Is Recession Bad Enough To Be Good; Voyager Under Damage Control As It Halts All Services

04 Jul 2022, Monday

3:00 AM

BTC	ETH	S&P Futures 500
$19,230	$1,071,00	$3,802.25
(-5.12%)	(-2.10%)	(+0.39%)
Note: All percentages shown above are referenced to the previous business work day's 09:00 (GMT+8)

GM Treehouser 🌳

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A Peep into Perps: Perpetual Futures Explained

Our Daily View

What We Are Covering Today

US ISM fell to a two-year low as China Covid cases resumed their climb
US stocks pared some weekly losses on Friday while US bond yields continue to fall
FTX entered $680M deal with BlockFi; Voyager halts withdrawal and trading; 3AC files for Chapter 15 bankruptcy
On-chain data send mixed signals as miners capitulation are underway while long-term holders are currently dominating the market supply
Total liquidations in the past 24H were $80.78M, with BTC perps seeing over 40% them; Option traders price in CPI and FOMC for the July expirations
BTC’s tight range expected to break out after bearish consolidation since June

Macro & TradFi

GM! US ISM purchasing managers index, a measure of US manufacturing activity, fell to a two-year low for the month of June as new orders slumped. The reading dropped to 53 from 56.1 in May and was below economists’ estimates of 54.5. In addition, the group’s index of new orders decreased by ~6 points to 49.2, the worst reading since May 2020. However, supply chain constraints appear to be waning as ISM’s measures of delivery times and backlogs dropped to the lowest level in 2020 while the purchasing managers group’s production reached a four-month high. On the other side of the Pacific, China’s Covid cases have once again climbed over the weekend just as the nation eased up on its lockdown measures.

US spot markets are out for the July 4th holiday. Bond yields dipped last Friday as weak economic data refueled recession fears while equities managed to stage a late-day rebound, paring some of their weekly losses on Friday. The S&P500 climbed 1.1% but still finished the week down by 2.2%. US 10Y Treasury yield dropped as much as 23bps to 2.79% before reversing some gains and closing at 2.88%. The macro narrative seemed to have shifted to a point where bad news is almost good news, as Fed might be forced to temper its hawkish tone in the upcoming meeting although still likely to keep up the hiking pace.

Economic Calendar for the Week

Monday: Switzerland CPI; BOC Business Outlook Survey
Tuesday: Australia Central Bank Rate Decision and Statement; EU PMIs; BOE Gov Bailey Speaks
Wednesday: US JOLTS job openings, US ISM Services, US PMIs; EU Economic Forecast
Thursday: US FOMC Minutes, US Initial Jobless Claims; EIA crude oil inventory report
Friday: Fed Governor Christopher Waller, St. Louis Fed President James Bullard to Speak, US employment report

DeFi & CeFi

DeFi TVL flat over the weekend; Ethereum TVL down 0.64%
FTX.US signs a $680M deal giving it the option to acquire BlockFi
3AC files for Chapter 15 Bankruptcy
Voyager suspends all trading, deposits and withdrawals
Ethereum successfully activates ‘Grey Glacier’ hard fork, Merge with PoS Beacon Chain likely to be in September
Orthogonal Trading issues notice of default to Babel Finance
Circle EUROC is now live on Ethereum and will be supported by leading CeFi exchanges and DeFi protocols
Tether reduces commercial paper holdings to $8.4B; $5B of it set to expire on July 31

The BlockFi-FTX deal involves a $400M revolving credit facility coupled with an agreement that gives FTX the optionality to buy BlockFi at a maximum price of $240M. This comes after the initial $250M loan facility agreed upon earlier. Meanwhile, 3AC files for Chapter 15 bankruptcy, seeking protection from creditors in the US which allows foreign debtors to shield US assets. According to @wassielayer, Teneo, the advisory firm, has been appointed as the liquidators of 3AC to assess the assets available and the liability claims against them. Lastly, Voyager released a market update over the weekend, announcing temporary suspension of all trading, deposits, and withdrawals. Along with it, Voyager has also disclosed a $650M claim against 3AC, consisting of 15,250 BTC and $350 million USDC.

On-Chain

Moving to on-chain data, the Bitcoin Entity-Adjusted Dormancy Flow has hit what is effectively an all-time low, below the range that historically signals market bottoms in previous cycles.

Combining the above indicator with the Realized HODL Ratio currently at macro-lows, which captures the relative wealth balance between 1Y-2Y old coins and 1-week old coins, indicates that the coin supply is firmly and heavily dominated by these longer-term, higher conviction investors. A bullish interpretation is that inexperienced investors and speculative positions that are shorter-term in nature are exiting the market while HODLers remain during this drawdown.

However, due to increasing stress on miners’ income and rising production costs, we can see that miner’s capitulation is underway, and are currently distributing instead of accumulating BTC. We can confirm this by combining both the Puell Multiple < 0.6 and Difficulty Ribbon Compression < 0.06, which historically signals further capitulation by miners during these drawdown periods (@glassnode). Hence, on-chain data is sending mixed signals due to the interesting divergence of dynamics seen between investors and miners, indicating that whether we have yet to reach the bottom is still uncertain.

Crypto Derivatives

8-Hourly funding rate for BTC and ETH at -0.0072% and -0.0120%; remaining altcoin funding rates are negative
30-day IV for BTC and ETH at 81.66% and 104.09% respectively
30-day 25-delta skew for BTC and ETH at -16% and -21% respectively
- BTC dropped to -18% through the day and rose to close at yesterday’s -16%
- ETH remained flat
Put-call ratio for BTC and ETH at 2.06 and 0.74 respectively

In the futures market, total liquidations in the past 24H were $80.78M, with BTC seeing 40.4% of the total liquidations. This is an increase from yesterday’s liquidation amount of $58.46M. Most of the liquidations were shorts totaling $41.02M.

Term structure for BTC is currently in contango for the short term, while backwardation from the 29 July expiration. This is expected as the 29 July expiration captures both the CPI print and FOMC as markets are expecting volatile price actions during that window.

One interesting observation is that IV is elevated for ETH through July till September in comparison to BTC where IV falls off after the July expirations. One possible reason is that the Merge narrative is still in play which sees option buyers interested in the August and September tenors.

The weekend saw large orders of BTC-8Jul2022-15000 Puts. With under a week left till expiration, the trader is either hedging their long positions or betting on short-term gamma to the downside.

Crypto Technical Analysis

In TA, BTC saw another red weekly close, putting its weekly RSI at its lowest level since inception. Amidst the long weekend in the US, price has remained compressed as trading volume was low, price action saw a spike to sub $19K before wicking back to $19.2K within the same 15 minutes. Closely looking at the 4 hourly chart, we can see that RSI and price has put in higher lows since dipping to sub $18K early in June. This suggests a bearish price consolidation rather than a possible reversal. It is likely that price will continue to see a tight range until the long weekend is over, however price volatility should breakout after with the path of least resistance looking to be to the downside.

Looking at ETH, we also see a similar macro trend to BTC on the weekly and daily. Looking at the 4 hour chart ETH looks to be consolidating and forming a bear flag within its tight weekend range.

Daily Readings

TradFi

Crypto

Yours sincerely,
Treehouse Research 🌳

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