🌳Powell Addresses Inflation Concerns; Balancer's Vulnerability Leads to $900K Exploit in Pools

GM Treehouser 🌳

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Our Daily View

What We Are Covering Today

• Fed Chair Powell addresses inflation concerns; China reduces stamp duty to boost equity market (more in Macro & TradFi)
• Balancer’s vulnerability exploited for $900K; Binance pushes low-cap projects to boost liquidity (more in DeFi & CeFi)
• $PEPE sell-offs continue; Increased $ETH migration activity, potential short-term volatility (more in On-Chain)
• Steady IVs with minimal changes in the term structure for BTC and ETH over the weekend (more in Crypto Derivatives)
• BTC remains confined with a bearish undertone; Ethereum oscillates, potential bearish trajectory (more in Crypto Technical Analysis)

Macro & TradFi

In his recent Jackson Hole speech, Federal Reserve Chair Jay Powell highlighted persistent concerns over inflation rates which, despite declining from their peak, still exceed the 2% target. While the CPI indicates a 3.2% inflation rate for July, down from a 9.1% peak, Powell underscored the Fed's readiness to implement more restrictive policies, including potential rate hikes, to achieve sustainable inflation reduction. However, he emphasized a cautious approach to avoid adverse economic impacts. Notably, market reactions reflected mixed anticipations, with some expecting an additional rate increase in October, though not conclusively priced in, and rate cuts only projected for 2024.

In an effort to bolster market confidence amid economic concerns like property downturns and weak consumption, China has cut its stamp duty on stock trades by half, the first such reduction since 2008. This move, following Beijing's recent commitment to rejuvenate capital markets, is anticipated to stimulate a surge in China’s $9.6 trillion equity market, known for its sensitivity to policy changes affecting liquidity. The measure will particularly benefit domestic brokerages and quantitative hedge funds with high-frequency trading approaches. Given the CSI 300 Index's 4% decline in 2023 and foreign investors' recent retreat from mainland stocks, this policy shift underscores China's proactive stance on market stabilization and suggests potential investment opportunities as Beijing intensifies its market support mechanisms.

U.S. equities advanced last Friday, with the DJIA, S&P 500, and Nasdaq Composite climbing 0.73%, 0.67%, and 0.85%, respectively, buoyed by Fed Chair Powell's cautious stance on imminent interest rate hikes, suggesting a potential pause in September. Meanwhile, Affirm soared by 28.82%, outpacing revenue forecasts and revising its guidance upwards due to increased gross merchandise volume. As we approach the week's close, the market's focus will pivot towards the Nonfarm Payrolls, Average Hourly Earnings, and Unemployment Rate data, pivotal indicators for assessing the economic landscape and future Fed actions.

DeFi & CeFi

• Balancer’s vulnerability exploited with a near $900K loss
• Binance pushes low-cap projects to boost liquidity
• Hashdex joins race for spot Bitcoin ETF
• PEPE team members stole 16 trillion tokens from multisig wallet

The vulnerability in Balancer's boosted pools, initially disclosed on August 22, has unfortunately been exploited by an attacker resulting in a loss of approximately $900K. The attacker’s Ethereum address was identified by blockchain security expert Meier Dolev, who revealed that the same address received transfers of the DAI stablecoin totaling $893,978 after the exploit. Balancer’s team expressed their awareness of the situation but stated that the affected pools could not be paused. The protocol urged its users to withdraw from affected liquidity pools to prevent further exploits.

In other news, Binance has begun to reach out to crypto projects with low-liquidity tokens on its exchange to boost liquidity. This comes in the midst of regulatory scrutiny and market liquidity concerns regarding Binance. The exchange urged projects to consider contributing 1-5% of circulating tokens to Binance's savings accounts for interest. It also insisted on receiving an explanation if the projects in question did not have relationships with market makers or were not interested in contributing to its savings products. A spokesperson for Binance explained that the initiative aims to manage risks for projects with lower-liquidity tokens, reducing the potential for market manipulation. They also emphasized its intention to create a safe trading environment and collaborate with projects for user protection.

On-Chain

In a recent deep dive by @lookonchain, an early investor in $PEPE has offloaded 1T of the token for a substantial 537 $ETH, equivalent to $885K. Notably, this investor's initial venture into $PEPE was marked by an acquisition of 1.69T $PEPE for a mere 0.0183 $ETH ($36.73) within the first 30 minutes of its trading inception. The eventual sale generated a return of 1,001 $ETH, which translates to an astounding $1.73M, representing a gain of 54,725x. This case underscores a potential strategy realignment amongst major holders especially in light of current token sentiment following the sale of $PEPE by the multi-sig within the last week. Short-term traders are encouraged to act with caution given the potential for higher volatility than usual and further sell-offs.

Recently, on-chain data from @cryptoquant_com reveals notable migration of ETH to other chains, which could momentarily surge Ethereum mainnet's transaction fees and introduce price instability, particularly if driven by major liquidity providers. However, these short-term variances are unlikely to overshadow the broader trajectory of Ethereum and the broader crypto market trends.

Crypto Derivatives

• Funding rates for BTC and ETH remain negative.
• Deribit Implied Volatility Index (DVOL) for BTC and ETH increased to 35.85% and 39.30%, respectively.
• 30-day 25-delta skew (C-P) for BTC flipped to -0.43% while ETH moved slightly lower to -4.40%.
• The futures market witnessed $85.66M worth of liquidations since Friday with longs representing 57.58% of the total.

Top 3 USDT Perpetual Funding Rate Arbitrage Opportunities

Bitcoin's ATM IV has remained relatively stable since Friday. However, the 7-day ATM IV experienced a dip during Friday's US trading session but managed to recover over the weekend. Presently, the 7-day and 30-day ATM IV stand at 31.29% and 31.60% respectively.

Both BTC and ETH term structures remain in contango, showing minor fluctuations in IVs along the curve, reflecting the subdued price movements observed over the weekend.

Meanwhile, BTC's 30-day (C-P) skews have remained flat, hovering around the neutrality zone at -0.28 throughout the weekend. Conversely, the 7-day skew has exhibited a steady decline. At present, it sits at -1.71, indicating a growing bearish sentiment in the short-term BTC market.

Lastly, @Paradigm reported option flows in the last week focusing on downside protection through outright put purchases and bearish risk reversals. Noteworthy BTC trades include the acquisition of 1026x 25-Aug-23 27000 Calls, 775x 29-Sep-23 24000 Puts, and a custom structure involving the 1000x purchase of 29-Sep-23 20000 Puts, 29-Sep-23 35000 Calls, along with the sale of 29-Sep-23 30000 Calls.

Crypto Technical Analysis

On the daily chart, BTC remains confined between $26.5K and $26.8K. With the 20-Exponential Moving Average (EMA) positioned below the 50-EMA, a bearish undertone persists. The $24.8K support, a notable trough from June 2023, is critical; a breach here could pave the way to $21.1K, signaling a potential 20% decline from present values. The current RSI, registering at 26.08, implies that BTC is approaching oversold conditions and a retracement is likely from this level.

On the other hand, ETH has oscillated narrowly between $1.69K and $1.65K, reflecting a market equilibrium. Anchoring Ethereum's stance is the pivotal $1.6K support. A compromise of this level could steer Ethereum towards a more accentuated bearish trajectory, targeting the subsequent support at $1.47K, which represents a potential decline of nearly 11% from its present valuation. The 20-EMA's placement beneath the 50-EMA reinforces the prevailing bearish outlook. Coupled with an RSI positioned at a decidedly oversold 32.22, traders are cautioned to brace for prospective price swings.

Access institutional-grade commentary on TradFi × Crypto markets

By Treehouse Research

Daily Readings

TradFi

• China halves stamp duty on stock trades to boost flagging market

• China Evergrande first-half net loss narrows to $4.5 billion

• Asia shares edge higher, data-packed week ahead

• Canadian economy set to show marked slowdown in second quarter, giving central bank cause to pause

• China's rare earths dominance makes U.S. supply chains vulnerable, trade representative says.

• Asia markets start the week higher after Jackson Hole announcements.

Crypto

• Balancer Hacked for $870K as Vulnerability Exploited

• Ronaldinho fails to testify in crypto scam probe, faces possible arrest in Brazil.

• FTX suspends user accounts amid Kroll cyber breach concerns.

• Crypto community reacts to Biden’s proposed crypto tax reporting rules.

• Hashdex joins race for spot Bitcoin ETF with unique strategy.

• Alleged former Worldcoin employee says they’re in contact with authorities.

• Binance P2P removes sanctioned Russian banks from payments list.

• JPMorgan sees 'limited downside' for crypto markets over the near term

• Binance pushes low-cap projects to boost liquidity over market manipulation fears

• PEPE Confirms Former Team Members Stole 16 Trillion Tokens from Multisig Wallet

• HK HashKey Exchange in Talk with Brokerages to Connect Crypto Trading to Brokerage Platform

Yours sincerely,
Treehouse Research 🌳