🌳 Capital One Acquires Discover Financial For $35.3B; UK To Implement Laws On Certain DeFi Services

20 Feb 2024, Tuesday

2:55 AM

🌳 Capital One Acquires Discover Financial For $35.3B; UK To Implement Laws On Certain DeFi Services

BTC

ETH

S&P Futures 500

$51,663.92

$2,936.64

$5,017.25

(-0.98%)

 (+2.25%)

(-0.21%)

Note: All percentages shown above are referenced to the previous business work day's 09:00 (GMT+8)


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Our Daily View

What We Are Covering Today

  • Capital One acquires Discover; China sees lowest FDI since the 90s (More in Macro & TradFi)
  • UK government advances crypto regulations; Circle seeks the US to action against Tether's compliance issues (More in DeFi & CeFi)
  • Justin Sun suspected to be making large withdrawals; BTC whales are accumulating their holdings (More in On-Chain)
  • ATM IV remains flat for BTC while ETH sees a large decline in C-P skew despite its positive price movements (More in Crypto Derivatives)
  • BTC consolidates with potential drop; ETH tests 3K resistance, maintaining bullish momentum (More in Crypto Technical Analysis)

Macro & TradFi

Capital One is set to acquire Discover Financial for $35.3 billion in an all-stock transaction, positioning the merger as a significant move in the U.S. credit card industry. This deal marks a pivotal union between two of America's leading credit card companies and represents one of the most substantial mergers in the sector since the 2008 financial crisis. Under the agreement, Discover shareholders are slated to receive 1.0192 Capital One shares for each share they hold, valuing Discover's stock at a 27% premium over its closing price on the preceding Friday. The merger, anticipated to close by late 2024 or early 2025, is expected to bring about $1.5 billion in expense synergies by 2027 and achieve a return on invested capital of 16% in the same year. This strategic consolidation aims to significantly enhance value for stakeholders and adapt to the technological advancements reshaping the payments and banking marketplace.

China has witnessed its lowest annual foreign direct investment (FDI) since the 1990s, as the country grapples with post-pandemic recovery challenges and investors redirect their focus toward higher yields elsewhere. According to the State Administration of Foreign Exchange, FDI into China plummeted to approximately $33 billion in 2023, marking an 82% decrease from the previous year and the smallest figure since 1993. This significant downturn reflects broader issues within the Chinese economy, including a property crisis, weak domestic demand, and eroding investor confidence. Additionally, geopolitical uncertainties and a crackdown on foreign consultancies have further dampened FDI, alongside the lure of higher interest rates in other markets drawing capital out of China. Despite these challenges, there was a slight uptick in the fourth quarter of 2023, with $17.4 billion in investments, suggesting resilience amidst ongoing economic pressures.

Global stocks and U.S. equities hovered near recent highs in a subdued trading atmosphere, as market participants eagerly awaited new catalysts after witnessing the S&P 500 hit record levels. S&P 500 saw a modest increase of 0.2%, while Nasdaq 100 climbed by 0.3%, amidst the closure of U.S. cash markets for the President’s Day holiday. The anticipation revolves around Nvidia Corp.'s earnings report due on Wednesday, which could potentially inject new momentum into equity markets by shedding light on the global economic outlook.

CeFi & DeFi

  • UK Minister Expects Laws on Stablecoins and Staking Within Six Months
  • Circle Requested U.S. Legislators to Empower the Treasury Department to Clamp Down on USDT
  • Bitcoin ETFs See Record $2.4B Weekly Inflows; BlackRock's IBIT Leads
  • Trust Wallet Launches 'SWIFT' Smart-Contract Wallet With Biconomy
  • South Korean ruling party pledges 2-year delay for crypto tax as elections loom
  • Worldcoin wallet app hits 1M daily users

The UK government is taking active steps to establish clearer regulatory frameworks for stablecoins and staking services related to crypto assets within the next six months. This move highlights their commitment to transparency and regulation in the crypto sector, especially with an upcoming general election on the horizon. At a recent industry event in London hosted by Coinbase, Economic Secretary to the Treasury, Bim Afolami, emphasized the importance of this legislative agenda. This initiative builds on previous commitments and consultations regarding fiat-backed stablecoins. The government aims to integrate these digital tokens within existing payment laws and the financial regulator will have authority over asset-backed stablecoins. The reclassification of staking to prevent its categorization as a collective investment was also mentioned, as part of the broader goal of incorporating crypto exchanges and other industry entities under financial services regulations. This highlights the challenges of adapting regulatory frameworks to the constantly evolving digital asset landscape.

Elsewhere, Circle, the issuer of USDC stablecoin, has urged US lawmakers to empower the Treasury Department with more authority to take strict measures against Tether (USDT) and its banking partner, Cantor Fitzgerald, to combat concerns over money laundering and terrorist financing. During congressional testimony, representatives from Circle and Coinbase emphasized the need for increased regulatory oversight to ensure that digital currencies referencing the US dollar comply with democratic values and stringent compliance standards. Caroline Hill, Circle's Director for Global Policy and Regulatory Strategy, and Grant Rabenn, Coinbase's Director of Financial Crimes Legal, highlighted the importance of legislative intervention to address the escalating competition and regulatory scrutiny within the stablecoin sector, particularly targeting Tether, for its alleged deficiencies in regulatory compliance and transparency.

On-Chain

An on-chain analysis by Lookonchain suggests a significant purchase of 54,721 ETH ($154.4M) from Binance and DEX within 32 hours, potentially linked to Justin Sun. Speculations arise from a wallet, suspected to be Sun's, transacting large amounts of USDT with Binance and HTX. The transaction patterns between this wallet and another, "0x7a95," show consistently large transfers of USDT and ETH, hinting that it might be the same person. Although it's speculative, the coincidences in transaction timings and amounts suggest a possible link to Justin Sun.

In an analysis by Santiment, we see a redistribution of Bitcoin holdings across different wallet sizes in 2024 highlighting a notable shift in investment patterns among Bitcoin investors. The increase in BTC held by large wallets (1K-10K BTC) juxtaposed with a decrease in holdings by slightly smaller wallets (100-1K BTC) suggests a consolidation of Bitcoin assets among the largest investors or "whales". This shift, coupled with a spike in high-value transactions, indicates a growing confidence among major stakeholders, potentially spurred by Bitcoin's price movement above $50K

Crypto Derivatives

  • Funding rates remain positive for both BTC and ETH.
  • Deribit Implied Volatility Index (DVOL) for BTC and ETH dropped to 56.78% and 61.28%, respectively.
  • The 30-day 25-delta skew (C-P) for BTC and ETH dropped to 4.53% and 4.43%, respectively.
  • The futures market witnessed $143.39M worth of liquidations, with shorts representing 59.65%.

Top 3 USDT Perpetual Funding Rate Arbitrage Opportunities

Net Annualized APR

Perp (USDT pair)

Long on

Short On

42.67%

BNB

Bybit

OKX

25.02%

BNB

Binance

OKX

21.39%

BTC

Bybit

dYdX

Notes:

1) Pairs observed include BTC, ETH, SOL, BNB, XRP, LTC, and DOGE vs. USDT perps. 

2) CEXs observed include Binance, Bybit, OKX & dYdX.

3) Lookback period is 24 hours.


BTC's ATM IVs have remained relatively unchanged in the last 24 hours, reflecting the crypto major's struggle to break above its $52K resistance zone. This stability in implied volatility suggests that traders are adopting a wait-and-see approach, anticipating further market developments before committing to significant directional bets in the short to medium term.

The BTC Shadow Term Structure continues to predominantly exhibit a contango state, with minimal shifts detected across all tenors. However, a subtle deviation is noticeable at the 3-day expiries, suggesting an anticipation of heightened volatility within the upcoming week.

The BTC 25-delta skew has experienced a minor decrease in both the 7-day and 30-day periods, hinting at a shift in market sentiment as BTC struggles to surpass the $52K level. In contrast, ETH has witnessed a more significant decrease in skew despite its upward movement toward $3K. This suggests that some market participants are speculating or hedging against potential downside risks, even amid positive price action.

Lastly, during the previous Asia/Europe Session, @Paradigm reported bullish sentiments surrounding BTC, evident in option flows where strike prices were recorded at levels reminiscent of ETH's price when it reached $4K. Notable BTC trades included the sale of 250x 29-Mar-24 58K calls, along with the purchase of 125x 22-Feb-24 53.5K/1-Mar-24, 60K Inverse Call Calendar, and 100x 29-Mar-24 54K/65K Call Spread.

Crypto Technical Analysis

The 4-hour chart for BTC is currently exhibiting a consolidation pattern, with the price oscillating around the $51.5K mark. Notably, there appears to be a formation resembling a double-top pattern, with the peaks enclosed in the red rectangle indicating potential resistance zones. If this pattern holds and the price breaks below the pattern's neckline, situated near the $50K level, we might anticipate a pullback towards the next significant support area at around $47.2K, which would represent a drop of approximately 8.75% from the current price levels. Conversely, should Bitcoin muster the strength to ascend, the immediate resistance can be expected at approximately $52K. The Relative Strength Index (RSI) is positioned at 56.38, signaling a neutral momentum, with a slight downward trend indicating a cooling off from recent buying pressure.

Moving on to ETH, the price has recently approached the key psychological resistance level at $3K, only to experience a minor retraction. This price action suggests a test of the market's resolve at a key threshold. Currently, ETH's price hovers around $2.9K, and should the retracement deepen, the next notable support level lies at the $2.7K mark, indicating a potential 6.9% decrease from the current level. On the upside, a sustained break above the $3K barrier could signal bullish intent, potentially targeting higher resistance levels. The Relative Strength Index (RSI) is currently at 68.39, close to the overbought territory, but the absence of a significant downturn in the RSI suggests that the upward momentum may have not yet been exhausted, despite the price pullback.

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