?
Currently, unemployment has risen from 3.7% to 4.2% and Powell projects it to remain at 4.4% until 2025.
The forecast for economic growth is 2.1% in 2024 and 2% the following year.
Powell made it clear that this is not a return to “money printing” and that the Fed expects the long-term neutral rate to be around 3.5% and that we are unlikely to drop back to a zero interest rate policy (ZIRP). He also stated that the 50 bps cut is “not the new norm”.
However, the median projections for 2026 in the dot plot are aligned with the effective rate implied by the year-end Fed Funds Futures, which provides significant certainty to market participants.
While the Fed aims to manage inflation, the easing cycle has begun, and there is no need to overthink it: risk assets and non-yielding assets are the most attractive right now.
This is evidenced by the rising prices of precious metals such as gold and silver, as well as equities.
As long as inflation remains under control (check PCE as the key indicator), the Fed is prepared to continue cutting interest rates to support the labour market.
With this certainty, the risk-on market is likely to persist.
Additionally, this week, Harris is expected to release a new economic proposal on “US Wealth Creation,” which will be important to analyse closely as it could shape the direction of future spending.
On the FX side:
The DXY is establishing a new range between 100.2 and 101.5.
This week, the SNB is expected to announce another rate cut, which would typically strengthen the CHF.
However, the downside for both EURCHF and USDCHF seems limited, as I expect the SNB will express its intention to weaken the CHF during the press conference.
Additionally, with the economic outlook in the eurozone worsening, it is difficult to foresee a stronger EURUSD. As a result, the DXY is likely to remain range-bound for now.
Chart 1: DXY 1d
On the crypto side:
Digital currencies remain the riskiest marketable liquid assets, and given the recent 50 bps Fed cut, I am happy to see “extra” performance compared to traditional risk assets.
After the Solana Breakpoint and Token2049, the European Blockchain Convention is about to kick off, providing even more insights.
Additionally, the SEC has just fast-tracked approval for listing and trading options on BlackRock’s BTC ETF (USD IBIT).
I still believe that bitcoin’s price action is primarily driven by two forces:
- The digital gold narrative.
- Quality assets thriving in a flight-to-quality environment.
While the digital gold narrative remains strong — especially with no signs of gold’s rally slowing — I expect bitcoin to perform well in this macro environment.
However, the flight-to-quality theme seems to be exhausting.
I am hearing more and more from desks that they have exited ETH and altcoins to focus solely on BTC.
While DeFi is quiet and roadmaps seem lacklustre, the new easing macro environment may spark fresh investments in private markets (e.g., PE & VC).
Surely, ETF flows continue to show little interest from TradFi in ETH, yet ETHBTC trading at 2021 levels offers an interesting opportunity.
A potential Trump victory could further serve as a positive catalyst for the space.
In derivatives, leverage is building up, with perpetual swaps skewed to the upside by 3-4 bps per day.
Options volatility continues to fade on any uptick, with BTC vol compressing below 50v and ETH below 60v.
While BTC puts remain preferred over calls, the skew is now neutral, and the same goes for ETH.
The 8 November 2024 expiration remains elevated, partly justified, but I like to use it as a funding leg.
The introduction of IBIT options is significant, although we should not overstate it.
CME options have been live for a while, but with only USD 3 billion notional traded monthly versus USD 40 billion on Deribit, they have not attracted much flow.
IBIT options improve efficiency as CME futures were not particularly attractive, but there are still considerable differences between Deribit and regulated markets (credit risk, margining, 24/7 trading, etc.).
Many players will continue to prefer Deribit for now.
However, things are likely to shift in terms of pricing.
I foresee volatility and VRP compression, increased liquidity in shorter tenors, and a more stable volatility surface, meaning that skew changes will not be as rapid.
Just as CME futures and ETFs have compressed the futures/perps basis, we can expect something similar to happen with crypto options.
With this in mind, we will need to start approaching derivatives differently.
On the charts:
BTCUSD has broken free from the USD 58,500 magnet, and holding the USD 63,000 level is bullish for the next leg higher.
Resistance is at USD 65,000, while a drop below USD 62,400 could see a swift move back to USD 60,000.
Chart 2: BTCUSD 1d
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