Investors To Focus On Upcoming FOMC This Week; CZ Issues Warning To Justin Sun After $56M Deposit Into Binance

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Our Daily View

What We Are Covering Today

• JPMorgan ends First Republic’s turmoil after FDIC seizure (more in Macro & TradFi)
• Blur launches peer-to-peer lending Blend; Justin Sun reverses $56M transaction to Binance after CZ’s warning (more in DeFi & CeFi)
• Bitcoin transaction count reaches a 22-month high, averaging 483K transactions in a month (more in On-Chain)
• Near-term IVs rise while term structure flips into steep backwardation ahead of FOMC (more in Crypto Derivatives)
• BTC hits key support zone while ETH sees a head-and-shoulder pattern that potentially indicates further downsides (more in Crypto Technical Analysis)

Macro & TradFi

JPMorgan Chase has agreed to acquire First Republic Bank in a deal led by the US government, following the collapse of regional lenders in March. The acquisition will make the biggest bank in the US even larger, and bolster its wealth management offerings. First Republic was the fourth regional lender to collapse since early March, and its failure was the second-largest in US history. JPMorgan will reopen 84 of First Republic offices in eight US states as branches of JPMorgan Chase Bank. The deal involved JPMorgan paying the US Federal Deposit Insurance Corp (FDIC) $10.6 billion and also entering into a loss-share agreement with the FDIC for the residential and commercial loans it purchased. However, JPMorgan did not take on First Republic's corporate debt or preferred stock.

Meanwhile, investors will be focusing on Wednesday’s FOMC where the market expects Federal Reserve to raise interest rates by 25bps, marking the fastest rate-raising cycle in 40 years. This will lift the benchmark federal funds rate to a 16-year high. The economy has shown some signs of cooling, including more muted consumer spending and factory activity. However, steady hiring and brisk wage gains could sustain elevated inflation. Fed officials are expected to keep their options open as investors look for guidance in post-meeting statements and remarks by Fed Chair Jerome Powell.

Onto market performances, major US stock indexes barely moved on Monday after the news on First Republic Bank. The sale prevented a chaotic banking collapse that could have reignited March’s banking turmoil. The S&P 500, DJIA and Nasdaq Composite all slipped less than 0.1%. PNC Financial declined 6.3%, while U.S. Bancorp fell 3.9%, and KeyCorp dropped 4.8%. The yield on the 10-year Treasury note rose to 3.573%. Oil prices dropped with U.S. crude futures down 1.5% and Brent crude down 1.3%. The Nikkei 225 rose 0.9% to reach its highest since August 2022.

DeFi & CeFi

• Blur launches Blend, a peer-to-peer lending platform
• Crypto exchange Poloneix agrees to pay $7.6M fine for KYC violations
• Justin Sun to reverse $56M transfer to Binance after CZ warns of $SUI token grab
• Level Finance confirms $1M exploit
• Temasek invests $10M into algorithmic currency system Array
• Zodia Custody, a crypto custody subsidiary backed by Standard Chartered, raised $36M in series A funding
• Mastercard partners with Aptos, Ava Labs, Polygon and Solana to launch crypto credential services
• Venmo looks to enable fiat-to-crypto payments in May
• Binance seeks to re-enter Japan after acquiring regulated crypto exchange Sakura Exchange Bitcoin

Blur, a new project in the DeFi space, has launched Blend, a peer-to-peer perpetual lending protocol that allows borrowers to use arbitrary collateral, including NFTs. Unlike other lending platforms, Blend has no oracle dependencies and no loan expiries, so borrowing positions can remain open indefinitely until liquidated at a market-determined interest rate. Blend matches borrowers with lenders using a sophisticated off-chain matching system, with borrowers able to exit their positions at any time by repaying their loan with interest. If a borrower fails to repay before the deadline, the lender can run a Dutch auction to find a new lender at a new rate. If no new lender is found, the borrower is liquidated and the lender takes possession of the collateral.

Justin Sun, the founder of Tron, has arranged for a full refund of $56 million to Binance after CZ warned against a potential token grab of the new SUI token. Binance had flagged a transfer of TUSD made by Sun, fearing he would use it to buy large amounts of SUI tokens from Binance's Launchpool. Sun claimed his team was unaware of the intended purpose of the funds, which were meant to facilitate market-making between TUSD exchanges.

On-Chain

Bitcoin's trading volume has once again risen above $30B per day as the price fluctuates between $27.4k and $30.2k. According to on-chain data from @santiment, Bitcoin has continued to outperform other major altcoins like ETH, BNB, and XRP, while interest in altcoins is declining due to their underperforming prices compared to the top cap asset of crypto.

The monthly net position change of young supply reveals a consistent and stable net sell pressure at a rate of +250k BTC per month, resulting in an increase of 366K BTC in total young supply. The proportion of both BTC and USD-denominated wealth held by recent buyers, particularly those in the young supply age bands (<6-months) can shed light on market demand. An increasing share of young supply during a rally indicates a flow of capital into the market. This also suggests that old supply (>6-months) is spending and transferring cheap/old coins to new buyers at higher prices due to increased demand liquidity. This current pattern is similar to the 2019 uptrend and may indicate an impending period of equilibrium before another bullish cycle, similar to what was observed in the 2020-21 market trend (@glassnode).

Crypto Derivatives

• BTC and ETH funding rates remain positive
• 30-day ATM IV fell to 50.15% and 51.55% for BTC and ETH respectively
• 30-day 25-delta skew fell to 0.35% and -0.47% for ETH respectively

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

The futures market saw $227.21M in liquidations over the weekend and on Monday, with the majority coming from longs at $169M.

On the options front, the term structure flipped into backwardation as longer-term IV remains flat while nearer-dated IV rose to 53% and 54% for BTC and ETH respectively into FOMC Wednesday. Despite prices retracing from their weekly highs during the Asian session on Monday, the 7-day variance risk premium remains negative as IV did not respond adequately to market movements. However, put skew accompanied the sell-off as both BTC and ETH options started to indicate a pricing premium to the downside, which may be due to protective buyers and speculators trading the upcoming FOMC.

On the flow side, significant volumes of transactions are occurring on the 5th and 12th May expirations in the past 24-hours. There seem to be significant deviation in the types of options traded as near-term calls dominated the tape for BTC while end-June puts seem to be more heavily traded for ETH. Some common trade structures include bull call spreads and bull put spreads as well as long straddles despite sluggish performance of vol lately.

Elsewhere, noteworthy short-term trades on the tape includes 1,000x BTC-12MAY23 31K/32K call spreads and 10,000x ETH-12MAY23 2K calls bought. (@tradeparadigm).

Finally, the VIX rose 0.17 points to 16.08%, while the newly launched VIX1D index currently sits at 10.06%, which is likely to see a bid going into FOMC on Wednesday.

Crypto Technical Analysis

On the TA front, while the market has seen significant selling pressure on May 2nd with a 4% drop in price, the $27.8K support held strong as BTC saw a rebound at that level. This marks the 6th time in two months that this support zone was respected and may act as a key support zone going forward. In the short term, price may retest the $28.8K resistance as it bounces back to the upside. However, if the price goes below the $27.8K level, the next support can be seen at $26.8K, representing another near 4% downside from the current level. RSI has also dropped significantly as a result and is currently sitting at 45.7 and 35.9 respectively for the 1D and 4H, approaching oversold levels.

Onto ETH, while the price movements are largely the same as BTC with a significant dump from the previous level, the technical indicators are telling a different story. As the price got rejected at the $1.93K resistance zone, the dump resulted in an immediate drawdown of approximately 6% in a 24-hour time span. ETH is currently hovering around the previous support zone at $1.83K. If the price breaks the current support, the next support zone is at $1.72K, representing another 6% potential downside. On the daily timeframe, a head and shoulder pattern was formed which could indicate a reversal to the bears in the near-term future. Similarly to BTC, RSI has also dropped and is currently at 43.2 and 37.8 respectively on the 1D and 4H timeframe.

Access institutional-grade commentary on TradFi × Crypto markets

By Treehouse Research

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Daily Readings

TradFi

• Brazil's Lula pledges new minimum wage policy, expanded tax exemption

• Lordstown shares dive 23% as investor Foxconn alleges agreement breach

• Exclusive: Kleiner Perkins partner Wen Hsieh to launch TSMC-backed new fund -sources

• Regulators seize First Republic Bank, sell assets to JPMorgan

• As oil output peaks, US Gulf of Mexico makes room for carbon capture

• Schumer sets expedited process to consider clean debt ceiling suspension

• US may default June 1 without debt ceiling hike; Biden calls McCarthy to meet

• Asian finance leaders to debate beefing up market safeguards

• White House considers two key nominations at the Fed -NYT

• Fed: Refinements to its new standard for officials, staff trading coming

• Bond investors fearing recession, boost safety bets ahead of FOMC

• S.Korea finmin: S.Korea, Japan, China cooperation more important as world economy at inflection point

• Japan's factory activity contracts at slower pace in April

• Lawmakers praise First Republic sale, but new bank rules are fizzling.

• China's factory activity unexpectedly cools in April.

Crypto

• Michael Saylor's MicroStrategy Books a Much Smaller Bitcoin Impairment Charge.

• Crypto Exchange Poloniex Agrees to $7.6M Fee to Settle Sanctions Violation Charges.

• Bitcoin Set New Record of Daily Transactions the Same Day the U.S. Government Quietly Engineered a Bank Buyout.

• Sotheby's Launches On-Chain Secondary NFT Marketplace.

• NFT Marketplace Blur Launches Blend, a Peer-to-Peer Lending Platform.

• 'Shark Tank' but Make It Crypto: CoinMarketCap Launching Competition TV Show.

• Justin Sun to Reverse $56M Binance Transfer After CEO Zhao Warns Against Potential SUI Token Grab.

• Coinme, Subsidiary and CEO Fined $4M by SEC Over UpToken Offering.

• Mastercard launches Web3 user verification solution to curb bad actors.

• Venmo will enable fiat-to-crypto payments in May.

• FDIC alleges Cross River engaged in ‘unsafe’ lending practices.

• Level Finance confirms $1M exploit due to buggy smart contract.

• Liquid staking solutions now have more TVL than DEXs: DefiLlama.

• FTX investor Temasek pours $10M into algorithmic currency system Array.

• Tokens but not crypto: Nigeria SEC prepares new digital asset rules.

• While Binance battles regulators, its $9 billion VC arm keeps growing

Deal Flow

• Crypto Firm FARE Protocol Raises $6.2M Ahead of Token Launch.

Yours sincerely,
Treehouse Research 🌳