Crypto Daybook Americas: Pre-Fed Derisking Marked by PENGU Liquidity Squeeze

Your day-ahead look for Dec. 18, 2024

Updated Dec 17, 2024, 4:26 p.m. UTCPublished Dec 18, 2024, 12:00 p.m. UTC

What to know:

By Omkar Godbole (All times ET unless indicated otherwise)

The crypto market is derisking ahead of today's Fed rate decision. Everyone's buzzing about the likelihood of another rate cut that will supposedly galvanize risk-taking in the economy and financial markets.

Here's the twist: The central bank is expected to signal three rate cuts for 2025, not the four it projected in September, as well as revise growth and inflation forecasts higher. No surprise, then, that bitcoin and ether are trading nearly 2% lower, driving bigger losses in small-cap tokens. Among them, Pudgy Penguins' PENGU token, which has slumped over 50% since Tuesday's airdrop.

The front-end call premiums in both BTC and ETH have already taken a hit, signalling a more cautious vibe in the market. Traditional markets are also factoring in a hawkish cut.

Now, seasoned traders will tell you that when expectations lean too heavily one way, there's always room for disappointment. Put more simply, if interest rate projections stay the same or Fed Chairman Jerome Powell eases concerns about sticky inflation during his press conference while maintaining a data-dependent approach, we could see a nice bump in risk assets — cryptos included.

VIRTUAL, the native coin of AI and tokenization platform Virtuals Protocol, might shine in that case, having risen 11% in Asian hours. "AI within crypto is shaping up to be a fascinating trend, especially in social trading, where data-driven insights and automation can empower traders," said Neal Wen, head of global business development at Kronos Research.

Leading on-chain perpetuals platform HyperLiquid's HYPE token is another candidate, trading 4% higher at press time. Social media chatter points to limited exchange availability and token retention as a catalyst for the rally.

That said, don't let your guard down. Some observers say the pace of future rate cuts really hinges on Friday's core PCE data, the Fed's preferred inflation measure.

As Valentin Fournier, an analyst at BRN, put it: "The Federal Reserve is set to announce a 25 basis-point interest-rate cut today — it's last for the year. Future cuts may rely heavily on Friday's Core PCE report, which is expected to hold steady at 3.3% year over year. Any surprises with rising inflation could rattle the markets, especially since bitcoin is already feeling some bearish pressure and is lacking the upward momentum."

Additionally, the decline in Chinese government bond yields has folks over at the Wall Street Journal raising red flags about the world's second-largest economy facing a depression, a prolonged period marked by a sharp drop in economic growth and rising unemployment.

These concerns could easily destabilize global markets, so it's definitely a good time to stay alert.

What to Watch

• Crypto:
  • Dec. 18, 9:30 a.m.: Software cryptocurrency wallet maker Exodus Movement (EXOD) starts trading on NYSE American, a sibling of NYSE.
  • Dec. 30: The European Union's Markets in Crypto-Assets (MiCA) Regulation becomes fully effective. The stablecoin provisions came into effect on June 30.
• Macro
  • Dec. 18, 2:00 p.m.: The Federal Open Market Committee (FOMC) releases its target range for the federal funds rate, currently 4.50%-4.75%. The CME's FedWatch tool indicates that interest-rate traders assign a 95.4% probability of a 25 basis-point cut. Press conference starts at 2:30 p.m. Livestream link.
  • Dec. 18, 10:00 p.m.: The Bank of Japan (BoJ) announces its interest rate decision. Short-term interest rate Est. 0.25% vs. Prev. 0.25%.
  • Dec. 19, 7:00 a.m.: The Monetary Policy Committee (MPC) of the Bank of England (BoE) announces its interest-rate decision. Bank Rate Est. 4.75% vs Prev. 4.75%.
  • Dec. 19, 8:30 a.m.: The U.S. Bureau of Economic Analysis (BEA) releases third-quarter GDP (final).
    • GDP Growth Rate QoQ Final Est. 2.8% vs Prev. 3.0%.
    • GDP Price Index QoQ Final Est. 1.9% vs Prev. 2.5%.
  • Dec. 20, 8:30 a.m.: The U.S. Bureau of Economic Analysis (BEA) releases November's Personal Income and Outlays report.
    • PCE Price Index YoY Est. 2.5% vs Prev. 2.3%.
    • Core PCE Price Index YoY Est. 2.9% vs Prev. 2.8%.
  • Dec. 24, 1:00 p.m. The Fed releases November’s H.6 (Money Stock Measures) report. Money Supply M2 Prev. $23.31T.

Token Events

• Governance votes & calls
  • Venus Protocol is officially expanding to Base. VIP-408 passed the governance vote and users can access Venus on Base on Dec. 19.
    
• Unlocks
  • Metars Genesis to unlock 11.87% of MRS circulating supply, worth $11 million at current prices.

Conferences:

• Jan. 13-24: Swiss WEB3FEST Winter Edition 2025 (Zug, Zurich, St. Moritz, Davos)
• Jan. 17: Unchained: Blockchain Business Forum 2025 (Los Angeles)
• Jan. 18: BitcoinDay (Naples, Florida)
• Jan. 20-24: World Economic Forum Annual Meeting (Davos-Klosters, Switzerland)
• Jan. 21: Frankfurt Tokenization Conference 2025
• Jan 30-31: Plan B Forum (San Salvador, El Salvador)

Token Talk

The token of the Pudgy Penguins ecosystem token debuted amid massive hype on Tuesday. Its charm was its association with an already popular NFT collection, leading to a frenzy of buying with hopes of quick gains. But the token had garnered the necessary liquidity at launch, meaning early, enthusiastic buyers bought the token at a $5 trillion market capitalization.

Liquidity is the ability to buy or sell an asset without causing a significant price change. For PENGU, the initial liquidity pools were shallow, meaning there weren't enough buyers and sellers to keep the price stable.

One unlucky trader lost big on the airdrop, turning $10,000 into less than $5 in seconds. Just before the official airdrop, they had swapped 45 wrapped Solana for PENGU but got only 78 tokens due to a glitch in Jupiter's decentralized exchange. The trade was sent to a low-liquidity pool on Raydium, inflating the token's price to an unrealistic $14 trillion market cap. This mishap was due to low liquidity, where even small trades can cause huge price swings.

The PENGU token was created weeks before its launch, leading to premature trading and significant losses for those who jumped in too early without checking the market cap.

Derivatives Positioning

• Positioning in BTC futures is heating up, with open interest approaching the November high of 663.71K BTC. Meanwhile, ETH open interest has hit a record of over 339K ETH.
• Funding rates in perpetuals tied to major coins are holding steady at around an annualized 10%, bang in the middle of the -200% to 200% range, which marks the extremes for bearish and bullish sentiment.
• Front-end BTC and ETH puts are trading at a premium to calls, highlighting demand for downside protection ahead of the Fed's interest-rate decision.
• Top BTC block trades include a bear call spread involving calls at strikes $104,000 and $105,000 and a standalone long position in the $95,000 put expiring on Jan. 3.

Market Movements:

• BTC is down 1.72% from 4 p.m. ET Tuesday to $104,593.98 (24hrs: -1.96%)
• ETH is down 1.44% at $3,876.29 (24hrs: -2.89%)
• CoinDesk 20 is down 3.03% to 3,830.21 (24hrs: +3.4%)
• Ether staking yield is up 2 bps to 3.18%
• BTC funding rate is at 0.01% (10.95% annualized) on Binance

• DXY is unchanged at 106.90
• Gold is up 0.76% at $2,664.40/oz
• Silver is up 1.08% to $30.90/oz
• Nikkei 225 closed -0.72% at 39,081.71
• Hang Seng closed +0.83% at 19,864.55
• FTSE is up 0.23% at 8,214.42
• Euro Stoxx 50 is up 0.32% at 4,958.35
• DJIA closed on Tuesday -0.61% to 43,449.9
• S&P 500 closed -0.39% at 6,050.61
• Nasdaq closed -0.32% at 20,109.06
• S&P/TSX Composite Index closed -0.11% at 25,119.7
• S&P 40 Latin America closed +0.16% at 2,280.58
• U.S. 10-year Treasury was unchanged at 4.4%
• E-mini S&P 500 futures are up 0.25% to 6,069.00
• E-mini Nasdaq-100 futures are up 1.58% to 22,363.25
• E-mini Dow Jones Industrial Average Index futures are up 0.2% at 43,563.00

Bitcoin Stats:

• BTC Dominance: 57.78% (24hrs: -0.33%)
• Ethereum to bitcoin ratio: 0.037 (24hrs: +1.04%)
• Hashrate (seven-day moving average): 776 EH/s
• Hashprice (spot): $63.4
• Total Fees: $1.4M/ 12.7 BTC
• CME Futures Open Interest: 212,635 BTC
• BTC priced in gold: 39.4oz
• BTC vs gold market cap: 11.22%
• Bitcoin sitting in over-the-counter desk balances: 406,700 BTC

Basket Performance

Technical Analysis

BTC's dominance rate (TradingView/CoinDesk)

• BTC's dominance rate has bounced from 55% to nearly 58% in two weeks, retaking the year-to-date bullish trendline.
• It's a sign of renewed investor preference for bitcoin over altcoins.

Crypto Equities

• MicroStrategy (MSTR): closed on Tuesday at $386.42 (-5.41%), up 0.45% at $388.15 in pre-market.
• Coinbase Global (COIN): closed at $311.64 (-1.16%), down 0.98% at $308.60 in pre-market.
• Galaxy Digital Holdings (GLXY): closed at C$28.67 (-3.01%).
• MARA Holdings (MARA): closed at $24.60 (+0.16%), down 1.5% at $24.23 in pre-market.
• Riot Platforms (RIOT): closed at $13.97 (-0.43%), down 1.36% at $13.78 in pre-market.
• Core Scientific (CORZ): closed at $16.03 (-3.2%), down 1.19% at $15.84 in pre-market.
• CleanSpark (CLSK): closed at $12.36 (-0.96%), down 0.49% at $12.30 in pre-market.
• CoinShares Valkyrie Bitcoin Miners ETF (WGMI): closed at $29.04 (-1.89%), down 0.48% at $28.90 in pre-market.
• Semler Scientific (SMLR): closed at $74.73 (+0.31%), up 2.97% at $76.93 in pre-market.

ETF Flows

Spot BTC ETFs:

• Daily net inflow: $493.9 million
• Cumulative net inflows: $36.70 billion
• Total BTC holdings ~ 1.136 million.

Spot ETH ETFs

• Daily net inflow: $144.7 million
• Cumulative net inflows: $2.46 billion
• Total ETH holdings ~ 3.530 million.

Source: Farside Investors

Overnight Flows

Chart of the Day

Memecoins' performance (IntoTheBlock)

• The chart shows the explosive growth of the memecoin subsector, which has now surpassed $100 billion in market value.
• It's evidence of how speculative allure and a successful social-media strategy can drive investors to take risk.

While You Were Sleeping

• Bitcoin Takes a Breather After Doji Candle in a Cautious Pre-Fed De-Risking (CoinDesk): After bitcoin set a record high above $108,000 on Tuesday morning (ET), the crypto market shifted to a more risk-off mood ahead of the Fed’s expected 25 basis-point interest-rate cut later today.
  
• Dollar Steady Against Peers as Fed Rate Cut Looms (Reuters): The U.S. dollar held steady Wednesday, with the DXY index easing to 106.89 from recent highs, while markets awaited the Fed's interest-rate decision and 2025 projections.
  
• Next U.S. Senate Banking Chair Calls Crypto 'Next Wonder' of World (CoinDesk): Incoming Senate Banking Chair Tim Scott praised crypto innovations Tuesday and called for swift legislation, while the next House Financial Services Chair French Hill predicted bipartisan crypto laws could pass in 2025 with Senate support.
  
• South Korea’s Yoon Skips Questioning, Adding to Risk of Arrest (Bloomberg): South Korea’s president, Yoon Suk Yeol, who was impeached Saturday, skipped a scheduled Wednesday morning interrogation session by a joint investigative team, increasing the risk of his arrest.
  
• Brazil Currency Rout Risks Worsening Unless Lula Delivers Fiscal Reforms (Financial Times): Brazil’s real hit a record low of 6.21 to the dollar on Tuesday as rising debt and fiscal concerns under President Lula’s government prompt calls for rate increases and credible reforms to stabilize the currency.
  
• Coinbase Says It Nixed wBTC Because Justin Sun Posed 'Unacceptable Risk' (CoinDesk): On Tuesday, Coinbase defended its decision to delist wBTC on Dec. 19, citing risks tied to Justin Sun's alleged involvement and rejecting BiT Global's lawsuit claims of favoritism toward its own, competing asset.

In the Ether

Omkar Godbole

Omkar Godbole is a Co-Managing Editor on CoinDesk's Markets team based in Mumbai, holds a masters degree in Finance and a Chartered Market Technician (CMT) member. Omkar previously worked at FXStreet, writing research on currency markets and as fundamental analyst at currency and commodities desk at Mumbai-based brokerage houses. Omkar holds small amounts of bitcoin, ether, BitTorrent, tron and dot.

Shaurya Malwa

Shaurya is the Co-Leader of the CoinDesk tokens and data team in Asia with a focus on crypto derivatives, DeFi, market microstructure, and protocol analysis. Shaurya holds over $1,000 in BTC, ETH, SOL, AVAX, SUSHI, CRV, NEAR, YFI, YFII, SHIB, DOGE, USDT, USDC, BNB, MANA, MLN, LINK, XMR, ALGO, VET, CAKE, AAVE, COMP, ROOK, TRX, SNX, RUNE, FTM, ZIL, KSM, ENJ, CKB, JOE, GHST, PERP, BTRFLY, OHM, BANANA, ROME, BURGER, SPIRIT, and ORCA. He provides over $1,000 to liquidity pools on Compound, Curve, SushiSwap, PancakeSwap, BurgerSwap, Orca, AnySwap, SpiritSwap, Rook Protocol, Yearn Finance, Synthetix, Harvest, Redacted Cartel, OlympusDAO, Rome, Trader Joe, and SUN.