SEC Sues Binance and CEO Zhao Changpeng for U.S. Securities Law Violations; Apple Makes Foray into Mixed-Reality Headset Market with New VR Product

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Our Daily View

What We Are Covering Today

• ISM reports a slowdown in the U.S. services sector as non-manufacturing PMI falls below expectations; Apple sets lofty target for its newly release Vision Pro headset (more in Macro & TradFi)
• SEC sues Binance and CEO Changpeng Zhao for Securities Law violations; BNB token tanks by almost 10% (more in DeFi & CeFi)
• Binance hit with more than 1B in stablecoin outflows though clean asset reserve remains healthy (more in On-Chain)
• Widening spread between ETH and BTC, alongside notable shifts in BTC's open interest and options expiry (more in Crypto Derivatives)
• BTC and ETH break below trendline; ETH shows strong relative performance compared to BTC (more in Crypto Technical Analysis)

Macro & TradFi

The U.S. services sector experienced slow growth in May, with a decline in new orders leading to a decrease in prices paid by businesses for inputs. The Institute for Supply Management (ISM) reported that the non-manufacturing Purchasing Managers' Index (PMI) fell to 50.3 from April's reading of 51.9, below economists' expectations. This raises concerns about a potential recession. The decline in new orders also contributed to a three-year low in prices paid for inputs. The services sector faced sluggish demand, reflected in the decline of the business activity index and new-orders gauge. However, this helped reduce inflationary pressures, with prices for materials and services dropping close to the pre-pandemic levels of 56.2. Employment in the services sector also slowed, as indicated by the services employment index falling to 49.2.

Meanwhile, Apple unveiled its Vision Pro headset, priced at $3,499, at its Worldwide Developers Conference. The headset aims to revolutionize the virtual reality and digital content experience, allowing users to overlay computer monitor content onto the real world. This marks Apple's first major new product in a decade and positions the company beyond smartphones and smartwatches. However, entering a market that has not gained significant traction with consumers presents a challenge for Apple. The launch puts Apple in direct competition with Meta Platforms Inc., the current leader in the VR headset market, who owns 81% of the market. Investors showed skepticism towards Apple's lofty sales targets of 900K units in the first year, resulting in a slight decline in Apple's share price.

On Monday, U.S. stocks declined, with the S&P 500 falling 0.2% to close at 4273.79, just shy of a new bull market. The Nasdaq Composite slipped 0.1%, and the Dow Jones Industrial Average dropped 200 points or 0.6%. Technology stocks, including Apple, led the decline in the S&P 500, while energy stocks like Chevron and Exxon Mobil retreated after earlier gains tied to higher oil prices due to a Saudi Arabia supply cut. Short-term Treasury prices rose, leading to lower yields, following a slower-than-expected expansion of the services sector in May, as the Institute for Supply Management reported. The 2-year Treasury yield decreased to 4.480% from 4.501%, while the yield on the 10-year note remained unchanged at 3.691%.

DeFi & CeFi

• SEC sues Binance and CEO Changpeng Zhao for Securities Law violations
• Stargate Finance to add Circle’s Euro stablecoin EUROC
• Optimism bedrock upgrade set to go live on Thursday
• Multichain’s cross-chain service is up and running on some networks
• HKMA proceeds with drafting regulatory framework for stablecoins
• Ordinals protocol version 0.6.0 has been released to support cursed inscriptions

On Monday, the SEC filed a lawsuit against Binance, as well as its operating company for Binance.US and its founder and CEO, Changpeng "CZ" Zhao. The lawsuit alleges violations of federal securities laws, including offering unregistered securities to the public with the BNB token and BUSD stablecoin. The suit also claims that Binance's staking service violated securities laws. Similar charges have been brought against BAM Trading, the operating company for Binance.US, and Binance itself, including failure to register as a clearing agency, broker, and exchange.

The SEC further alleges that Binance allowed the mixing of customer funds, that CZ exercised covert control over Binance.US, and that a CZ-owned entity manipulated Binance.US's trading volume. Furthermore, the SEC alleges that Binance enabled U.S. individuals to trade on its platform while publicly denying it and assisted high-value U.S. customers in bypassing controls. In the suit, it can be seen that the SEC claims that several other tokens (SOL, ADA, MATIC, FIL, ATOM, SAND, MANA, ALGO, AXS and COTI) are considered securities.

In addition, the lawsuit filed against Binance and its CEO CZ adds to the company's challenges, coming after previous allegations and scrutiny by U.S. authorities. In March, the CFTC accused Binance and CZ of offering unregistered cryptocurrency derivatives in the U.S.

Following the SEC complaint, CZ, the CEO of Binance, took to Twitter and shared a tweet with the number "4," while emphasizing that user funds remain secure and can still be withdrawn. Binance has also released an official statement in response to the SEC's allegations.

On-Chain

Following the SEC's lawsuit against Binance for securities law violations and commingling investors' funds, there was a significant increase in social volume related to Binance and the SEC with spot prices across the crypto market fell indiscriminately.

This resulted in substantial outflows from Binance, particularly affecting stablecoin reserves, which decreased by over $1 billion in a day. Bitcoin and Ethereum reserves also declined, albeit to a lesser extent, by approximately $307 million and $165 million respectively. However, these outflows are unlikely to cause significant damage to Binance's clean asset balance, which currently stands at $51 billion (excluding its own tokens).

Meanwhile, the sharp decline in bitcoin price from $27.3K to $25.8K upon the SEC lawsuit announcement has caused the percent supply of BTC in profit to decline from 69% to 62.5%, leading to a further 1.26M coins into losses (@glassnode).

Crypto Derivatives

• BTC and ETH funding rates have flipped to negative
• 30-day BTC ATM IV for BTC and ETH declined to 37.30% and 38.23% respectively
• Deribit Implied Volatility Index (DVOL) for BTC and ETH declined slightly to 39.83% and 40.19% respectively
• 30-day 25-delta ETH and BTC are skewed to the put side

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

In the futures market, liquidations saw a huge increase, totaling to $310.65 million, with long positions accounting for 92.2% ($286.71 million) of the total.

The trading volume of Binance futures has hit a one-month peak, remarkably surging from $16 billion to a staggering $54 billion within a short span of 48 hours.

In the options market, implied volatility fell across medium to longer-term tenors compared to the previous day. Despite the SEC's lawsuit against Binance, front-end vols remained relatively muted, only increasing by a couple of percentage points since the news came out. The term structure for BTC remained in backwardation at the front end of the curve, but currently shows a contango structure. IV may also have been influenced by recent robust job growth in the U.S. labor market, further suppressing future uncertainty about a recession, thus the fall in IV. The volatility risk premium for both BTC and ETH decreased by around 50% over the past day when comparing 7-day implied to realized volatility.

In terms of skew, both BTC and ETH options maintained put skew, with the spread between ETH and BTC tightening over the past four days to 1.03. Currently, the 30-day 25-delta for BTC and ETH stands at -2.56% and -3.59% respectively.

On June 6th, there is a significant volume of options expirations totaling 34.3K, with 19.7K calls and 14.6K puts, resulting in a Put/Call ratio of 0.74. The most popular options by notional amount for BTC were the 28 JUL 2023 calls at 31K, followed by BTC 29 SEP calls at 31K, and puts at 9 JUN at 25.5K.

Notable BTC trades, based on notional amount, included the reverse call calendar with a notional value of $81.84 million, the bear diagonal spread (Calls) with a notional value of $45.28 million, and the short strangle strategy with a notional value of $26.66 million.

Lastly, the VIX increased to 14.73.

Crypto Technical Analysis

After experiencing a significant sell-off of approximately 5% last night, BTC broke below its trendline. The $25.8K level previously served as support may now act as overhead resistance. If bearish momentum continues, $25.2K could be a key support level to monitor, considering its previous role as resistance in mid-February and last August. The MACD indicator also showed a bearish crossover below the zero line, suggesting the potential for further downside.

Similar to BTC, ETH faced a drawdown of around 5.5% and fell below its trendline, losing the bullish momentum from the previous week. However, yesterday's candle touched and retraced from the bottom trendline, acting as support. Essential support levels to watch for include $1.8K, which served as support throughout May, and $1.7K, which previously acted as resistance in January, February, and March.

In terms of the ETHBTC trading pair, it surpassed the 0.07 level and broke out above the established trendline. The next potential resistance level to monitor is 0.072, as it acted as a pivot high in February and March and provided minor support in December. However, given the recent news, it remains uncertain whether ETH can maintain its relative outperformance compared to BTC, as observed last month.

Access institutional-grade commentary on TradFi × Crypto markets

By Treehouse Research

Read Past Issues

Daily Readings

TradFi

• US services sector softens, factory orders boosted by defense

• Apple to sell Vision Pro AR headset for triple Meta's top-line price

• US crude oil exports to gain tail winds from Saudi July output cut

• ECB's Lagarde sees no peak in core inflation despite 'moderation'

• UK consumers slow spending in May as rising food costs bite

• US services sector softens, factory orders boosted by defense

• Canadian dollar consolidates recent gains ahead of BoC decision

• S&P 500 ends lower as traders eye potential pause in rate hikes

• United Airlines CEO says US in a 'business recession' but consumers 'strong'

• US bank shares fall after Treasury debt issuance, proposed new capital requirements

• Euro zone business growth slowed in May as factories struggled-PMI

• Japan's service activity expands at record pace in May

Crypto

• First Mover Asia: Why Did Bitcoin Fall to $25.4K? SEC Lawsuit Against Binance Rocks Crypto Markets.

• Crypto Traders Suffer $320M Losses in Liquidations as SEC Lawsuit Against Binance Spurs Market Plunge.

• Genesis Bankruptcy Judge Extends Mediation Period Between Genesis, Creditors.

• Binance SEC Lawsuit Could be Preview of What Coinbase May Face, Berenberg Says.

• Crypto Hedge Fund Arca Has Trimmed 30% of Its Staff.

• Coinbase Shares Drop 10% Following SEC’s Suit Against Binance.

• Virtual Reality Tokens Surge 8% as Traders Await Apple's VR Headset Release.

• El Salvador's Volcano Energy Secures $1B in Commitments for 241 MW Bitcoin Mine.

• JPMorgan, 6 Indian Banks to Settle Dollar Trades on Onyx Blockchain System: Bloomberg.

• Binance Hands Rising Star Teng Key Role to Replace CEO Zhao at Largest Crypto Exchange.

• AI-related crypto returns rose up to 41% after ChatGPT launched: Study.

• Ethereum gas fees cool down after May memecoin frenzy.

• Exchange operator Cboe gets nod to launch leveraged crypto derivative products

• Binance Says US SEC Abandons Effective Regulatory Framework; User Assets Are Safe

• Multichain's Cross-chain Service on Some Networks Back in Action

• Ordinals Protocol Version Update, Supporting Cursed Inscriptions