QCP Market Update - 05 Jan 24

A very happy new year to everyone!

The highly anticipated BTC Spot ETF launch is slated to occur anytime from US close tonight into next week.

In the lead up to this seminal event, both BTC and ETH funding and futures have been very elevated. This started to happen in Q4 2023 but levels started to get really dislocated into 2024 (and particularly this week).

Perpetual swap funding rates on some exchanges like Deribit went above 100% (annualized) and the spot-futures basis also exploded. The 1-month spread went as high as 30%! These are levels we only saw very briefly when BTC was at the 69k highs.

Funding rates normalised a little and forwards came off slightly after a deleveraging event on 3rd Jan. This was triggered by some reports that suggested the SEC would not approve an ETF due to the lack of a comprehensive Surveillance Sharing Agreement (SSA). BTC fell from a high of 45.5k to 40.8k in an hour, with liquidations across markets totaling USD 591mio.

For now, the topside remains capped by resistance at the 46 - 48.5k region with support at the 40.5 - 42k region. In spite of the leveraged washout, BTC has climbed back up to 44,000 level. While we remain wary of a "sell the news" knee-jerk reaction to the downside, this resilient price action gives us more confidence in the medium-term bullish view into BTC halving towards Mar/Apr this year.

Crypto prices continue to decouple from TradFi markets due to the bullish ETF narrative. Rates markets are pricing in 6 cuts for 2024 despite the Fed's dot plot projections of 3 cuts in 2024. Such aggressive pricing in the rates market can be unwound very quickly and turn into a macro risk-off if new data points point to a resurgence in strength in the job market or higher inflation, definitely a key macro risk to watch out for.

ETH continues to be an interesting laggard play as attention should shift towards a ETH spot ETF very quickly if the BTC spot ETF is approved. ETHBTC is also sitting at very strong support at the 0.051 level (Chart 1).

It could be worthwhile to sell the spot-futures basis spread for a risk-free 12-20% ann (if held to maturity). Please ping the trading desk for more details.