The macroeconomic turmoil had a significant impact on risk assets. The implied volatility for one month was twenty points higher than the realized volatility of Bitcoin at the end of December 2024. Although Bitcoin briefly reached the $100,000 level at the beginning of the new year, the rise was short-lived due to a lack of support from the derivatives market and macroeconomic data, as mentioned in the recent crypto derivatives report published by Blocks Scholes.
The Job Openings and Labor Turnover Survey (JOLTS) in the United States reported a six-month high of 8.1 million job openings in November, indicating a strong labor market. However, the ISM Services Index for December showed a six-point increase in service costs, fueling concerns about inflation. These data points raised doubts about the future interest rate decreases in the US, which are crucial for assets like cryptocurrencies that rely on liquidity.
Rising energy prices were the primary driver behind Europe’s headline inflation rate of 2.4% and core inflation rate of 2.7% in December 2024. Meanwhile, China continued to face deflationary pressures, highlighting the disparity in the global economy.
Similar to the cautious macroeconomic environment, the derivatives markets also exhibited mixed behavior. The realized volatility of Bitcoin was significantly lower than the implied volatility for one month, representing the largest volatility premium since the 2020 US elections. However, longer-term options showed a bullish skew, indicating optimism about Bitcoin’s long-term prospects.
Despite lower trading volumes during the holiday season, open interest in Bitcoin perpetual contracts remained stable. This contributed to the reduction in realized volatility. Bitcoin and Ethereum’s options trading displayed different tendencies, with Bitcoin experiencing an increase in longer-term implied volatility and Ethereum seeing a rise in put contracts.
According to a report by Bybit, trading volumes for Bitcoin and Ethereum perpetual contracts significantly decreased during the winter break. However, open interest levels remained unchanged, suggesting that market participants were not heavily hedging their positions. In terms of options, Bitcoin’s open interest was balanced, while Ethereum traders favored put contracts, reflecting a bearish sentiment.
Bitcoin’s surge above $100,000 at the beginning of the year was supported by positive funding rates and ETF inflows. However, after the publication of the JOLTS data, the bullish sentiment shifted, and funding rates turned negative. Despite this, the absence of substantial liquidation events indicated lower leverage compared to previous market declines.
Both Bitcoin and Ethereum experienced multi-month lows in realized volatility. Traders priced their positions using term structures that indicated anticipation of abrupt price swings, despite the absence of immediate triggers.
Looking ahead, the cryptocurrency market may experience increased volatility due to significant macroeconomic events such as the US Nonfarm Payroll Report and China’s Consumer Price Index data. Geopolitical events and regulatory policies also play a crucial role in shaping the market’s direction.
Bitcoin’s short-lived recovery above $100,000 highlights its potential as a high-beta asset, but also its sensitivity to macroeconomic headwinds and changing investor sentiment. Sustained rising momentum may require stronger signs of reducing inflationary pressures and improving liquidity circumstances.
Traders and investors are advised to closely monitor these events as the interaction between macroeconomic variables and market sentiment continues to influence the cryptocurrency landscape. The full report can be accessed here.
