December 19, 2024

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Trading Desk Insights

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Bitcoin slipped below the $100,000 mark, pulling the broader crypto market down with it. This drop in BTC triggered a cascade of futures liquidations, wiping out over $700 million in positions tied to major tokens. Notably, products tied to XRP and DOGE faced steep losses. The sell-off accelerated on Wednesday after the Federal Reserve delivered a hawkish blow to the ongoing bull run. The Fed revised its outlook, suggesting only two rate cuts in 2025 instead of the previously expected four cuts indicated in September. Despite a 25bps reduction — the third consecutive cut — lowering the benchmark rate to a target range of 4.25% to 4.5%, market participants are now left speculating about policy moves in 2025.

The US dollar index and 10-year Treasury yields surged following the Fed's announcement. If yields continue to climb, the already resilient dollar could strengthen further, pressuring risk assets like Bitcoin.

Meanwhile, the VIX, Wall Street's fear gauge, saw a dramatic 74% spike on Wednesday — its second-largest percentage jump ever — as the Fed's stance rattled equity markets. The VIX, derived from S&P 500 options pricing, often signals a rush to hedge via put options in anticipation of a downturn.

Adding to market dynamics, MicroStrategy (MSTR) is set to join the Nasdaq-100 Index, a move that integrates it into major funds like the Invesco QQQ ETF.

On the institutional front, the CME exchange remains robust, with BTC futures open interest nearing record levels, hitting 212,635 contracts. The basis trade premium is climbing, touching 16% — the highest since November 2023. Traders are positioning for heightened market momentum as the year-end approaches.

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The News Room

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Ark Invest Sells $3.9M in Coinbase Shares Amid Price Decline Following Powell’s Hawkish Speech

Ark Invest sold 13,780 Coinbase shares worth $3.9 million from its Fintech Innovation ETF (ARKF) on Wednesday, following a 10% decline in Coinbase’s stock after Fed Chair Jerome Powell’s hawkish remarks. This marks one of Ark’s largest COIN sales since September. Coinbase was Ark’s second-largest holding in ARKF, constituting 9.9% of the fund. The decision aligns with Ark’s strategy to maintain diversification by ensuring no single holding exceeds 10% of the portfolio. Despite the recent sell-off, ARKF remains up approximately 54% year-to-date. Powell’s speech, which signaled a reduced outlook for rate cuts in 2025, caused market volatility and impacted both traditional and crypto markets, including a temporary drop in Bitcoin. Nonetheless, Ark plans to continue rebalancing its portfolio as needed to adapt to market movements.

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Fed Chair Powell: "We're Not Allowed to Own Bitcoin" Amid Trump's Strategic Reserve Plans

Federal Reserve Chair Jerome Powell stated that the Federal Reserve is prohibited from owning Bitcoin and has no intention to seek a law change, despite President-elect Donald Trump’s plan to establish a strategic Bitcoin reserve. In response, Senator Cynthia Lummis has introduced a draft bill directing the U.S. Treasury to purchase one million Bitcoin over five years. Trump has publicly supported the initiative, emphasizing the need for the U.S. to lead in cryptocurrency adoption. Additionally, other states like Pennsylvania are proposing legislation to invest in Bitcoin and digital assets. The concept of a strategic Bitcoin reserve has faced criticism, including from former Federal Reserve Bank of New York official Bill Dudley. Following Powell’s remarks, Bitcoin’s price dropped by nearly 5%. Analysts suggest that while investor interest in a strategic reserve may be overstated, broader adoption by sovereign wealth funds in regions like Asia and the Middle East is likely to drive future growth in Bitcoin investments.

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US Federal Reserve Cuts Fed Funds Rate by 25 Basis Points

Bitcoin’s price surged on Thursday following the Federal Reserve’s decision to cut the federal funds rate by 25 basis points to a range of 4.25%–4.50%, marking the third rate reduction this year. The rate cut, aimed at supporting economic goals amidst easing labor market conditions and ongoing inflation, boosted market optimism, with Bitcoin trading around $105,317. Derivatives indicators showed increased institutional interest, as CME Bitcoin futures open interest neared all-time highs and basis premiums expanded to 16.4%. Analysts noted a cautious stance in the options market, with put options outweighing calls, indicating a preference for hedging despite the rally. Additionally, regulatory advancements, such as the FASB’s adoption of fair value accounting for Bitcoin, are enhancing its attractiveness for corporate treasuries. Major stock indices reacted positively, while the VIX spiked and gold prices declined. Grayscale’s research suggests Bitcoin remains resilient, anticipating continued institutional demand driven by supportive regulatory environments and strategic economic moves.

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Crypto Charts

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Disclaimer

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This research is for informational use only. This is not investment advice. Other than disclosures relating to Secure Digital Markets this research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates, and forecasts contained herein are as of the date hereof and are subject to change without prior notification. We seek to update our research as appropriate.

Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. The price of crypto assets may rise or fall because of changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research.

The information on which the analysis is based has been obtained from sources believed to be reliable such as, for example, the company’s financial statements filed with a regulator, company website, company white paper, pitchbook and any other sources. While Secure Digital Markets has obtained data, statistics, and information from sources it believes to be reliable, it does not perform an audit or seek independent verification of any of the data, statistics, and information it receives.

Unless otherwise provided in a separate agreement, Secure Digital Markets does not represent that the report contents meet all of the presentation and/or disclosure standards applicable in the jurisdiction the recipient is located. Secure Digital Markets and their officers, directors and employees shall not be responsible or liable for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses, or opinions within the report.

Crypto and/or digital currencies involve substantial risk, are speculative in nature and may not perform as expected. Many digital currency platforms are not subject to regulatory supervision, unlike regulated exchanges. Some platforms may commingle customer assets in shared accounts and provide inadequate custody, which may affect whether or how investors can withdraw their currency and/or subject them to money laundering. Digital currencies may be vulnerable to hacks and cyber fraud as well as significant volatility and price swings.

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