Fed and FDIC insure the safe withdrawals of all funds in SVB; USDC repegs following the Fed statement after the sever depeg over the weekend

13 Mar 2023, Monday

3:44 AM

BTC	ETH	S&P Futures 500
$22,639.00	$1,622.25	$3,913.50
(+12.82%)	(+13.97%)	(+0.22%)
Note: All percentages shown above are referenced to the previous business work day's 09:00 (GMT+8)

GM Treehouser 🌳

Welcome to our Treehouse Daily newsletter (previously known as The Canopy Collective), where Treehouse brings you financial news and insights free daily! We believe you’ll find this helpful.

In case you have missed it, check out our latest research piece 👇

February 2023 Market Recap

Our Daily View

What We Are Covering Today

The Fed and FDIC put out a statement to ensure depositor’s funds in SVB (more in Macro & TradFi)
USDC depegs to below 86 cents over the weekend and regained peg following Circle and the Fed’s statements (more in DeFi & CeFi)
Increased BTC exchange inflow volume may indicate selling or trading by investors, while recent price jumps suggest strong demand. (more in On-Chain)
Traders look to calls despite stablecoins depegging (more in Crypto Derivatives)
BTC broke previous trendline with ETH still eyeing for a possible retracement from the bull rally(more in Crypto Technical Analysis)

Macro & TradFi

US regulators took control of Signature Bank, one of the main banks for cryptocurrency companies, on Sunday, following the swift collapse of Silicon Valley Bank on Friday. Regulators designated both banks as a systemic risk to the financial system, which gives regulators flexibility to guarantee uninsured deposits. The government’s bank-deposit insurance fund will cover all deposits at both banks, rather than the standard $250,000. Up to $25B from the Treasury’s exchange-stabilisation fund will backstop the Fed lending program, which will offer loans of up to one year to banks that pledge US Treasury securities, mortgage-backed securities and other collateral.

On the other hand, the Russian invasion continues in Ukraine. Yesterday, the Russian forces continued their offensive on the eastern city of Bakhmut, with Ukrainian forces fighting to prevent being cut off after withdrawing from the eastern side of the river. Ukrainian President Volodymyr Zelensky claims that 1,100 enemy soldiers have been killed in the past week, while Russian forces are reported to have attacked 15 villages on the Bakhmut front. Despite the risk of encirclement and heavy casualties, Ukraine's leadership has vowed to continue defending the city, seeking to grind down Russian forces and prepare for a planned offensive of its own. Russian forces continue to shell Ukrainian positions along the front line, and Ukrainian authorities are urging civilians to evacuate areas subject to attack.

Lastly, the direction of the markets in the near term are now largely dependent on the various macroeconomics indicators that are set to be released this week. On March 14th, the US will release the February statistics on unemployment and CPI. On the following day, China will also report its unemployment rate and industrial production growth, acting as important signals to the stats of the economy.

DeFi & CeFi

Signature Bank shut down by New York state regulators
Shiba Inu launches beta test for the Shibarium L2 network
USDC repegs after severely depegging over the weekend due to Circle’s exposure to Silicon Valley Bank
MakerDAO issues an emergency proposal to limit USDC exposure after its sudden depeg
Asset management company Brevan Howard is taking over a spin off from Dragonfly Capital

The second biggest stablecoin by market cap, USDC, has severely depegged over the weekend following Circle, the issuer of USDC, announcing its reserve’s exposure to the fall of Silicon Valley Bank. The inability to process USDC transactions until Monday when banks resume normal business hours has also escalated the market’s panic. As a result, USDC has severely depegged from fiat USD and dropped to below 86 cents within a few hours after the announcement.

The overall DeFi ecosystem has been largely impacted as well, with USDC being a fundamental pillar of many protocols such as GMX, Frax, and MakerDAO. Many protocols have also come up with immediate responses to the situation to limit a potential large-scale impact. For example, MakerDAO, issued an emergency proposal to limit the USDC tail risk which resulted in a depeg of its DAI stablecoin (more than 50% backed by USDC) in a similar magnitude. The proposal reduces the amount of DAI that can be borrowed against specific collaterals, with reduced daily limits, and higher fees to discourage dumping of USDC.

Fortunately, both stablecoins have significantly recovered following Circle’s statement that the company will “cover any shortfalls” in USDC’s backings using company resources and the Fed’s statements on ensuring the safety of all depositor’s funds within Silicon Valley Bank. At the time of writing, USDC is trading roughly at $0.9947 and DAI at $0.9938.

On-Chain

The recent increase in BTC exchange inflow volume to a three-month high of 1,588.437 BTC could signal a shift in market sentiment. While it is unclear what is precisely driving this surge, it is possible that some investors are cashing out the profits from entering a long position through USDT/BTC pairs by betting on the potential USDC repeg. This may signify a potential sell pressure from these investors as they close their positions and take profit on these exchanges (@glassnodealerts).

On the other hand, the MVRV ratio helps with analyzing Bitcoin's market value relative to its realized value. We are currently in a valuable area after testing level 1 of the MVRV ratio, which historically precedes a Bitcoin price bull run and increased profitability. If BTC successfully tests level 1 of the MVRV ratio and goes back above the 100-day EMA, it would indicated a potential bullish outlook, witnessed from its jump from $20k to @22.5k yesterday (@cryptoquant).

Crypto Derivatives

BTC and ETH funding rates return to positive
7-day ATM IVs spike massively to 64% and 72.8% for BTC and ETH respectively
30-day 25 delta put skew tightened further to -5.74% and -8.15% for BTC and ETH respectively

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

Net Annualized APR	Perp (USDT pair)	Long on	Short On
255.08%	SOL	OKX	DYDX
131.20%	ETH	OKX	DYDX
90.81%	DOGE	DYDX	OKX
Source: @CexyArbBot Telegram 1) Pairs observed include BTC, ETH, SOL, BNB, XRP, LTC, DOGE vs USDT perps 2) CEX observed include Binance, Bybit, OKX & DYDX @CexyArbBot allows you to customize CEX, 100+ pairs & lookback periods combo

For futures, total liquidations over the past 72 hours spiked to $447.05M with equal amounts of longs and shorts liquidated, longs were liquidated on Friday while shorts were liquidated on Sunday, closely following the depeg and repeg of USDC.

On the options front, near-term IV jumped while the term structure remains in steep backwardation. Skews have been firmly back into put premium on Saturday and have since been tightening. Variance risk premium widens significantly for a brief period over the weekend to over the 20s before returning to 8.66% for BTC and 7.79% for ETH. Put-call volume ratio returns to normality for BTC at 0.64 while remaining elevated for ETH at 0.74.

On the flow side, traders have been observed to be mostly buying puts and selling calls for BTC (@tradeparadigm). Some significant trades include the 1285 contracts of BTC 17 Mar 2023 18K puts being bought and 10K contracts of ETH 31 Mar 2023 1.3K puts being sold. Despite the worries of SVB and the stablecoins depegging, majority of the options volume comes from calls. Top strategies for BTC are the bull call spread and bull put spread.

Lastly, the VIX rose sharply to 28.48 on Saturday before coming down to 24.7.

Crypto Technical Analysis

Onto TA, price movements during the weekend were largely driven by the changes in fundamentals of the macro environment. However, on a technical level, the repeg of USDC and the Fed’s statement to ensure depositor’s funds in SVB has boosted investor confidence. BTC, as a result, has soared on the 4H chart with price crossing both the trendline of local highs and the $21.5K support zone. Daily chart has followed suit with the same narrative. RSI has also reflected this bull rally and is currently sitting at 50 and 71 respectively for 1D and 4H. If the bullish momentum continues, the next resistance could be seen at the $22.3K level.

As for ETH, price over the weekend is similar to BTC which can also largely be attributed to the USDC saga. However, following on the news, the price has not fully broken the trendline formed by the lower highs which signals a potential retracement on price corrections from the bull rally. If a retracement is seen, price will likely fall back to the 1.55K level as the previous support zone. However, if the bullish sentiment continues, the next resistance zone can be seen in the range of $1.66K - $1.68K which was tested multiple times in the past month.