China Pushes For Deposit Rate Cuts Second Time This Year; Suing Spree Ensues As Coinbase Next On The SEC List

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Our Daily View

What We Are Covering Today

• Chinese authorities push major banks for lower deposit rates; US prepares for a strategic visit to China amid a strained diplomatic relationship. (more in Macro & TradFi)
• Coinbase faces SEC lawsuit following Binance; Optimism Bedrock upgrade goes live (more in DeFi & CeFi)
• On-chain data reveals over $1B worth of tokens leave sued exchanges amidst ongoing legal battles (more in On-Chain)
• BTC and ETH funding rates turn positive despite the SEC's lawsuit against Coinbase (more in Crypto Derivatives)
• BTC and ETH retrace yesterday’s losses; ETH shows weak performance relative to BTC (more in Crypto Technical Analysis)

Macro & TradFi

Chinese authorities have reportedly urged the country's major banks, including state-owned institutions like Bank of China Ltd., Industrial & Commercial Bank of China Ltd., and Bank of Communications Co., to reduce their deposit rates by 5 to 10 basis points. This marks a renewed effort to stimulate the world's second-largest economy amid a sluggish recovery. This is not the first time within a year that such a request has been made. Banks may respond to this non-mandatory request as early as this week. The hope for stimulus in China has raised optimism among traders and has positively affected Asian stocks, with Hong Kong equities climbing by more than 1% in today’s session.

In a geopolitical development, US Secretary of State Antony Blinken is planning to visit China for discussions with top officials, potentially including President Xi Jinping. This initiative comes as part of President Joe Biden's attempt to restore some degree of normality to Sino-US relations, which have been marred by military encounters and economic sanctions. However, the timing of Blinken's visit, which follows the interception of a suspected Chinese spy balloon over the US, remains uncertain.

US stocks made modest gains on Tuesday, with the S&P 500 and the Nasdaq Composite achieving new highs for the year. The S&P 500 saw a 0.2% increase, its highest close since the previous August, while the Nasdaq ascended by 0.4%, marking its highest level since April 2022. Meanwhile, the Dow Jones Industrial Average marginally increased by less than 0.1%. The recent surge of the S&P 500 has brought it close to exiting its most extended bear market since the 1940s. The broad index concluded less than 10 points short of entering a new bull market, which would constitute a 20% surge from its recent nadir in October.

The Russell 2000 has outperformed the Nasdaq 100 significantly for the second time in three days, a phenomenon not seen since November 2020. However, this bullish trend was met with caution in global markets, with some analysts questioning whether the market has accelerated too quickly on the back of artificial intelligence hype.

Meanwhile, in the bond market, the 10-year US Treasury yield rose marginally to 3.699% on Monday, up from 3.691% due to a Treasury bill auction announcement that weighed on US bonds across tenors.

DeFi & CeFi

• SEC sues Coinbase for Securities Law Violations
• SEC files motion to freeze cryptocurrency held amongst Binance’s entities
• Optimism completes Bedrock upgrade on Tuesday
• Aave releases proposal on $GHO stablecoin’s mainnet launch
• Uniswap releases ‘FLAIR’ metric to evaluate competitiveness in AMMs
• Tether invests in El Salvador’s $1B mining project
• Binance NFT Marketplace now supports BTC NFTs

The SEC has filed a lawsuit against Coinbase, just one day after filing charges against its competitor Binance. The SEC claims that Coinbase violated securities laws. According to the SEC, Coinbase has allegedly unlawfully facilitated the buying and selling of crypto asset securities and generated billions of dollars since 2019. The SEC argues that Coinbase combines the functions of an exchange, broker, and clearing agency without being registered for any of these roles, as required by law.

Furthermore, the SEC asserts that Coinbase's staking-as-a-service program qualifies as an unregistered security. In the lawsuit, the SEC specifically identifies several tokens, including SOL, ADA, MATIC, FIL, SAND, AXS, CHZ, FLOW, ICP, NEAR, VGX, DASH, and NEXO, as securities.

Coinbase's lawsuit came after the SEC issued a Wells notice to the company in March, which serves as a formal notification informing individuals or entities of the SEC's intention to initiate an enforcement action against them.

Following the SEC's lawsuit against Coinbase, CZ, the CEO of Binance, took to Twitter to express his opinion. He tweeted, "If you find yourself constantly picking fights with everyone, perhaps the fault lies with you." In a similar vein, the SEC proceeded with its previous enforcement action by requesting an order to freeze assets, including cryptocurrencies, held by Binance, Binance.US, and their owner CZ.

Elsewhere, the Optimism Bedrock upgrade was successfully implemented on Tuesday. This upgrade aims to enhance the user experience of the chain by reducing gas fees by 40% and significantly decreasing deposit confirmation times by 90%. Furthermore, the upgrade includes enhancements to the proof modularity of its OP Stack and other code changes that will improve the performance of nodes. The improvements in proof modularity will enable the utilization of both validity proofs and fault proofs with the OP Stack after the upgrade.

Finally, Aave has submitted a governance proposal on the Aave forum regarding $GHO, the native stablecoin of Aave. The proposal suggests launching $GHO with two initial facilitators: the Aave V3 Ethereum Facilitator and the FlashMinter Facilitator. If the DAO approves the proposal through an ensuing vote, users utilizing Aave V3 on the Ethereum network can mint $GHO using their collateral. The DAO treasury will also receive 100% of the interest payments generated from $GHO borrowing as supplementary revenue.

On-Chain

Shifting to on-chain data, the balance of BTC held on exchanges has recently reached a one-month low of 2,303,611.885 BTC. This figure is slightly lower than the previous one-month low of 2,303,883.202 BTC recorded on May 27, 2023. Concurrently, the outflow of assets persists as the past 24 hours witnessed a significant departure of tokens worth over $470 million from the Binance exchange. Moreover, in the three-day period since Binance came under fire from the SEC, the total amount withdrawn from the exchange has exceeded $1 billion, according to data from 0xScope.

In the meantime, Ethereum (ETH) has also been experiencing outflows from Coinbase shortly after the exchange faced legal action from the SEC. Notably, an intriguing observation reveals that the departure of Bitcoin (BTC) from Coinbase is relatively minor, with only 605 BTC withdrawn, whereas more than 300,000 ETH has already been withdrawn from the exchange.

Crypto Derivatives

• BTC and ETH funding rates have flipped back to positive
• 30-day BTC ATM IV for BTC and ETH increased to 42.48% and 39.35% respectively
• Deribit Implied Volatility Index (DVOL) for BTC and ETH declined slightly to 43.46% and 42.58% respectively
• 30-day 25-delta BTC are skewed to the call side, ETH is still skewed to the put side

Top 3 CEX USDT perp funding rate arbitrage based on last 24-hour lookback:

In the futures market, liquidations totaled to $106.81 million, with short positions accounting for 68.8% ($73.57 million) of the total.

Implied volatility (IV) experienced an increase throughout the curve, particularly in the front-end, as near-term volatilities soared following Coinbase's lawsuit by the SEC. The term structures show a steep backwardation at the front end for both BTC and ETH. The resurgence of volatility is evident as spot prices have been oscillating rapidly amid the flurry of lawsuits, prompting an increase in IV to catch up with realized volatility (RV). Additionally, traders are likely embracing vega exposure given the heightened uncertainty in the near term, contributing to the recent upward movement in IV.

In terms of skew, both BTC and ETH options maintained put skew, with the spread between ETH and BTC tightening over the past four days to 0.99. Currently, the 30-day 25-delta for BTC and ETH stands at 1.59% and -0.6% respectively.

Most BTC call volume focused on contracts expiring on July 30. The open interest for that day reveals most call contracts were transacted at the $30K strike price, followed closely by the $35K strike price. For put options, most open interest is concentrated at the $24K strike price. For the same contracts expiring on July 30, the maximum pain point for BTC options is at the $24,000 strike price. Notable BTC trading volumes were derived from significant options activities, including the sale of 325 contracts of the 29-Sep-23 27000 Calls, the sale of 250 contracts of the 16-Jun-23 25000 Puts, and the sale of 200 contracts of the 29-Dec-23 31000 Calls.
Significant BTC trades included the bull call spread with 2550 contracts, the bull diagonal call spread with 1263 contracts and the short strangle strategy with 670 contracts.
Lastly, the VIX increased to 13.96.

Crypto Technical Analysis

Moving onto technical analysis, after the initial sell-off, there was a sharp retracement of nearly 6% in BTC, and it is now trading within the previous range established earlier last month. Close to the current level, BTC encountered resistance at the $27.4K level in mid-May, suggesting potential overhead resistance in the near term. Additionally, there is another resistance level at $27.7K, which BTC struggled to surpass in April and May. In the medium term, monitoring for a sustained breakout or breakdown from the current trading range would be important.

Similar to BTC, ETH also saw a 4% retracement recently and is currently trading near Sunday's level. The $1800 level and the rising trendline acted as support yesterday, but ETH is currently facing challenges in surpassing the $1900 level. The next significant resistance lies at $1940, which previously acted as resistance multiple times in April and early May. It is worth noting that ETH has broken above last week's falling trendline, which could indicate a partial recovery of its bullish momentum.

Regarding the ETHBTC ratio, it briefly crossed 0.07 and reached the 0.0709 level but has since retraced below the falling trendline established earlier this year. From the 0.0709 level onwards, there are no clear resistance levels until the 0.072 level. Overall, ETHBTC is still trading within a major range that is converging around the 0.065-0.07 level. If ETH continues to underperform relative to BTC, there could be further downside potential for ETHBTC.

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Read Past Issues

Daily Readings

TradFi

• World Bank cuts 2024 global growth forecast as rate hikes bite but lifts 2023 outlook

• OpenAI CEO has no IPO plan due to 'strange' company structure

• Major UK lender Halifax pushes up mortgage rates

• PDVSA bondholders dismiss claims that Citgo-backed notes are invalid

• Brazil lawmakers propose reforms combining consumption taxes

• US DOJ settles probe of illegal dumping in Houston's minority neighborhoods

• Canada's Ivey PMI falls to three-month low in May

• Court upholds Musk's win in $13 bln lawsuit over Tesla-SolarCity deal

• Apple's Vision Pro an impressive headset with few likely buyers, analysts say

• New York Fed says global supply chain pressures further abated in May

• Brazil's May inflation seen at eight-month low, opening window for rate cuts

• US steps up crackdown on crypto with lawsuits against Coinbase, Binance

• Subway inks deal for 4,000 new sandwich shops in China over next 20 years

• US stocks end up as Fed, CPI loom large next week

• U.S. public sees no clear winner in debt ceiling deal -Reuters/Ipsos

• Subway struggles to get big new franchisees to buy its US sandwich shops

• GitLab soars on plan for new AI-powered product

• Tech stocks help lift Toronto market to two-week high

Crypto

• Atomic Wallet Was Breached by North Korean Hackers: Elliptic.

• SEC's Latest Crackdown Could Drive Crypto Firms Out of the U.S..

• Gary Gensler’s Evolving Position on Crypto – in Quotes.

• Optimism Completes ‘Bedrock’ Hard Fork, in Pursuit of Superchain.

• Coinbase Traders Withdraw $600M in a Day Amid SEC Lawsuits.

• Louis Vuitton To Release $42,000 Physical-Backed NFTs.

• Lightning Data Analytics Firm Amboss Launches New ‘Liner’ Index for Bitcoin Yield.

• Bankers Shopping FTX's 'Hundreds of Millions of Dollars' Stake in AI Startup

• Optimism successfully completes ‘Bedrock’ hard fork, reducing deposit times, layer-1 fees.

• Coinbase CEO responds to SEC suit, says team is ‘confident’ in facts and law.

• Google Cloud launches free courses to help users build their own GPT-style AI.

• Robinhood 'actively reviewing' the listing of SOL, other tokens named in SEC lawsuits

Yours sincerely,
Treehouse Research 🌳