🌳S&P Global Lowers Ratings on US Banks Amid Financial Pressure; Balancer Identifies Critical Ethereum Pool Vulnerability

23 Aug 2023, Wednesday

3:08 AM

🌳S&P Global Lowers Ratings on US Banks Amid Financial Pressure; Balancer Identifies Critical Ethereum Pool Vulnerability

BTC

ETH

S&P Futures 500

$26,041.50

$1,633.00

$4,406.25

(-0.22%)

 (-2.03%)

(-0.03%)

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

GM Treehouser 🌳

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What We Are Covering Today

  • US banks face rating downgrades; UK firms risk debt stress from rising rates (more in Macro & TradFi)
  • Balancer’s “critical vulnerability” leads to extensive withdrawals; Upcoming US presidential debate to feature pro-crypto candidates (more in DeFi & CeFi)
  • Major long-term $AAVE holders reassess; Base now averaging 15.88 TPS, a 156% weekly surge. (more in On-Chain)
  • IVs remain elevated while the term structure for ETH options have flipped into a slight backwardation (more in Crypto Derivatives)
  • BTC shows sideways movement; ETH tests critical support with potential for bounce (more in Crypto Technical Analysis)

Macro & TradFi

Following a recent decision by S&P Global to lower credit ratings on regional US banks with significant commercial real estate exposure, shares of major US banks, including JPMorgan Chase and Bank of America, dropped by nearly 2%. Companies with their ratings downgraded include KeyCorp, Comerica, Valley National Bancorp, UMB Financial Corp, and Associated Banc-Corp. This move, echoing a similar action by Moody's, comes in the wake of heightened borrowing costs from recent Federal Reserve interest rate hikes and ongoing concerns regarding banks' liquidity, as they grapple with paying higher interest on deposits. While the sector experienced unexpected loan growth in Q2, experts like David Wagner of Aptus Capital Advisors foresees sustained challenges for lenders.

The Bank of England highlighted an elevated risk of corporate defaults due to climbing interest rates, predicting that 50% of non-financial UK firms will experience debt-servicing stress by year-end, a sharp increase from 45% in 2022. Particularly, medium-sized enterprises, with turnovers between £10mn and £500mn, will see this proportion surge to 70%, marking the highest stress levels since the 2008-09 financial crisis. As the UK interest rate jumps from 0.1% in November 2021 to a projected 6.1%, increased debt-servicing costs may prompt businesses to slash investments and employment. Escalating borrowing costs threaten the UK's financial stability, with potential sharp reductions in corporate investments and employment amplifying risks of more severe future economic downturns.

Yesterday, US equities faced headwinds yesterday with regional banks and retailers underperforming due to lackluster quarterly results. The DJIA fell 0.51%, while the S&P 500 and the Nasdaq Composite recorded declines of 0.28% and 0.19%, respectively. Ahead of its quarterly earnings report, Nvidia's stock declined by 2.77%. Macy's shares plummeted by 14.05%, impacted by rising credit card delinquencies, aggressive discounting, and a decrease in foreign tourists. Additionally, CEO of the Federal Reserve Bank of Richmond, Thomas Barkin, cautioned against altering the Fed's inflation target, emphasizing the importance of maintaining credibility and noting that a 2% target is not an unattainable benchmark.

DeFi & CeFi

  • Balancer identified “critical vulnerability”, experienced extensive withdrawals
  • Pro-crypto Republican presidential candidates to participate in debate
  • Binance engages MoonPay to help customers buy crypto
  • friend.tech hype propels Base past other L2 blockchains in TPS
  • Maple Finance prepares for Asian expansion with $5 million funding

Prominent Ethereum decentralized exchange Balancer identified a "critical vulnerability" in certain V2 pools. The vulnerability was found in the protocol's boosted pools, leading to the activation of Balancer's crisis response group. According to Balancer, 4% of the total value locked (TVL) in V2 pools is still at risk although 80% of the threat has been mitigated. For now, no exploitation or fund loss has occurred, but Balancer urged its users to either promptly migrate their funds to safe pools or initiate a withdrawal. The announcement triggered a significant withdrawal of funds of around $100 million, leaving $BAL token investors concerned about its price drop from $3.55 to $3.44. As of yet, the bug details have not been disclosed publicly, but a post-mortem is anticipated after the situation stabilizes.

Moving on to the upcoming US presidential debate, pro-crypto presidential candidates will be among the 8 Republicans who will participate in their first debate in Milwaukee on August 23. They have mentioned plans to integrate cryptocurrencies and blockchain technology into the US, should they be nominated and elected. Noteworthy candidates for their crypto support include: Florida governor Ron DeSantis, who pledges to ban central bank digital currencies if elected, citing concerns about government control over consumer payments; Vivek Ramaswamy, who sees the 2024 election as a "referendum on fiat currency" and accepts Bitcoin donations; and Miami mayor Francis Suarez—known for pro-crypto policies—who initially claimed a spot but was later excluded from the debate participant list. The 2024 elections could influence US digital asset policies as the government composition might change. Republicans have a House majority, but all 435 seats are up for election in 2024. In the Senate, where Democrats hold a slim majority, 34 out of 100 seats will be contested.

On-Chain

According to @lookonchain, an early adopter of $AAVE who initially withdrew a sum of 12,612 $AAVE (equivalent to $2M then, with an average price of $159) from Binance during 2020 and 2021, has re-deposited the assets back into the exchange in the last 24 hours. This move translates to a substantial loss of approximately $1.3M for the long-term holder, underscoring the turbulent outlook that the crypto market continues to face and therefore the necessity for investors to approach their positions with a judicious mix of strategy and foresight.

According to analysis by @coindesk, Base (the Layer 2 endorsed by Coinbase) has demonstrated a notable surge in activity with an average of 15.88 transactions per second (TPS), not only setting a new high but eclipsing rivals such as Arbitrum, and Optimism. This 156% surge over the last week can be attributed to the mounting interests in accessing friend.tech — a social market platform permitting users to trade “shares” of public figures. This convergence of factors underscores the emerging potential of Base in the Layer 2 arena and demonstrates that as the crypto ecosystem continues to mature, platforms that manage to seamlessly integrate technological efficiency with user-centric innovations are poised to succeed.

Crypto Derivatives

  • ETH funding rate goes back to negative territory while that of BTC has turned positive in some exchanges.
  • Deribit Implied Volatility Index (DVOL) for BTC and ETH dropped slightly after the sell-off, currently at 41.60% and 42.60%, respectively.
  • 30-day 25-delta skew (C-P) for BTC remained flat at -2.55% while that of ETH declined further to -6.74%.
  • The futures market witnessed $103.06M worth of liquidations since Friday with longs representing 78.5% of the total.

Top 3 USDT Perpetual Funding Rate Arbitrage Opportunities

Net Annualized APR

Perp (USDT pair)

Long on

Short On

18.18%

BNB

Bybit

Binance

10.03%

DOGE

dYdX

Bybit

9.28%

BTC

Bybit

dYdX

Source: @CexyArbBot Telegram Bot

Notes:

1) Pairs observed include BTC, ETH, SOL, BNB, XRP, LTC, and DOGE vs. USDT perps. 

2) CEXs observed include Binance, Bybit, OKX & dYdX.

3) Lookback period is 24 hours.

Bitcoin's ATM IV continues to maintain its elevated state, with the 7-day and 30-day ATM IVs seeing a marginal decline to 35.93% and 36.51% respectively as traders continue to price in significant volatilities in the short term.

The term structure for BTC persists in contango with a slight decrease observed in near-dated options, countered by a slight uptick at the other end of the curve. ETH, on the other hand, has seen its term structure flipped to a backwardation state, especially at the front end of the curve. IVs across all tenors have also seen an increase, likely results of the drop that happened during the US trading hours.

Meanwhile, both the 7-day and 30-day (C-P) skews for BTC have undergone modest retractions, settling at -5.04 and -2.51 respectively. These figures signify traders' inclination to hedge against potential downward movements.

Lastly, @Paradigm reported that option structure flows showed sentiments towards capital protection during the US trading hours. Some of the notable trading structures include the purchase of 1000x BTC Put 29-Sep-23 20000, 775x BTC 29-Sep-23 24000 Put, and 2828x ETH 25-Aug-23 1700 Call.

Crypto Technical Analysis

Onto technical analysis, BTC, following its August 17th downturn, continues to exhibit sideways movement for the fifth consecutive day. This stasis is anchored between a resistance zone of $26.5K-$26.8K and a crucial support at $26K. Currently proximate to the $26K mark, any upward shift will face this resistance barrier. Notably, despite the RSI registering a low 31.9, indicative of an oversold state, BTC has yet to initiate a corrective bounce, challenging the resilience of support levels seen two months ago, and underscoring a cautious market sentiment.

In contrast, ETH is actively testing the critical $1.6K support, a resilient support level since March 2023. A breach here could steer ETH toward a potential $1.5K target, an increasingly likely scenario following yesterday's low. Conversely, should momentum shift, the $1.74K mark emerges as the immediate resistance. With the RSI at a stark 21.82, the oversold status suggests the market might be primed for a corrective move to the upside.

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