FTX Experienced Hack After Filing For Chapter 11 Bankruptcy; Crypto.com And Gate.io Caught In The CEX Drama; Fed Governor Suggests 50bps Hike Might be Possible In Next Meeting

14 Nov 2022, Monday

2:34 AM

BTC	ETH	S&P 500 Futures
$16,226.00	$1,203.50	$3,989.75
(-7.32%)	(-6.97%)	(+0.55%)
Note: All percentages shown above are referenced to the previous business work day's 09:00 (GMT+8)

GM Treehouser 🌳

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What We Are Covering Today

US Fed Governor said that Fed could consider dropping to 50bps hike as soon as the next meeting; US stocks notched their biggest weekly gain since June (more in Macro & TradFi)
FTX declared bankruptcy, experiencing hacks and committing possible financial fraud (more in DeFi & CeFi)
Large inflows of stablecoin reach an all-time high of $1.04B in a day (On-Chain)
Put skew tightened to levels not seen since 3AC/Terra blow-up; VIX decoupled from crypto vols as it continues to fall (more in Crypto Derivatives)
BTC & ETH declined over the weekend despite CPI-induced pump on Friday (more in Crypto Technical Analysis)

Macro & TradFi

GM! On Friday, US equities extended their rally sparked by a slowdown in inflation reading, improving prospects of a dovish tilt by the Fed. The University of Michigan’s preliminary survey indicated consumer inflation expectations increased for both the short and long term while consumer sentiment retreated. Federal Reserve Governor Waller has said that policymakers still have some “ways to go” before ending the hiking cycle though he conceded that the Fed could consider a drop to 50bps for its next meeting in December. Lastly, Beijing has shortened the time that travelers stay in quarantine and curtailed mass testing among others as China eased some Covid restrictions, lifting commodity prices.

All three major US stock indices climbed higher on Friday, with the S&P 500 adding 5.9% and the Nasdaq rising by 8.1% for the week. The US dollar declined further, posting its fourth week of losses. Meanwhile, the US bond markets were closed due to Veterans Day though yields increased during Monday's Asia session.

DeFi & CeFi

FTX sees mysterious outflows of $600M after declaring bankruptcy under Chapter 11 as FTX officials confirm rumors of a hack
LayerZero buys out 100% of LayerZero equity and token warrants from FTX Ventures and Alameda
Ren Labs clarify that they may no longer receive quarterly funding from Alameda
Crypto.com claims that they mistakenly sent 320K ETH to their corporate account on Gate.io
DefiLlama introduces a "CEX Transparency" section
FTT contract deployers unlock the remaining supply worth close to $400M
Jump Crypto claims that they remain well-capitalized despite the FTX debacle
Galois Capital reveals that they have $100M stuck in FTX
AAX halts operations, citing system upgrades

The FTX debacle continues as they file for bankruptcy under Chapter 11. Sam Bankman Fried (SBF) has officially stepped down as CEO, being replaced by John J. Ray III. The Securities Commission of The Bahamas also took action to freeze the assets of FTX Digital Markets. Several people such as crypto influencer, Algod, have also been speculated to have been purchasing Bahamas-native FTX accounts and KYC. By doing this, they were supposedly able to bypass withdrawal restrictions. However, The Securities Commission of The Bahamas has clarified that it did not instruct FTX to prioritize the withdrawals of Bahamians. This may lead not only to identity fraud but possibly further financial fraud.

FTX has also apparently experienced "hacks" over the weekend, with around $450M being blackhat theft and $200M being whitehat rescue. FTX Telegram admins have pinned a message, stating that FTX apps may now contain malware and instructed users to uninstall them immediately. Kraken has since claimed that they have possibly identified the hacker. The Kraken accounts owned by FTX or Alameda have been frozen in order to protect the integrity of assets meant for creditors.

FTX has also been found lending customer funds to Alameda. SBF has allegedly built a backdoor that allowed him to manipulate financial accounts and transfer funds without alerting other staff. FTX executives were the only ones in the know. In the bankruptcy filing, it has also been revealed that the FTX Group (Consisting of FTX, Alameda and other subsidiaries) had over $10B in liabilities.

On-Chain

Looking at on-chain, exchanges saw the largest amount of stablecoin inflows last week as $1.04B flowed onto exchanges on the 10th of Nov amidst the FTX collapse. While investors have started to accumulate decentralized assets like BTC and ETH and remove them from exchanges, unprecedented stablecoin inflows have dominated net exchange flow increasing buying power on exchanges of $4B/mth.

Elsewhere, miners are under a lot of stress as hashprice reached all-time lows. This has resulted in 7,761 BTC being sold off, making up 9.5% of held balance.

Crypto Derivatives

Funding rate remains negative on BTC and ETH
30-day IV fell for both BTC and ETH to 85.26% and 111.94%, respectively
30-day 25d put skew tightened for BTC and ETH to -30.03 % and -32.88%, respectively

For futures, total liquidations came in at $264M, with the majority from long liquidations at $160M.

On the options front, IV fell over the weekend dueto DOVs selling pressure, albeit some DOVs halting services especially those on the Solana blockchain. However, IV rose once again during late Sunday trading sessions as spot continued its downtrend. 7-day IV is now currently underperforming 7-day RV on both BTC and ETH. Term structure remains in steep backwardation as fear looms over the market near-term.

Put skew continues to tighten significantly across all tenors. Put skew is now at levels similar to prior risk-off events such as the 3AC and Terra blow-up.

The past weekend saw outsized volumes and OI for puts on the 14th November expirations likely to be last-minute hedges or a bet on gamma to the downside.

On the flow side, BTC sees continued interest in downside structures such as bear put spreads as well as short call calendars. For ETH, flows were largely mixed, consisting of long strangles and outright short puts, likely to take advantage of the high put skew.

Elsewhere, the VIX continued to fall last Friday, completely decoupling from crypto vols as equities rallied for the second day straight post-CPI print.

Crypto Technical Analysis

BTC is down 7.2% since Friday's opening and is currently at $16,324 as price continues to decline after the CPI-induced pump on Friday. Currently, BTC is well below its 18.5k major previous support and has created new lows on both the daily and weekly charts. On the H4, price action shows a tight consolidation over the weekend between 17.5k and 16.5k. A break downwards adds confluence with the bearish structure is likely as price sits under the 50 EMA across multiple timeframes.

ETH is currently at $1,220 and has fallen by 5.84%. On the daily, it illustrates that price is currently sitting at its 1.25k support region after breaking below it last Wednesday. Unlike BTC, ETH still remains above its middle-of-June lows. However, price has created new lows on the daily as well. In conjunction with the crypto market sentiment as seen with Bitcoin, price is likely to continue lower and test its 1k support level not seen since the middle of July.

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Yours sincerely,
Treehouse Research 🌳

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