US Inflation Concerns Weigh on Bitcoin as FOMC Looms

By Omkar Godbole (All times ET unless indicated otherwise) Just a day ago, the outlook for protective puts in the S&P 500 options market indicated a cautious stance for risk assets. Today, sentiment has shifted, and risk assets, including bitcoin, are facing downward pressure. This change in sentiment is particularly evident in the altcoin sector, with Ethereum, Cardano, and DeFi coins experiencing more significant losses than bitcoin's 5% decline over the past 24 hours. The recent surge in altcoin prices, led by ether, had sparked hopes of an 'alt season.' However, this enthusiasm is rapidly fading. A notable development is the shift in the ETH/BTC forward term structure into backwardation, as reported by crypto financial platform BloFin. This indicates that market participants expect Ethereum and other altcoins to underperform in the coming months, dampening the prospects of an altcoin rally. Although the current degree of backwardation is less severe than before the election, it still leaves investors uncertain. According to BloFin Academy, 'it merely suggests that the situation may not worsen.' Traders are now eyeing a less-than-50% probability of a Fed rate cut in March, offering little comfort. The next rate cut is not expected to occur before June, as indicated by the CME's FedWatch tool. This bears negative implications for Ethereum, often regarded as a digital bond offering a fixed-income-like yield through staking rewards. It's no surprise that a major momentum study, the 'Guppy multiple moving average indicator,' is on the verge of turning bearish for Ethereum. These developments are unfolding against the backdrop of renewed concerns about US inflation, which is causing rates volatility to resurface. Data released on Wednesday showed that growth in US services providers accelerated in December, with prices reaching their highest levels since 2023. The release of the minutes from the December meeting, which suggested fewer expected rate cuts, may contribute to the risk-off sentiment and support dollar strength. Additionally, market participants may react to the ADP payrolls report, although this data often doesn't align perfectly with the official payroll figures due on Friday. Mark your calendars for an upcoming speech by Fed's Chris Waller, which may provide insight into the central bank's stance on inflation risks. Key Events to Watch: Token Events: Conferences: Token Talk by Shaurya Malwa: Crypto gaming projects are integrating AI agents, sparking excitement in the sector. Illuvium, an Ethereum-based gaming franchise, has partnered with Virtuals Protocol to enhance in-game actions of non-playable characters (NPCs) using AI technology. Virtuals Protocol, known for its popular AI agent AiXBT, employs the G.A.M.E framework to create more dynamic NPCs, improving gameplay and player engagement. The 'AI Agents' sector has gained significant traction in recent months, outperforming bitcoin, memecoins, and decentralized finance tokens in December. Virtuals Protocol is the largest AI agent creation tool by market capitalization, allowing users to create and program their own AI agents and issue associated tokens. Proponents of AI in gaming believe it can create more engaging games with smarter NPCs, enhance player retention, and even manage in-game assets or strategies to generate passive income for players and holders. The coming months will be crucial in determining whether this trend leads to increased adoption and valuations of gaming tokens. Derivatives Positioning: Market Movements: Bitcoin Stats: Basket Performance: Technical Analysis: Crypto Equities: ETF Flows: Spot BTC ETFs: Spot ETH ETFs: Source: Farside Investors, as of January 8. Overnight Flows: Chart of the Day: While You Were Sleeping: In the Ether