Day 1 of Powell Congress Testimony Open Doors For Faster Rate Hikes

GM Treehouser 🌳

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Our Daily View

What We Are Covering Today

• Market tumbles on Powell’s hawkish rhetoric (more in Macro & TradFi)
• Forkast Labs introduces index trackers for digital assets, Yuga Labs concludes TwelveFold auction (more in DeFi & CeFi)
• US government move a portion of its seized funds to Coinbase (more in On-Chain)
• Powell’s speech lifts near-term IVs though back-end IVs continue to fall (more in Crypto Derivatives)
• BTC dips on rate hike fears, rising channel support on ETH remains intact (more in Crypto Technical Analysis)

Macro & TradFi

During the congressional testimony, Fed Chair Jerome Powell indicated that the Federal Reserve is ready to increase the pace of interest rate hikes and raise rates further if inflation remains high. Post-speech, CME futures predict a higher likelihood of a half-point interest rate hike in March, with the projected peak rate hovering around 5.6%. Elsewhere, Salesforce announced that it would be partnering with OpenAI to add ChatGPT capabilities to its flagship product, Slack. Meta plans to cut thousands of jobs as cost-cutting effort continues.

Risk assets sold off in response to Powell's speech with DJIA dropping by 1.72%, NASDAQ by 1.25% and SPX by 1.53%. The yield on the two-year Treasury rose to around 5%, reaching its highest intraday level since July 2007. The inversion between the 2-year and 10-year bonds widens to over 1%. The dollar index rose as high as 105.65, up 1.3% on the day.

DeFi & CeFi

• Binance upgrades PoR system to verify assets for 11 new tokens, including $CRV and $DOGE
• Mysten Labs collaborates with Alibaba Cloud to develop sustainable Web3 ecosystems on Sui network
• Trader Joe's AMM Liquidity Book is now live on BNB Chain
• Access Protocol price increases by 229.60%, creators can enable premium content for $ACS stakers
• Forkast Labs introduces index trackers for digital assets
• Rollkit is the first rollup framework to support sovereign rollups on Bitcoin
• Maverick Protocol launches on Ethereum mainnet today, bringing higher capital efficiency to liquidity market
• Berachain releases open-source project Polaris to integrate EVM into any underlying consensus layer
• Yuga Labs concludes TwelveFold auction by launching its first Bitcoin-based NFT collection

Forkast Labs has unveiled a series of index trackers for digital assets, designed to function as the S&P 500 or Nasdaq Composite of the cryptocurrency market. These trackers, including Forkast 500 NFT, Forkast SOL NFT Composite and Forkast ETH NFT Composite, aim to offer a deeper and more substantive view of the fundamental performance of digital assets, with billions of on-chain data points indexed, organized and updated in real-time. Forkast 500 NFT acts as a proxy for the entire NFT market, including up to 500 eligible smart contracts from blockchains such as Ethereum, Solana, Polygon, Cardano, BNB Chain, Avalanche, Cronos and others. The company emerged in January 2023 following the merger of Forkast. News and NFT tracker CryptoSlam hopes that the trackers will help restore trust in crypto data. The data set for Forkast 500 NFT began on 1 Jan 2022, with plans to expand the product offering in the future.

Maverick Protocol, a DeFi infrastructure, is launching on the Ethereum mainnet on March 8, 2023. The protocol aims to bring higher capital efficiency and greater capital control to the liquidity market. It offers a new dynamic distribution AMM that automates liquidity strategies, featuring custom LP distributions, low LP maintenance, and increased capital efficiency. The LPs can design and automate individual strategies for concentrating and moving liquidity with Maverick AMM.

Yuga Labs, the company behind Bored Ape Yacht Club, has released its first Bitcoin-based non-fungible token (NFT) collection, following the conclusion of its TwelveFold auction. The project, consisting of 300 editions, awarded NFTs to the top 288 successful bidders, with 12 inscriptions reserved for philanthropic purposes. The auction generated approximately $16.5 million from 3,246 bidders, with the highest-selling token selling for $159,600. The NFTs will be inscribed onto satoshis on the Bitcoin blockchain, and buyers had to supply a self-custodial wallet containing bitcoin to receive the art. The collection features four different color palettes inspired by the seasons.

On-Chain

From tracking the US government associated wallet on-chain, 40,000 BTC was observed to be transferred out to other internal addresses. Out of these transactions, approximately 9,861 have been sent to Coinbase. According to glassnode, these funds were believed to be seized from the black market on the dark web under “Silk Road Operation” where a special IRS agent has retrieved approximately 50,000 BTC from this illegal operation (@glassnode).

Furthermore, as the case unfolds for SEC’s ban on $BUSD. Binance has seeked stablecoin support elsewhere such as listing $LQTY, launching $TRU perpetual contracts etc. As a result, the utilization of $BUSD continues to decline with on-chain metrics showing that the number of $BUSD transfers has created a 6 months low on a 7D moving average level (@glassnode).

Crypto Derivatives

• BTC and ETH funding rates rebounded higher
• 30-day ATM IVs flat at 47.55% for BTC while falling to 51.97% for ETH
• 30-day 25 delta put skew tightened to -2.22% and -4.45% for BTC and ETH respectively

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

For futures, total liquidations over the past 24 hours total to $79.74M, the majority coming from longs at $58.66M. Open interest for BTC and ETH futures fell by 1.68% and 2.13% respectively.

On the options front, near-term IVs climbed after Powell’s speech as takers bid for front-end vols. Term structure has now flatten but remains in contango. In terms of skew, both BTC and ETH skew tightened more towards put premium especially on the front end. Variance risk premium climbed to 6.06% for BTC and 6.43% for ETH in spite of the bounce in RV.

On the flow side, long and short straddles were the top structures trading within BTC as traders expressed differing views on where vols will go. As for ETH, short straddles was the dominant strategy.

Lastly, the VIX jumped to 19.60.

Crypto Technical Analysis

Onto TA, BTC dipped lower to the $22.1K level following Powell’s speech. Meanwhile, the price drop formed a new “lower low” and is respecting the trendline formed by the previous ones. RSI has also declined to around 35.4 and 41.6 respectively for 4H and 1D. If price breaks the current trend line, the next support level continues to be at $21.55K before going into the daily support range of $20.8K to $21.1K and a retest of the $23.9K resistance will still be expected if price bounces back at this level.

As for ETH, the lower bound of the 1H rising channel was breached following the sentiments on rising rates. However, price has bounced back and respected the channel that was formed at the longer 4H and 1D timeframe. RSI has also recovered back to 45 at the 4H level. If the bullish retracement continues, we could see a resistance zone at around $1,675. However, if the bears take control over the price again and break through the longer timeframe channel, we could see a retest at the strong $1.49-1.50K support zone.

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Daily Readings

TradFi

• Morning Bid: Jay walks the walk, markets get Powell-slammed

• Wall Street falls more than 1% as Powell flags sharper rate hikes

• U.S. bankruptcy judge approves Binance.US $1.3 bln deal for Voyager

• Fed's Powell sees long-term damage if US debt ceiling not raised

• Fed Chair Powell's testimony to Congress

• TSX slides as investors brace for more Fed rate hikes

• Wall St ends sharply lower, Treasury yield inversion widens after Powell remarks

• European shares dip after Powell's hawkish remarks fuel rate hike fears

• Analysis: Investors revive inflation trades as 6% Fed rate risk grips Wall Street

• US wholesale inventories unrevised in January

• Factbox: Hold or hike? Latin American central banks' wield rates to battle rising prices

• After steep climb in rates, Latam central banks show no signs of reversal

• ECB survey sees moderating inflation, rising wage expectations

• Fed Chair Powell says interest rates are 'likely to be higher' than previously anticipated.

Crypto

• Silvergate Talking With FDIC About How to Save Crypto-Focused Bank: Bloomberg.

• Signature Bank, Stablecoins Might Benefit From Silvergate Exchange Network's Demise.

• Bitcoin Rebounds Above $22K, Equities Struggle After Fed Chair Powell Says Rates Are ‘Likely to Be Higher’.

• Sui Blockchain Developer Signs Deal With Alibaba Cloud.

• Federal Reserve’s Powell: We Don’t Want to Strangle Crypto Innovation, but Sector Is a Mess.

• Stablecoin Issuer MakerDAO Proposes Additional $750M U.S. Treasury Purchase.

• Coinbase Sued by Customer Who Says Exchange Refused to Reimburse Him for $96K Lost in Hack.

• Judges Express Skepticism of SEC Arguments in Grayscale Bitcoin ETF Hearing.

• ‘Tonight Show’s’ Jimmy Fallon Files to Be Removed From Subpoena in Bored Apes Trademark Case.

• Bitcoin Price Slides to $22K as Powell Warns on Inflation.

• First Mover Americas: Grayscale Bitcoin Trust at Issue in Court.

• Crypto Observers Look to Treasury Yields for Cues as Bitcoin Remains Comatose.

• CoinFLEX restructuring approved in Seychelles as rebranding reportedly continues.

• US lawmakers planning to reintroduce bill aimed at fixing crypto reporting requirements: Report.

• Bitcoin ASIC manufacturer Canaan saw 82% revenue drop in Q4.

• Binance adds 11 tokens to PoR, claims $63B in reserves.

• Grayscale products buoyed following oral arguments in case against the SEC

Deal Flow

• Binance.US gets green light to buy Voyager Digital assets

• Serial entrepreneur and ex diplomat Trevor Traina raises $25 million for 'goof-proof' web3 superapp

• Tensor — the 'Blur of Solana' — raises $3 million in seed funding

• Bitcoin investment platform Relai reaches $20 million valuation in new funding round

• Web3 app Kresus raises $25M to bridge consumers to blockchain.

Yours sincerely,
Treehouse Research 🌳