Major Oil Producers To Cut Output By 3% Amid Inflation Concerns; Backlash Prompts Arbitrum Foundation to Split Token Allocation Vote

GM Treehouser 🌳

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Our Daily View

What We Are Covering Today

• Saudi Arabia, together with its fellow large oil producing countries, have announced to further cut oil supply (more in Macro & TradFi)
• Arbitrum first governance vote off to a messy start; zkSync reverts back on its Era network outage (more in DeFi & CeFi)
• Bitcoin long-term holders could look to exit after capitulation back in late 2022 (more in On-Chain)
• Put-call open interest ratio falls for BTC while spiking for ETH (more in Crypto Derivatives)
• Both BTC and ETH pulls back from the Friday pump and is eyeing further potential downsides (more in Crypto Technical Analysis)

Macro & TradFi

Over the weekend, major oil producers announced that they will cut their crude output by more than a million barrels a day from next month, with the majority of the cuts to be carried out by Saudi Arabia. This reduction follows a decrease of two million barrels a day in October 2022. Together, the two output cuts amount to almost 3% of the world's supply, which could lead to even higher crude prices and inflation. The decision came despite strong opposition from the US, which is concerned about the state of the global economy, particularly in terms of inflation amidst the banking crisis.

According to 9fin, a leveraged-finance analytics firm, Wall Street firms are facing difficulty in selling tens of billions of dollars of risky buyout debt due to the recent turmoil in the banking industry. Currently, banks such as Bank of America, Barclays, and Morgan Stanley hold $25 billion to $30 billion of unsold debt on their balance sheets, which is tied to leveraged buyouts agreed upon before credit conditions worsened last year. The recent crisis that engulfed Silicon Valley Bank and Credit Suisse Group AG has brought the process of chipping away at the backlog to a standstill. Furthermore, the biggest single chunk of hung debt, more than $13 billion in loans backing Elon Musk's takeover of Twitter Inc., just became even less attractive due to a move by the billionaire to write down the value of the social media platform. This has crimped banks' willingness to make new buyout loans, taking a large bite out of a source of Wall Street profits.

Lastly, major equity indices closed higher during the previous US trading session on Friday. Specifically, the SPX was up by 1.44%, the DJIA was up by 1.26%, and the NASDAQ was up by 1.73%. Treasury yields dropped slightly, with the 2-year and 10-year Treasury yields currently sitting at 0.089% and 3.514%, respectively.

DeFi & CeFi

• Arbitrum Foundation breaks up its first governance proposal (AIP-1) after controversial sale of $ARB token for stablecoins
• zkSync publishes an update on its Era outage on 1 April, improving its monitoring system
• Trader Joe may launch its upgraded trading engine, Liquidity Book V2.1, as soon as next week
• Swiss non-profit ZeroSync Association and Bitcoin infrastructure firm Blockstream plan to broadcast Bitcoin zk proofs from Blockstream’s satellite
• Zerion launches “Perks” which provides information on airdrop eligibility and whitelist opportunities
• Cardano users can soon access Ethereum dApps through Milkomeda

The proposed decentralized governance plan for Arbitrum Foundation's layer 2 scaling solution for Ethereum has sparked controversy in the community. Under the proposal, a "special grants" program would be funded by 750 million ARB tokens, worth nearly $1 billion, and would be under the Foundation's control without input from ARB holders. Concerns were raised about the centralized control of the Foundation and the fast-tracked proposal, which bypassed full on-chain governance. The Foundation began selling 50M ARB tokens before the community ratified its budget, causing a massive drop in ARB's price. At the time of voting, 70% of the community voted against the proposal.

Following the backlash, the Foundation backtracked and announced that it will split the AIP-1 package into separate votes, including a standalone vote on its 750 million token allocation. The "special grants" program has been rebranded as the "Ecosystem Development Fund," with the Foundation pledging more transparency and context on how the funds will be used. The Foundation also stated that it has no near-term plans to sell more tokens, following backlash over the sale of millions of dollars worth of ARB tokens without community consent. While some in the community have praised the Foundation for listening to feedback, others remain skeptical and call for more accountability and transparency moving forward.

Elsewhere, zkSync has released an official update following the downtime in its Era network on April 1. The outage was caused by a failure in the block queue database, which the team has since fixed within 5 minutes. The team's monitoring, logging, and alerting systems were unable to detect the problem because the API was still functional, and team members were not online at the time. However, the team has improved its monitoring system by assigning a special role to database monitoring agents. They acknowledge that occasional hiccups may still occur in the short term as the network is still in Alpha. The team emphasizes that decentralization of the sequencer will be critical for the network's liveness and availability in the long term.

On-Chain

According to @cryptoquant, the increasing price of BTC may necessitate a phase in which long-term holders exit post-capitulation. In the past, long-term holders have exited the market to preserve profits and reduce losses during periods when the realized prices of long-term investors intersect with the market price. A similar phase may occur in 2023, where the exit of long-term holders could be necessary for BTC's sustained growth.

Meanwhile, over the weekend, Dogecoin has shown some signs of mild decoupling. While most cryptocurrencies remained flat, Dogecoin surged over 9%. According to @santimentfeed, addresses holding 10 million or more DOGE have been accumulating 1.47 billion coins since January 1st, with a total value of $123.1 million.

Crypto Derivatives

• BTC funding rate flips positive while ETH funding rate flips negative
• 30-day ATM IVs decreased to 56.86% and 59.85% for BTC and ETH respectively
• 30-day 25 delta call skew for BTC decreased to 2.35% while ETH skew flips to put premium at -0.97%

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

The futures market saw total liquidations of $200.93M in the past 72 hours, with longs accounting for the majority at $119.18M.

In the options market, BTC term structure remains in contango despite a kink in near-term IV while ETH remains in backwardation. ETH short to mid-term skew flips to put premium as sentiment on the shorter term turns bearish. A possible explanation might be traders speculating on the Shapella coming on 12 Apr. With the fall in 7-day RV to 47.21% and 44.76% for BTC and ETH respectively, the variance risk premium saw an increase to 12.81% and 16.77%. Put-call open interest ratio saw significant changes as the 31 March contracts expired. BTC put-call OI ratio fell from 0.53 to 0.46 and ETH put-call increased from 0.37 to 0.46.

On the flow side, there was little volume coming out of the weekends. There was a weak bearish sentiment for BTC with most of the expiries having more puts than calls. For ETH, the 28 Apr contracts saw a relatively large volume of calls. The top 2 strategies for ETH are long call butterfly and bull diagonal call spread.

Finally, the VIX continues its fall from last week and currently sits at 18.7

Crypto Technical Analysis

On the TA front, after a surge on Friday night, BTC has experienced some volatile movements over the weekend. It has formed a double top with the previous local high at $28.8K, which could indicate a short-term reversal to the downside. Additionally, the price has broken through a long-term trendline that has been in place since the beginning of the year, but confirmation of the breakout is still needed. RSI has dropped slightly, but it is still within the normal range, currently sitting at 39.5 for the 4-hour timeframe. If the bearish momentum continues, BTC could test the local support zone at around $26.9K.

Turning to ETH, its price has largely been following the same trend as BTC. The downward-trending parallel channel is still being respected, and the breakout of the upper bound during the Friday pump has been proven to be a fakeout by the price movements in the following days. If the bearish momentum continues, ETH is likely to test the support zone around $1.72K before potentially moving to the lower bound of the channel, which is around $1.68K - $1.69K. If the bulls regain control, ETH could test the strong resistance in the range of $1.81K - $1.83K, which includes both the upper bound of the channel and a horizontal resistance zone.

Access institutional-grade commentary on TradFi × Crypto markets

By Treehouse Research

Read Past Issues

Daily Readings

TradFi

• Japan's foreign minister urges China to release detained national

• Japan factory activity shrinks at slowest pace in five months -PMI

• Philippine leader cheers EC move as job losses for 50,000 seafarers averted

• Egypt's Sisi heads to Saudi Arabia amid financial pressure, regional realignment

• Most Middle Eastern bourses in black on US inflation data

• UBS may cut up to a third of jobs after Credit Suisse takeover, Tages-Anzeiger reports

• Norwegian wealth fund seeks Credit Suisse boardroom shake-up

• Morning Bid: A holiday kickoff to the second quarter, and a US jobs report

• Cineworld looks to raise $2.26 billion to emerge from bankruptcy

• Ecuador's Lasso authorizes civilian use of guns, citing insecurity

• Oil prices surge on output cut, take gloss off US inflation

• Tesla reports 422,875 deliveries for first quarter of 2023.

• OPEC+ announces surprise oil cuts, while U.S. calls the move inadvisable.

Crypto

• Arbitrum Foundation Pledges New Votes, No 'Near-Term" ARB Sales Amid Community Revolt.

• UK banks are turning away crypto clients: Report.

• CZ, Binance, influencers face $1B lawsuit for unregistered securities promo.

• US crackdown will push crypto ‘center of gravity’ to Hong Kong: Kaiko CEO.

• Uniswap v3 code free to fork as BSL expires.

• Former Activision Blizzard executive joins Yuga Labs as CEO.

• More than 3,600 Bitcoin ATMs went offline to record largest monthly decline.

• Terra co-founder Daniel Shin’s arrest denied by court, citing low flight risk.

• El Salvador removes all taxes related to tech innovation for economic growth.

• Elon Musk requests dismissal of $258B Dogecoin lawsuit: Report.

• Bermuda still open to crypto firms, says premier: Report.

• Crypto exchange Bittrex to wind down operations in the US.

• Central African Republic’s Sango Project announces delay of token listing.

• National Futures Association adds rules for members handling digital assets.

• zkSync Releases Updates on Network Downtime, Improves Monitoring System

Yours sincerely,
Treehouse Research 🌳