🌳Fitch Downgrades US Debt from AAA to AA+; FTX Files Reorganization Plan for FTX 2.0

GM Treehouser 🌳

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Our Daily View

What We Are Covering Today

• Fitch downgrades US debt from AAA to AA+; Job openings, layoffs moved lower indicating stable labor market (more in Macro & TradFi)
• FTX has filed a reorganization plan prioritizing customer claims; UCC expressed dissatisfaction over unmet demands (more in DeFi & CeFi)
• Michael Egorov repays over $4M of his debt to Fraxlend (more in On-Chain)
• IV surges in APAC session over systemic risk concerns in DeFi, but settles by day's end (more in Crypto Derivatives)
• BTC breaks out as ETH Remains in range: key levels to watch (more in Crypto Technical Analysis)

Macro & TradFi

Fitch Ratings downgraded the US debt rating from AAA to AA+, citing expected fiscal deterioration and a growing debt burden over the next three years. The agency also pointed to an "erosion of governance" manifested in repeated debt limit stand-offs. The downgrade comes two months after political brinkmanship brought the US to the edge of a sovereign default. US Treasury Secretary Janet Yellen disagreed with the decision, calling it arbitrary and based on outdated data. Fitch also cited a growing US debt burden and projected a recession in Q4 2023 and Q1 2024. However, the news had little impact on US Treasury bonds and the dollar index.

Job openings in the US declined slightly to 9.58 million in June from the previous month, while layoffs also edged lower to 1.53 million, according to the Labor Department's JOLTS report. The June total for job openings decreased by 12.6% compared to last year. The decline in job openings and layoffs suggests a stable labor market, indicating a gradual slowdown in labor demand while companies retain workers. The manufacturing sector remained in contraction during July, with an ISM Manufacturing Index reading of 46.4, below the 50 level representing expansion.

The Dow Jones Industrial Average was up 0.2%, the S&P 500 lost 0.27%, and the Nasdaq Composite was down 0.43%. Asia-Pacific markets experienced declines; Japan's Nikkei 225 led losses with a slide of 1.48%, while South Korea's Kospi fell 0.45%, and Australia's S&P/ASX 200 dropped 0.8%. Fitch's downgrade sparked risk aversion flows in Asia, leading to lower equities and safe-haven buying of treasuries and currencies like the Japanese yen and Swiss franc.

DeFi & CeFi

• Binance launches Binance Japan
• CyberConnect released community rewards details, claiming open on August 15th
• Binance introduces Sei (SEI) and CyberConnect (CYBER) on Launchpool
• Curve Founder Repaid over $4M Debt on Fraxlend
• LeetSwap temporarily stops trading due to attack, loses about 340 ETH
• FTX filed reorganization plan and to relaunch offshore exchange to compensate customer losses

According to a post by @AFTXcreditor, FTX has submitted its "Draft Plan of Reorganization" to regulators. This plan emphasizes three key proposals:

1. Prioritizing customer claims over non-customer claims.

2. Asserting that FTT claims hold no value.

3. Aiming to launch an offshore trading platform, with profits directed towards compensating customer shortfalls.

In reaction, FTX's Official Committee of Unsecured Creditors (UCC) expressed dissatisfaction, noting that their earlier requests which included having a voice in selecting FTX 2.0's management and investing the $2.6B cash reserve in short-term treasury notes for interest earnings were not added to the list. Given these developments, regulators might object to FTX's motion to extend the exclusivity set for September 7, potentially allowing creditors to present their reorganization plans.

Binance has unveiled Binance Japan, a dedicated trading platform for Japanese residents, following its acquisition and rebranding of the Sakura Exchange BitCoin (SEBC) last November. Starting August 14, existing global Binance users can transition to this new platform. Catering specifically to local users, Binance Japan will offer spot trading, Earn products, and an NFT marketplace. Initially, it will support 34 cryptocurrencies, including BTC, ETH, and for the first time in Japan, BNB. Additionally, the exchange plans to introduce derivatives services in compliance with local regulations.

On-Chain

After the recent exploit on Curve and the subsequent systemic risks from declining CRV prices, Michael Egorov, Curve Finance's founder, promptly settled over $4M in debt on Fraxlend. He acquired four individual transactions of 1M USDT, converting these funds on Curve to FRAX. Also, @lookonchain reported that Justin Sun bought 2M in CRV via an OTC deal at $0.4 each. Egorov also exchanged approximately 138k USDC for FRAX and used it to clear his outstanding balance on Fraxlend. Egorov reclaimed and transferred the CRV collateral to a fresh address with 10M CRV tokens.

Crypto Derivatives

• BTC and ETH funding rates continue to stay positive.
• Deribit Implied Volatility Index (DVOL) for BTC and ETH remained relatively unchanged at 36.84% and 36.72%, respectively.
• 30-day 25-delta skew (C-P) for BTC flipped positive to 0.89% and while ETH skew fell to -2.62%.
• The futures market witnessed $113.39M worth of liquidations yesterday with longs representing 65.27% of the total.

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

After another day of sideways trading, IV for all BTC tenors largely held its ground. The 30-day ATM IV for BTC has seen a declining trend over the past 30 days.

The term structure continues to be in contango, characterized by its smooth upward gradient. While short-tenor IVs saw a minor increase due to DeFi sector disturbances, IV had a marginal ascent yesterday, finishing the day largely stable.

BTC's 30-day skews shifted negative yesterday, signaling a heightened preference for puts. Meanwhile, ETH's skew, which has been consistently negative across the curve, intensified further. Concerns stemming from potential systemic risk in DeFi contributed to the deeper negative skews on both major cryptocurrencies. However, by day's end, much of this turbulence had stabilized—near-dated put buying in both majors, with the large 1800s lifted in ETH over the session.

During the APAC session yesterday, there was notable near-dated put buying in both major cryptocurrencies, with a spotlight on ETH at the $1.8K mark. As detailed by @tradeparadigm, top BTC trades structures included the purchase of 189x 29-Sep-23 $28K/$29K Strangles, alongside 150x 29-Sep-23 $29K Calls being sold, and 150x 25-Aug-23 $30K/$27K Put Spreads sold. Turning to ETH, key trades included 8,000x 4-Aug-23 $1.8K Puts sold, and the sale of 4,500 27-Oct-23 $1.6K/$2.1K Bear Risk Reversals. Furthermore, Paradigm has estimated roughly 300k ETH vega sold across Sep/Dec calendars and outright October sales. Despite a trend of selling backend volatility, there's been a marked uptick in gamma buying throughout the week.

Crypto Technical Analysis

After posting a 1.6% gain yesterday, BTC demonstrates positive momentum on the 4H chart. It has successfully broken out of the channel formed over the past week and has surpassed its 100-period moving average. Should BTC sustain this bullish trajectory, it could target the midpoint of its long-term range at $30.1K. Conversely, if it retraces into the channel, immediate support can be found at $29.5K, with a subsequent level at $28.8K.

After a modest gain of less than 1% yesterday, ETH oscillates within its horizontal channel on the 4H chart. If ETH can muster significant upside momentum, it might surpass its 100-period moving average and target the $1.9K price point. This level represents the midpoint of its long-term trading range and serves as a significant resistance. Conversely, should momentum wane, ETH might descend to the lower boundary of its channel, resting at the $1.82K support level.

Access institutional-grade commentary on TradFi × Crypto markets

By Treehouse Research

Daily Readings

TradFi

• Instant View: Fitch downgrades U.S. foreign currency ratings to 'AA+' from 'AAA'

• AMD plans AI chip debut by year-end, sees China AI opportunity

• SolarEdge forecasts third-quarter revenue below estimates as demand wanes

• US opens probe into 280,000 new Tesla vehicles over steering issue

• US manufacturing shows signs of stabilizing at lower levels in July, ISM says

• Euro zone factory July activity fell at fastest pace since onset of COVID

• Australia holds rates steady, might be done tightening

• China turns to rural tourism and smart appliances to boost consumption.

• Trump sought to ‘exploit the violence and chaos’ of Jan. 6 with lies, indictment says.

Crypto

• FTX Filed Reorganization Plan and to Relaunch Offshore Exchange to Compensate Customer Losses

• Spooked by Curve Liquidation Threat, DeFi Protocols Shore Up Defenses.

• The Ordinals Team is Creating a Non-Profit to Support Bitcoin NFT Developers.

• DeFi Platform Term Finance Brings Fixed Rate Lending to Ethereum.

• Ripple Ruling Rebuke Complicates Coinbase’s Defense Against the SEC: Berenberg.

• An F1 Team Might Take a Bored Ape Across the U.S. Grand Prix Finish Line.

• GameStop will stop support for its crypto wallets, citing ‘regulatory uncertainty’.

• 3AC co-founder rejects jurisdiction of bankruptcy court, claiming he renounced US citizenship.

• Genesis Digital Assets opens three new facilities in South Carolina in US expansion.

• Bankruptcy judge signs off on order allowing Terraform Labs to subpoena FTX entities.

• Nomura’s crypto arm Laser Digital bags Dubai VARA license.

• FTX's creditors say they weren't looped in on plan to recoup funds

• LeetSwap Temporarily Stops Trading Due to Attack, Loses about 340 ETH

• PancakeSwap to Share 5% of Trading-fee Revenue with $CAKE Token Stakers

Deal Flow

• On-Chain Fund Platform Solv Protocol Closes $6 Million Funding Round

Yours sincerely,
Treehouse Research 🌳