Fed Reserve shifts to simultaneously focus on financial stability and high inflation; Ex Babel Finance CEO launches the new $HOPE stablecoin and DeFi ecosystem

14 Mar 2023, Tuesday

3:47 AM

Fed Reserve shifts to simultaneously focus on financial stability and high inflation; Ex Babel Finance CEO launches the new $HOPE stablecoin and DeFi ecosystem

BTC

ETH

S&P Futures 500

$24,271.25

$1,676.00

$3,868.50

(+7.09%)

 (+2.37%)

(-1.09%)

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

GM Treehouser 🌳

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February 2023 Market Recap

Our Daily View

What We Are Covering Today

  • Uncertainties arise amongst investors and economists on the future path of interest rates following the SVB collapse (more in Macro & TradFi)
  • Former Babel Finance founder launches the new DeFi ecosystem centred around the new decentralized stablecoin $HOPE (more in DeFi & CeFi)
  • Tether's dominance in the stablecoin market rises due to regulatory moves and USDC concerns, BUSD's market share declines significantly as Paxos ceases new minting (more in On-Chain)
  • BTC skew flips to call premium (more in Crypto Derivatives)
  • BTC and ETH continue to rally as ETH breaks through its trendline (more in Crypto Technical Analysis)

Macro & TradFi

The collapse of Silicon Valley Bank and Signature Bank has forced the Federal Reserve uncomfortably close to resolving a financial-stability crisis whilst simultaneously fighting high inflation. This situation could force Fed Chair Jerome Powell and colleagues into choosing which problem demands the central bank's top focus. The sudden collapse of Silicon Valley Bank has prompted a broader rethink among investors about the prospects of regional banks. Investors are now focusing on how problems with banks could damage the economy. In fact, Goldman Sachs economists were reported to no longer expect a Fed rate increase next week, despite the previous expectations, as there is still considerable uncertainty over the future path of interest rates.

Meanwhile, Pfizer is set to acquire biotech firm Seagen for $43 billion in cash. The deal, which is set to close this or early next year, is expected to be scrutinized by antitrust regulators. The move is a sign that large pharmaceutical companies will be making heavy deal-making this year, despite the threat of higher interest rates and scrutiny from regulators. The acquisition of Seagen will help Pfizer reach its target of generating $25 billion in additional revenue by 2030 through deal-making, according to Pfizer executives. Seagen's therapies will expand Pfizer's portfolio of breast and bladder cancer drugs, while complementing its efforts to build positions in other tumors with large patient populations.

Lastly, the aftermath of the SVB fallout continues to ripple in the TradFi space. Investors have fled the stock market in pursuit of safer financial instruments such as government bonds. This has led DJIA to finish lower for the 5th consecutive day which represents the longest losing streak since last September. Treasury yields have also declined sharply in the last few days with 2 year and 10 year yields sitting at 4.063% and 3.556% respectively. SPX has also fallen by 0.2% while NASDAQ rose 0.5%, making it the only index to finish higher in the previous trading session.

DeFi & CeFi

  • Euler Finance lost over 200M in a flash loan attack, spreading the impact to 11 other protocols
  • The former founder of Babel Finance announced the launch of $HOPE ecosystem
  • Coinbase considers to operate as a neobank as an additional feature
  • Stargate Foundation recommends the DAO to not re-issue $STG token
  • CZ announced the conversion of Binance’s $1 billion Industry Recovery Fund from stablecoins to BTC, ETH, and BNB
  • Circle proposes to establish a full-reserve bank for the crypto industry

Flex Yang, the former founder of Babel Finance, has announced the launch of the HOPE DeFi ecosystem as an effort to restructure Babel. With $HOPE being the distributed stablecoin backed by crypto-native reserves, the ecosystem intends to incorporate CeFi, DeFi, and TradFi with four protocols that are currently in the roadmap: Swap, Lend, Derivative DEX, and RWA Synths. In addition, the ecosystem features a dual-token model, where users are able to be rewarded with the $LT governance token by providing liquidity to the protocol. However, Hope will only be staked by Babel but won’t directly repay Babel creditors. Instead, 10-20% of the revenue received by the team will go towards the repayments of Babel’s debts.

On the other hand, lending protocol Euler Finance has suffer a flashloan attack yesterday that resulted in approximately $200M worth of stolen funds. The company is reportedly working with law enforcement and cybersecurity professionals to further investigate the issue. This has also caused a cascading effect which rippled to 11 other DeFi protocols such as Balancer’s Euler Boosted USD pool and Yearn Finance through the potential undercollaterialization of agEUR stablecoin. The overall impact other than Euler itself was estimated to be about $37.6 million

Lastly, Coinbase has announced that the company is potentially planning to add banking features to the exchange following the distrust of the traditional banking system given the recent events. Coinbase CEO, Brian Armstrong, is also openly discussing the matter on Twitter and actively seeking opinions from the native crypto community.

On-Chain

BTC has outperformed other cryptocurrencies on the day when Silicon Valley Bank collapsed and the dollar fell. Traders are taking advantage of the increased price of BTC and selling their holdings, resulting in the largest movement of Bitcoin to exchanges since September 13, 2023. (@santimentfeed).

Since mid-2022, the market share of Tether among stablecoins had been on a decline. However, Tether's dominance has now climbed above 57.8% due to regulatory moves against BUSD and concerns related to USDC. While USDC has maintained a dominance of 30-33% since October 2022. Paxos's decision to cease new minting has also caused a significant decline in BUSD's market share from 16.6% in November to only 6.8% presently (@glassnode).

Crypto Derivatives

  • BTC and ETH funding rates remain positive
  • 30-day ATM IVs spike to 59.12% and 64.1% for BTC and ETH respectively
  • 30-day 25 delta put skew tightened to -1.39% for ETH while flipping to call skew for BTC at 0.6%

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

Net Annualized APR

Perp (USDT pair)

Long on

Short On

35.24%

BTC

BYBIT

DYDX

34.50%

SOL

BYBIT

DYDX

20.22%

BNB

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

For futures, total liquidations over the past 24 hours amount to $176.49M with the majority coming from shorts at $152.16M.

On the options front, term structures remain in steep backwardation for both BTC and ETH. Skew flipped to call premium for BTC for both 7-day and 30-day. Variance risk premium tightens to 0.81% for ETH as 7-day IV falls drastically while 7-day RV remains elevated at 69, VRP falls slightly for BTC to 7%. Put-call volume ratio continues trending lower reaching 0.46 and 0.47 for BTC and ETH respectively.

On the flow side, bullish sentiment for BTC seems to be returning as the mid to long-term contracts (31 March to 30 June) have significantly more call volume than put. This might be due to the market’s lowering expectations on the Fed’s rate hike. Traders also seemed to be slightly bullish on the CPI print today as shown in the call volume. Topside interest seems to be gaining momentum with the purchasing of 1.57K contracts of BTC 28 Apr 27K/30K call spread and 18.9K contracts of ETH 31 Mar 1.8K call (@tradeparadigm).

Lastly, the VIX rose to 26.52 as the aftermath of the SVB collapse continues to raise investors’ uncertainties about the systemic risks of the economy.

Crypto Technical Analysis

Onto TA, BTC continues to rally as it spiked 9.01% on the daily chart. This is largely driven by macro factors such as traders’ lowered expectations of the Fed’s rate hike. On a technical level, BTC heads towards the resistance zone of $24.5K - $24.95K which has previously been tested twice, once in Aug 2022 and another in Feb 2023. H4 RSI is currently in the overbought territory and sits at 78. If the bullish momentum continues and breaks past the current resistance zone, the next price level to look out for is the $30.5K - $31.5K resistance zone. If a retracement is to be seen, the support zone would be seen around the $22.65K - $22.95K range.

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.

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