The Market
The market sold off again after a brief recovery in the first week of January. The surprisingly strong December jobs report has dampened any hopes of a near-term rate cut, and the crypto market has given up most of the recoveries in the new year.
The TradFi market is not faring any better. SPY has nearly erased all its post-election gains, while the smallcap IWM has dipped below its pre-election levels. Notably, the 10Y treasury yield has broken through its previous resistance level of around 4.6%, edging closer to the 5% mark last seen in mid-2007, before the extraordinary liquidity injections to counter the Great Financial Crisis. The dollar is also strengthening, with the DXY nearing 110– the level it last touched in summer 2022, after the Fed started its aggressive rate-hiking cycle post-Covid. This strong dollar momentum is putting additional pressure on risky assets.
Between now and the inauguration, we face a heavy macro calendar that includes:
CPI and PPI prints for December (1/14-15): Lower inflation may not necessarily increase the odds of a rate cut, given the strong economy, but higher inflation could delay any rate cuts even further.
Debt ceiling breach (mid-January): At current spending levels, the debt ceiling is expected to be reached in mid-January. This will trigger a draw down of the Treasury General Account to fund federal operations, potentially providing temporary liquidity relief.
Confirmation hearing of Scott Bessett (1/16) and Trump’s inauguration (1/20): Key details about the new administration’s policies will emerge as it takes the reins.
FOMC meeting (1/29): The market is assigning a ~94% probability of no rate cut. We expect the Fed to remain cautious, given the transition to a new administration.
Despite the sharp rise in 10Y yield and selloff in risky assets, implied volatility in both BTC and equities remains subdued. BTC’s DVOL sits at 57, well below the Q1 2024 peak of 83, while the VIX remains below 20. Investors are pinning significant hopes on the Trump administration’s pro-business policies to reinvigorate a bull market.
Looking back, when Trump started the first term in 2017, the dollar weakened after a year of strong momentum, partly driven by Trump’s preference for a weaker dollar. Similarly, in 2024, the dollar’s strength is underpinned by a relatively robust US economy compared to peers and expectations of tighter monetary policy. However, the current environment is markedly different: we face heightened inflationary pressures due to geopolitical risks and de-globalization, as well as more constraints on debt-driven spending in 2024 compared to 2017, following the massive Covid-era stimulus. Still, there is cautious optimism that the new administration can tame inflation while supporting long term growth.
Additionally, it is widely anticipated that the Chinese government will ramp up stimulus spending in 2025 in response to Trump’s policies. This sets the stage for potential game theory dynamics between the US and China in 2025. In the best case scenario, both nations can strike a deal and effectively use stimulus to achieve respective growth and inflation goals. In the worst case-scenario, a global recession could force renewed liquidity injections.
We expect the crypto market to display heightened sensitivity to global liquidity conditions. In the short term, potential TGA withdrawal and certainty around the new administration’s policies could improve the market’s liquidity outlook. However, long-term uncertainty persists.
DeFi Update
The AI Agent sector experienced a big correction this week, with 6 of the top 10 tokens by market cap losing more than 30%. Despite the selloff, the top two AI agent platforms–Virtual and ai16z–have each delivered returns exceeding 35X since their respective TGEs.
Source: Cookie.fun
The success of an AI agent platform depends heavily on the performance of the agents launched on it. Current platforms typically offer one or more of the following services to support their agents:
A Launchpad for Token Creation (e.g. Virtuals, Vvaifu): Similar to platforms like pump.fun, these launchpads simplify the process of token creation and liquidity provisioning for agents.
A Framework or “Operating System” for Agent Creation (e.g. Virtuals, ARC, ai16z): These provide developer tools, including basic models and utilities, to facilitate AI agent development.
A Funding Mechanism for Selected Agents (e.g. ai16z): the platform can invest in agents build on it, similar to an investment DAO
Tools for Agent Coordination and Communication (e.g., Swarm, Virtuals): These enable agent collaboration on various tasks.
According to data from cookie.fun, 24 AI agent infrastructure projects are currently being tracked, but only two platforms have exceeded a $1B market cap. When evaluating platform valuations relative to the total market cap of agents created on them, the top two platforms stand out:
Virtual token is valued at ~2x the combined market cap of all agents created on its platform.
ai16z is worth ~4X the market cap of all agents created using its framework.
This disparity suggests that the market assigns a higher valuation multiple to platforms focusing on a robust operating system rather than those functioning primarily as launchpads. ai16z’s elizaOS framework, which holds the highest market share in framework adoption, illustrates this trend. This is not surprising, as it is the quality rather than quantity of the agents that determines a platform’s success.
Source: cookie.fun as of 1/12/2025. *Only include agents tracked on the cookie.fun platform
Top 100 MCAP Winners
Bitget (+16.91%)
XDC Network (+8.36%)
XRP (+6.69%)
Monero (+4.27%)
GateToken (+3.15%)
Top 100 MCAP Losers
Ai16z (-39.97%)
Virtual (-32.09%)
Thorchain (-29.73%)
Ethena (-28.60%)
Dogwifhat (-25.41%)
About Decentral Park
Decentral Park is a founder-led cryptoasset investment firm comprised of team members who’ve honed their skills as technology entrepreneurs, operators, venture capitalists, researchers, and advisors.
Decentral Park applies a principled digital asset investment strategy and partners with founders to enable their token-based decentralized networks to scale globally.
The information above does not constitute an offer to sell digital assets or a solicitation of an offer to buy digital assets. None of the information here is a recommendation to invest in any securities.
About the Author
Kelly is Co-Portfolio Manager and Head of Research at Decentral Park Capital. Investing across sectors with a thesis driven, deep research approach.
Prior to this, Kelly has led research and product efforts at CoinDesk Indices and Fidelity Digital Asset Management. Kelly has been a TradFi investor for 15 years before joining the crypto space.
You can follow Kelly on Twitter and LinkedIn for more frequent analysis and updates.