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Over the weekend and into the new week, digital assets gained momentum, leading to the real trading week. Thin holiday bets towards the end of last year showed extreme fluctuations and were not really a trend.
Let's talk about Bitcoin first, though.
Bitcoin is back above the $100,000 mark after falling below $92,000 at one point during the holiday trading.
The so-called " Santa rally" did not come through; pessimistic bets drove the moves. As 2024 ended, Bitcoin's chart-bursting run stopped, recording its first monthly decline since August.
Last month, the token sank 3.2%. Things are looking up now, though the market's wild speculation in cryptocurrencies has subsided, as investors' desire for risky assets has diminished due to the dwindling prospects of a Fed interest rate reduction.
According to Bloomberg, a net outflow of around $1.8 billion has transpired among a cohort of 12 US-based Bitcoin exchange-traded funds (ETFs) since December 19th.
Another sign of institutional interest in Bitcoin in the United States is that open interest—the quantity of contracts for futures trading on the exchange—for Bitcoin managed by CME Group in Chicago has similarly decreased by almost 20% from its peak in December.
Still, 2024 was a stellar year for cryptos, with Bitcoin leading the way. It broke through multiple records to hit a new peak of above $108,000. The token rallied over 120% to outperform other traditional assets, such as stocks and gold, which had a stellar run in 2024.
Almost all the drivers of cryptos are still at play, including Trump's campaign promises.
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The Fed boost is the only aspect missing, with the central bank signalling fewer rate cuts this year - just two cuts from four predicted by the Fed earlier. That has weighed heavily on sentiment for risk assets broadly.
However, that is already priced in. Barring any short-term volatility from the Fed's news flow, the outlook remains broadly positive for the crypto industry. Investors have started expanding their bets beyond Bitcoin within the crypto class, suggesting a broader industry adoption.
Digital assets have a history of strong first-quarter performance, which is reflected in recent crypto moves.
Crypto-adjacent stocks, too, gained in the new year. Among the companies, Coinbase gained 5.6%, MicroStrategy increased 7.3%, and Marathon Holdings rose 8%.
Although cryptocurrency values have increased, they are still trading lower than their December highs. This may be helping some of the latest purchases, though.
Trump's presidential win has many investors hoping for a more crypto-friendly regulatory climate this year.
Following Trump's selection of crypto advocates to his administration, altcoins that the US Securities and Exchange Commission (SEC) had previously investigated have witnessed substantial influxes of capital.
However, the broader markets on Monday started with risk-off sentiment.
An Asian currencies index hit a two-year low, reflecting bets favouring the dollar under Trump 2.0. On Monday, the Bloomberg Asia Dollar Index declined to a level not observed since data recording in 2006.
The substantial appreciation of the dollar has relegated Asian currencies to a secondary position. Speculators anticipate that Trump's tariffs may induce inflation, while Fed officials express uncertainty on the trajectory of interest rates.
In response to this protectionist policy, Asian central banks may allow for a limited devaluation of their currencies.
The volatile performance of Asian markets indicates that investors are hesitant to take on further risk due to the impending trade tensions between the US and China.
Tariffs threaten the benefits that may be fueled by monetary policy easing, stimulus measures in Beijing, and confidence fuelled by artificial intelligence.
The yen was the worst performer among the Group of Ten currencies that fell against the dollar. On the other hand, the Canadian dollar rose on speculation that Liberal Party leader Justin Trudeau may announce his departure this week, according to a story in the Globe and Mail.
Given the currency's "bearish macro backdrop," RBC Capital Markets predicts that the loonie's gains may not be sustained.
Following Friday's significant decline beyond a critical threshold, China has propelled the yuan through the daily reference rate.
With the US economy showing no signs of slowing down and the prospect of further tax cuts and tariffs imposed by President-elect Donald Trump, bond dealers are starting the new year with lower expectations for the US Treasury market.
Bond prices have fallen as investors readjust their expectations of the Fed in light of recent cautious rhetoric, a deluge of positive economic data, and the Republican Party's political triumph.
The reset has had the greatest impact on bonds with longer maturities; as a result, the yield on benchmark 10-year Treasuries is now at 4.6%, which is about one percentage point higher than when the Fed initially began loosening monetary policy in September.
Investors' flight to safety in assets pegged to the Fed's policy rate, rather than those susceptible to fluctuations in the longer term, has reduced the effect on government bonds with maturities of two years or more.
When the Fed started lowering interest rates from a more than two-decade high, many on Wall Street were expecting a strong year of gains.
However, the bond market picture is now gloomy. Investors are wary of betting on a rebound despite the economy's steady progress, as such predictions were overly optimistic.
However, Trump's tax cuts and tariff proposals may exacerbate inflationary pressures by boosting import costs and bolstering fiscal stimulus.
The supply of Treasury bonds may increase if the deficit were to rise.
Futures traders now anticipate that the Fed will maintain existing policy settings until at least June and will not likely lower its benchmark interest rate by more than fifty basis points in 2025.
Elsewhere
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Blockcast
In this episode, host Takatoshi Shibayama speaks to Kain Warwick, founder of Infinex, and a renowned figure in the DeFi space, known for his work on the Synthetix protocol.
Warwick argues that the current crypto landscape, dominated by centralized exchanges, is unsustainable and hinders innovation. He outlines Infinex's vision to create a decentralized platform that rivals the convenience and accessibility of centralized exchanges while offering superior functionality and empowering users with true self-custody.
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Previous episodes of Blockcast can be found on Podpage, with guests like Peter Hui (Moongate), Luca Prosperi (M^0), Charles Hoskinson (Cardano), Aneirin Flynn (Failsafe), and Yat Siu (Animoca Brands) on our most recent shows.
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