LSD Protocols In Spotlight Once More As Rumors of SEC Blanket Ban On Crypto Staking; Asia Market Follows US Stocks Decline

10 Feb 2023, Friday

3:25 AM

LSD Protocols In Spotlight Once More As Rumors of SEC Blanket Ban On Crypto Staking; Asia Market Follows US Stocks Decline

BTC

ETH

S&P 500 Futures

$21,804.50

$1,545.50

$4,089.75

(-5.15%)

 (-6.63%)

(-1.13%)

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

GM Treehouser 🌳

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January 2023 Market Recap

Our Daily View

What We Are Covering Today

  • Yahoo started its first round of layoffs in 2023 with 1000 employees (more in Macro & TradFi)
  • Rumors of SEC banning crypto staking for US retail participation surfaces; MakerDAO community votes to create Spark Protocol (more in DeFi & CeFi)
  • On-chain data shows WBTC borrowings have been declining(more in On-Chain)
  • ETH bears push 20K put option contracts ITM (more in Crypto Derivatives)
  • Both BTC and ETH break their prior trend with ETH still holding on the horizontal support (more in Crypto Technical Analysis)

Macro & TradFi

The Chinese balloon that traveled across the US was revealed to be part of a military-led spy program operating in over 40 countries, according to the Biden administration. Meanwhile, Yahoo is cutting 1,000 jobs, or 12% of its workforce, as part of a plan to reduce its workforce by 20% by the end of the year. HSBC is looking to expand its financial presence in India as its profits from the Greater China region decline. Stocks in Asia are headed for declines following a drop in US equities and an increase in Treasury yields.

US stocks fell; NASDAQ -0.85% and SPX -0.82% as both left earlier 1% intraday gains in the rearview mirror, while DOW also sold off 0.8%. US Treasury gave up gains from the day before as well as 30-year auction showed less bidding will from end users, pushing 30-year yield up 13bps. Oil sold off and the dollar gained.

DeFi & CeFi

  • Optimism announces second batch of $OP airdrop
  • Aave’s native stablecoin $GHO launches on Ethereum’s Goerli testnet
  • Crypto protection startup Coincover raises $30M in a round led by Foundation Capital
  • MakerDAO community propose creating liquidity market focused on $DAI stablecoin
  • Major LSD protocols bounce higher on rumors of SEC staking ban for US retail customers
  • Ummami Finance CEO reportedly dump his token leading to his team resignation, $UMAMI fell to intraday low of $7
  • Flux Finance launches, providing US Treasuries yield product
  • RSS3’s product Hoot.it will connect to ChatGPT for its open web search engine

Yesterday, CEO of Coinbase, Brian Armstrong, announced on Twitter that there are rumors that the SEC may ban retail customers from participating in crypto staking in the US. This news led to an increase in the prices of major Liquid Staking Derivatives (LSD) projects such as Lido DAO, SSV Network, Rocket Pool, and Frax Share. Though the jump was short-lived. This comes as Kraken settled on two SEC charges related to its staking products. The exchange has paid a $30M fine and also agreed to shut down its staking services and programs. The decision, however, was unsupported by the SEC commissioner Hester Peirce. She called the outcome “paternalistic and lazy”.

MakerDAO, one of the largest decentralized finance (DeFi) protocols, has proposed the creation of Spark Protocol, a liquidity market for lending and borrowing crypto assets with a focus on DAI, its stablecoin with $5 billion in market cap. The first product, Spark Lend, will allow users to borrow DAI at a set rate, using highly liquid decentralized assets as collateral such as ETH, DAI and derivatives of staked ETH and BTC. The Spark Protocol will launch in April and will use Aave v3's smart contract system, with 10% of its profits to be sent to Aave DAO. The implementation of Spark Protocol is subject to a vote by the Maker community. The proposal is part of Maker's "Endgame Plan" which aims to break up the management structure into smaller blocks called SubDAOs. The team behind the proposal is Phoenix Labs, a recently created company focused on building new products on top of the Maker protocol.

On-Chain

As prices plummeted in 2022, borrow rates spiked in August and September, indicating a rising confidence in shorting the market. Shorters felt overly optimistic that the support would collapse and went on a large WBTC borrow that led to its greatest jump in a year. Since the strong start in 2023, WBTC debt has plummeted in recent months as short sellers reduced their positions.

Crypto Derivatives

  • BTC and ETH funding rates remain positive
  • 30-day ATM IV fell to 47.5% and 61.0% for BTC and ETH respectively
  • 30-day 25d call skew fell to -2.92% and -4.74% for BTC and ETH respectively

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

Net Annualized APR

Perp (USDT pair)

Long on

Short On

17.20%

BNB

OKX

BYBIT

13.08%

DOGE

OKX

BYBIT

11.25%

XRP

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 in the past 24H amounted to $278.4M, majority coming from longs at 254.1M.

On the options front, near-dated IV spiked higher for both BTC and ETH. Variance risk premium widens to 13.6% for BTC and 14.1% for ETH as near-dated IV spikes. Open interest of put-call ratio for BTC and ETH continued its rise, going from 0.39 to 0.42 and 0.28 to 0.32 respectively in a week.

On the flow front, volume seems to come mainly from the near-dated options along with 31 March options. Looking at the volume of put-call ratio, it seems that traders are bearish in the near-term while bullish for the longer-term. 20K+ put options are already ITM, if bears continue to push ETH price lower,it might add another 40K put options ITM. It was noted by @tradeparadigm that there was a 10K 10-Feb-23/24-Feb-23 $1,550 put calendar being bought. The top strategy for ETH is the put calendar.

Lastly, the VIX rose by 5.5% to 20.71.

Crypto Technical Analysis

Onto TA, while mostly driven by macro, the $22.6K support zone for BTC failed to hold on with RSI decreasing significantly to 25.2. If the bearish momentum continues, we could see the next support zone at 20.8K. The same trend can be observed on the daily timeframe, apart from the psychological support at 20K, there is no clear next support zone until the 18.6-18.9K level seen in last September to October.

As for ETH, the rising channel has been broken through the lower bound. Similar to BTC, RSI has also dropped to 29.2. However, the horizontal support still holds as of the time of this writing. If bulls manage to hold price at the support, the ETH trading range pattern could change from a rising channel to a horizontal channel. The same trend can be observed on the daily level with the next support zone being the 1.42-1.44K zone validated last August.

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Yours sincerely,
Treehouse Research 🌳