🌳 February CPI Exceeds Expectations, Pressuring Fed Policy; Ethereum's Dencun Upgrade Promises Lower Fees For L2s

13 Mar 2024, Wednesday

2:40 AM

🌳 February CPI Exceeds Expectations, Pressuring Fed Policy; Ethereum's Dencun Upgrade Promises Lower Fees For L2s



S&P Futures 500







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

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What We Are Covering Today

  • Inflation exceeds forecasts, impacting Fed policy; U.S. federal budget deficit widens (More in Macro & TradFi)
  • ETH Dencun upgrade set to roll out; Coinbase announces plans for $1B bond sale (More in DeFi & CeFi)
  • Increase in small wallets holding less than 0.1 BTC; Grayscale reduces BTC holdings (More in On-Chain)
  • BTC ATM implied volatility decreasing; ETH 25 Delta skews (C-P) entered negative territory for 7-day maturities (More in Crypto Derivatives)
  • Both BTC and ETH move sideways with no clear signs of near-term future directions (More in Crypto Technical Analysis)

Macro & TradFi

In February, the consumer price index (CPI), reflecting the broad costs of goods and services, rose by 0.4% from January and 3.2% from a year ago, exceeding expectations slightly with the annual rate surpassing the forecasted 3.1%. Core CPI, excluding the more volatile food and energy sectors, also saw a 0.4% monthly increase and a year-on-year rise of 3.8%, slightly above projections. Significant contributors to this inflationary pressure were a 2.3% surge in energy costs and a steady 0.4% rise in shelter expenses, accounting for over 60% of the overall inflation increase. Despite the year-over-year inflation rate cooling down from its mid-2022 peak, it remains notably above the Federal Reserve's 2% target, suggesting that the Fed may maintain its interest rate policy longer to ensure inflation aligns closer to its goal. This inflation dynamic underscores the resilience of consumer spending, buoyed by a strong labor market, yet hints at persistent inflationary pressures, particularly in housing costs, which could complicate the Federal Reserve's path to easing monetary policy.

Elsewhere, the U.S. federal budget deficit widened to $296 billion, marking a 13% increase from the previous year's $262 billion, largely driven by higher interest costs on the national debt and the onset of the annual tax refund season, as reported by the U.S. Treasury Department. Despite an 8% rise in monthly outlays to a record $567 billion and a modest 3% increase in receipts to $271 billion, the deficit still fell slightly short of economists' projections of $299 billion. The cumulative deficit for the first five months of the fiscal year expanded by 15% to $828 billion, with record-setting receipts and outlays highlighting the growing fiscal pressures from a 41% surge in interest expenses on the public debt to $433 billion. Notably, February saw a 67% year-over-year increase in debt servicing costs to $76 billion, the highest for the month, underscoring the escalating challenge of managing the $26 trillion national debt amid rising interest rates, which hit an average of 3.2% in February. 

The US stock market exhibited resilience, with indices advancing despite higher-than-anticipated CPI data, signaling investor optimism. The S&P 500 climbed 1.12%, the Nasdaq outperformed with a 1.49% gain, while the Dow Jones Industrial Average saw a more modest rise of 0.61%. Oracle led the surge, jumping 11.71% after its cloud unit sales outperformed expectations, hinting at forthcoming substantial infrastructure contracts and an upcoming collaboration announcement with Nvidia, which gained 7.16%. In contrast, Southwest Airlines faced a steep decline of 14.89%, triggered by its announcement of a reevaluation of its full-year 2024 guidance, including capital expenditure forecasts, due to aircraft delivery delays from Boeing. Investors now turn their attention to the upcoming US Retail Sales data, set for release on Thursday at 20:30 SGT, for further market direction. This dynamic reflects the market's complex interplay between corporate performance, supply chain issues, and macroeconomic indicators, highlighting the critical role of investor sentiment and future economic data in shaping market trends.

CeFi & DeFi

  • Ethereum Dencun upgrade set to be deployed
  • Coinbase announces plans for bond sale
  • Tensor to issue governance token
  • Ether.Fi to release ETHFI token

Ethereum is gearing up for the Dencun upgrade, which aims to reduce fees and improve efficiency, especially for layer-2 (L2) networks such as Arbitrum, Optimism, and Polygon. Set to occur on Wednesday at around 13:55 UTC, Dencun—a fusion of the Deneb and Cancun projects—marks the most substantial code revision since last year's Shapella upgrade. By integrating proto-danksharding (EIP-4844), Dencun will enable these L2 networks to efficiently post data onto Ethereum, potentially lowering transaction fees for end-users by optimizing how transaction data is stored. This update promises to enhance Ethereum's scalability and efficiency and also set the stage for future advancements, including the potential inclusion of Verkle Trees in the subsequent upgrade.

In other news, Coinbase has announced plans to raise $1 billion through the sale of convertible bonds, strategically avoiding an equity sale that could potentially dilute its stock price. This move mirrors the approach taken by Michael Saylor's MicroStrategy, which has funded its significant Bitcoin purchases through similar financial instruments. The convertible notes, set for conversion in 2030, offer an alternative to direct equity sales, thereby protecting existing shareholders' interests. Additionally, Coinbase intends to incorporate "negotiated capped call transactions" with these bonds, a measure designed to further mitigate dilution effects upon conversion to equity.


Based on Santiment’s analysis, a significant shift in Bitcoin wallet distributions was observed, coinciding with its march to a new all-time high of $72.7K. The data indicates a surge in smaller Bitcoin wallets holding less than 0.1 BTC, having grown by 277,000 in the past fortnight. This rise reflects an influx of retail investors and a wider dispersion of Bitcoin ownership. Conversely, the count of substantial wallets containing 1K or more BTC has declined by 105, hinting at possible asset redistribution by larger holders or preparations for liquidity events. Mid-range wallets have similarly seen a decrease, suggesting strategic portfolio adjustments by seasoned investors.

An update from Lookonchain on Bitcoin holdings among major institutional players also shows that Grayscale has reduced its BTC holdings by 4,421 coins, equivalent to approximately $316.5 million, leaving its current holdings at 395,745 BTC valued at around $28.33 billion. On the other side, Blackrock has increased its Bitcoin position, adding 7,770 BTC to its coffers, an injection valued at roughly $556.3 million. This move brings Blackrock's total BTC holdings to 203,755, worth approximately $14.59 billion. Overall, across nine ETFs, including Grayscale, there's been a collective addition of 7,827 BTC to investment portfolios, amounting to an investment influx of about $560.42 million.

Crypto Derivatives

  • Funding rates remain positive for both BTC and ETH.
  • Deribit Implied Volatility Index (DVOL) for BTC and ETH decreased to 77.30% and 74.10%, respectively.
  • The 30-day 25-delta skew (C-P) for BTC increased to 4.22% while ETH rose slightly to -2.59%.
  • The futures market witnessed $355.97M in liquidations, with longs representing 71.24%.

Top 3 USDT Perpetual Funding Rate Arbitrage Opportunities

Net Annualized APR

Perp (USDT pair)

Long on

Short On














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.

Despite Bitcoin's rally past the $71K mark, reaching an all-time high, Bitcoin ATM Implied Volatility (IV) is currently in a downtrend state with the 7-day IV at 74.43% and the 30-day IV trailing closely at 74.67%. This decline in volatility coincides with Bitcoin’s price trading sideways since achieving an all-time high, indicating a slight decrease in option purchases as investors are relieved from their anticipation for CPI data.

The term structure of Bitcoin has reverted to a slight contango state, except for contracts up to 44 days, indicative of elevated volatility, which coincides with BTC’s halving. The curve is relatively flat for longer termed tenures, indicating a stabilization in IVs for longer-dated tenors.

BTC 25 Delta skews (C-P) remained relatively unchanged compared to the previous day, with BTC skewed at 2.46% for 7-day maturities and 4.23% for 30-day maturities. Conversely, ETH’s 7-day maturities entered negative territory, decreasing to -0.79% from 0.07% while the 30-day maturities rebounded to move higher to -2.46% from -3.72%. For BTC, this reflects a neutral sentiment among option investors, possibly due to a lack of market narratives. For ETH, this downtrend in short to mid-term maturities indicates a growing inclination among option investors toward capital protection via put options purchases, reflecting a cautious approach.

Lastly, during the Asia/EU Trading Session, @Paradigm reported that trading focused on short-dated, opportunistic ETH Put sellers, bullish BTC Calls, and BTC Put Spread hedging. Key BTC trades encompassed the procurement of 250x 29-Mar-24 85K calls bought, 200x 15-Mar-24 69K/65K put spread bought, while notable ETH activities involved the sale of 1750x 15-Mar-24 4K put and 1250x 13-Mar-24 3975 put.

Crypto Technical Analysis

Onto technical analysis, BTC moved sideways yesterday, with no significant developments that could push the price higher. The RSI also moved slightly lower, currently at 60.36, approaching neutral territory as the price stabilizes. Consequently, yesterday’s analysis remains valid, with the $69K to $70K range continuing to serve as potential support if the price retraces. Meanwhile, a breakthrough beyond this level would signify a lack of further resistance on the technical front, allowing the price to continue setting new all-time highs.

Moving on to ETH, its price continues to oscillate around the $4K level without a definitive breakout. However, the peak that ETH experienced yesterday can be used to draw an upper trendline, which could act as resistance going forward. Extrapolating the trendline would coincide with the previously mentioned $4.2K resistance level observed in December 2021, making it a stronger resistance to potentially break above. On the flip side, ETH may find support at the lower trendline formed by recent higher lows, within the $3.75K to $3.8K range if the price retraces before testing the horizontal support zone at $3.5K to $3.55K.

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