Fed Raises Interest Rates; ETH Withdrawals Post-Shapella Upgrade

04 May 2023, Thursday

3:14 AM

Fed Raises Interest Rates; ETH Withdrawals Post-Shapella Upgrade

BTC

ETH

S&P Futures 500

$29,067.45

$1,902.93

$4,096.25

(+1.88%)

 (+2.21%)

(-1.10%)

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

GM Treehouser 🌳

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April 2023 Market Recap

Our Daily View

What We Are Covering Today

  • Fed raises interest rates, signals potential pause (more in Macro & TradFi)
  • Curve Finance launches crvUSD; Jury convicts OpenSea product manager of insider trading (more in DeFi & CeFi)
  • More than $700 million worth of ETH have been withdrawn from Binance and Coinbase since the Shapella upgrade (more in On-Chain)
  • IV crush following FOMC; Options carry trade sees light as VRP flips positive (more in Crypto Derivatives)
  • Bullish breakouts above Moving Averages, potential Triple Top pattern, and Ascending Channel opportunities (more in Crypto Technical Analysis)

Macro & TradFi

The Federal Reserve has increased its benchmark federal funds rate to a range of 5% to 5.25%, the highest level in 16 years, and has signaled a potential pause in further rate hikes. The Fed’s move to increase the benchmark federal funds rate marks its most rapid series of increases since the 1980s as it battles inflation. The rate hike influences other rates throughout the economy, including mortgages, credit cards, and business loans. According to comments from Fed Chairman Jerome Powell, the central bank will monitor economic conditions more closely before making any further moves.

Despite Starbucks, Ford Motor Co., and the owner of Chili's Grill & Bar surpassing Wall Street's earnings estimates in their most recent quarter, all three companies left their annual profit forecasts unchanged. This potentially suggests that the performances in future quarters remain uncertain and the robust results may not last through the rest of the year. The cautious corporate outlook also highlights the uncertainties in the US economy, which is being affected by the Fed's interest rate hikes and fears of a credit crunch due to banking turmoil. Investors are cautious about an economic slowdown, especially for sellers of discretionary goods, due to doubts about the resilience of US consumers who are facing lingering inflation and dwindling savings.

The stock market reacted negatively to the rate hike, with the DJIA shedding 270 points or 0.8%, and the S&P 500 dropping 0.7%. The Nasdaq Composite lost roughly 0.5%. After-hours trading saw shares of PacWest tumble 57% as the California bank reportedly assesses strategic options, including a break-up or a possible sale. Other regional bank shares also sold off hard, with Western Alliance dropping nearly 30% and Zions Bancorporation shedding nearly 12%. Valley National Bancorp lost 12.5%.

DeFi & CeFi

  • Curve Finance deploys native stablecoin on Ethereum mainnet
  • Fuse blockchain pledges $10M for ecosystem development
  • New Cosmos chain Tenet will use liquid staking tokens from other network for security
  • Sui mainnet goes live
  • OpenSea product manager convicted for insider trading
  • FTX seeks to get $4B back from similarly bankrupt Genesis
  • Security token platform INX launches MPC wallet for institutions
  • Bhutan’s DHI and Bitdeer look to raise $500M to develop sustainable mining operations

Curve Finance has deployed its native stablecoin, crvUSD, onto the Ethereum mainnet. Within just 5 minutes of the contract being created, 20 million crvUSD was minted. Afterward, a wallet labeled as "Curve.Fi Team" by Arkham Intelligence created a 1 million crvUSD loan using $1.8 million of frxETH as collateral. However, the team announced that the stablecoin is still not readily available to the public since it has not been integrated into the website’s user interface.

The differentiating factor for crvUSD is its unique lending-liquidation algorithm called LLAMA. LLAMA would gradually convert the collateral into crvUSD if the collateral falls below the liquidation threshold due to falling prices. When prices recover, LLAMA would slowly convert the crvUSD back into collateral assets. This would allow for a smoother liquidation process compared to liquidating all of the borrower's collateral, which would cause significant losses for the borrower.

In other news, OpenSea product manager Nathaniel Chastain has been convicted of insider trading. He was found to have selected NFTs to be featured on the website's marketplace to pump up the demand, and thereby price, for his personal holdings, which he later sold at a profit. This marks the first time someone has been officially charged with insider trading specifically on NFTs.

On-Chain

Onchain data provided by Dune Analytics has shown that the Shanghai upgrade completed on April 12th has put significant pressure on centralized exchanges’ staking services. Binance and Coinbase, two of the largest CEXs, have experienced a net outflow of more than $700 million since the upgrade as investors move to decentralized protocols such as Lido Finance or Rocket Pool. These decentralized protocols offer higher flexibilities brought by the unstaking capabilities. Despite the outflows, Binance and Coinbase remain the absolute market leaders as ETH staking providers, with a combined market share of approximately 18.7%. According to data from Nansen, both CEXs also face further withdrawals, worth $232 million in ETH, that have yet to be processed.

Data from @glassnode indicates that investor confidence in USDC has continued to drop since the depeg event in March as transaction volume of the stablecoin continues to decline, reaching a two-year low. When examining the breakdown of stablecoin supplies in the market, while the overall supply has decreased, the market share lost by USDC and its related stablecoins, such as DAI, have been added to USDT, further reinforcing its position as the market leader in the stablecoin sector

Crypto Derivatives

  • BTC and ETH funding rates remain positive
  • 30-day ATM IV fell to 50.00% and 50.33% for BTC and ETH respectively
  • 30-day 25-delta put skew tightened to 0.01% and -1.25% 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

13.82%

SOL

BINANCE

DYDX

12.36%

DOGE

OKX

DYDX

8.39%

ETH

OKX

BYBIT

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

The futures market saw $100.44M in liquidations equally split between both longs and shorts.

On the options front, short-term IVs on both BTC and ETH were richened into the FOMC, which crushed shortly after the event, forcing the front-end of the term structure to flip into contango. Meanwhile, the longer-end IV has softened, causing the term structure to also flatten. After a week of chop, near-term realized volatility on both BTC and ETH has also come down, providing some relief to carry trades as VRP finally flipped positive after being negative for some time.

On a longer time horizon, both the BVIV and EVIV indexes have been steadily declining since the start of the regional banking crisis, as volatility continues to massively underperform despite broader macro concerns (@volmexfinance). Skew on the other hand, recovered to positive territory.

On the flow side, calls were the most commonly used instrument for both BTC and ETH. Volatility was heavily purchased prior to the FOMC. Following that, volatility was sold in a flurry, with structures like strangle and straddle hitting the tape immediately after the event (@tradeparadigm).

Finally, the VIX continue to chop on the lower range between 16% and 19% while the VIX1D rose to a daily high of 22.99% before retracing lower to 17.64% post FOMC.

Crypto Technical Analysis

For BTC, the 1-hour timeframe indicates a bullish breakout above the 50MA, 100MA, and 300MA. This pattern could resemble the breakout observed on April 30th at 1pm SGT, which could potentially result in a 2.5% upside, followed by a 3.0% downside.

In the 4 hour time, BTC has broken above a significant resistance level, further reinforcing the bullish pattern. This resistance level has been crucial since March 2023, and breaking through it demonstrates the strength of the current bullish momentum.

The 1-day chart also shows a breakout above the 3MAs, with the 50MA currently acting as dynamic support for the price. The RSI for the 1-hour chart is 64.14, while the RSI for the 1-day chart stands at 54.28.

For ETH, the 1-hour timeframe reveals a bullish break above the 3 Moving Averages of 50MA, 100MA, and 300MA. The price may revisit previous monthly highs at $1.93K. However, there appears to be a psychological resistance in the $1.9K to $1.93K range, and with the recent rejection at this level, there may be a potential bearish trend.

Like BTC, the 1-day chart for ETH also shows a breakout above the 3MAs. An ascending channel has been observed, with significant price movements typically occurring when the price exits the channel. As price bounces off the lower bound to the upside, this indicates a strong bullish move in the short term within the channel ranges. Lastly, RSI for the 1-hour chart stands at 65.25, and for the 1-day chart, it is at 51.98.

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