SEC Targets Yet Another Crypto Company, Looks To Rein In Decentralized Protocols As Well

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Our Daily View

What We Are Covering Today

• US and its allied countries are looking to limit trade exposures with China (more in Macro & TradFi)
• SEC goes after crypto exchange Bittrex after reopening a rulemaking that could label many DeFi protocols as “exchange” under the law (more in DeFi & CeFi)
• AVAX reaches six-month high in daily active addresses (more in On-Chain)
• ETH risk premium continues to fall as IV comes down; VIX hits a 52-week low (more in Crypto Derivatives)
• BTC breaks the $29.8K support which exerts downward pressure on the rest of the market (more in Crypto Technical Analysis)

Macro & TradFi

The US and its allies are considering how to limit their economic relationships with China, particularly in strategic sectors, while maintaining wider trade and investment flows. The Group of Seven advanced democracies is growing concerned that Beijing, a key supplier of many goods and materials, could cut off key exports in the event of a conflict or pandemic. There are concerns that Western investment and expertise could be used to help develop Beijing’s military. However, officials are also trying to avoid measures that undermine global economic growth as they try to unify behind policy measures that reduce dependence on China. Looming over this push for independence is the possibility of a military conflict over Taiwan, another potential flashpoint with US allies.

Additionally, Two new research papers have been published this month that have successfully deployed ChatGPT in market-relevant tasks such as deciphering Federal Reserve statements and interpreting corporate news headlines. In both tests, ChatGPT outperformed other models and showed a potentially major step forward in the use of technology to turn reams of text from news articles, tweets and speeches into trading signals. While using natural language processing to inform trading strategies is not new, the findings suggest that the technology is reaching a new level of parsing nuance and context. The success of ChatGPT could potentially speed up the whole process of manual labeling of data and make the technology more accessible to a broader community of finance professionals.

Lastly, onto the major US indices’ performances, S&P 500, DJIA, and NASDAQ have gained slightly during the last trading session with an increase of 0.33%, 0.29%, and 0.28%, respectively. 2-year and 10-year Treasury yields have gone further up, with the former currently at 4.181% and the latter at 3.594%.

DeFi & CeFi

• Arbitrum’s AIP1.1 and 1.2 proposals pass with 98% and 99% support respectively
• MicroStrategy CEO integrates Bitcoin’s Lightning Network into his corporate email address, allowing anyone to send BTC to his email address
• Sui Foundation appoints managing director to promote blockchain awareness and spur development
• The SEC charges crypto exchange Bittrex for operating an unregistered securities exchange
• Grayscale launches Solana Trust for investors to buy and sell SOL
• Kyber Network warns liquidity providers to withdraw following a potential vulnerability in its Elastic product
• US Congress revives the stablecoin bill, some stablecoin issuers will have to register with US authorities
• CME to add daily expirations for Bitcoin and Ethereum futures options contracts

The U.S. Securities and Exchange Commission (SEC) has filed a lawsuit against Bittrex, a cryptocurrency exchange, and one of its co-founders for operating as an "unregistered national securities exchange, broker, and clearing agency." The lawsuit alleges that Bittrex failed to register as a national securities exchange in connection with its operation of a single shared order book along with its foreign affiliate, Bittrex Global GmbH. The SEC also accused Bittrex of instructing issuer-applicants to delete statements related to investment-related terms before making an asset available on its platform. Bittrex Global said it would "vigorously defend" itself against the allegations.

According to the SEC, the exchange sold unregistered securities, citing tokens like $DASH and $ALGO. The SEC claims that the distribution of DASH to network participants known as "miners" did not exempt it from SEC oversight. The SEC also alleges that people who bought ALGO could reasonably expect to profit from the efforts of the Algorand Foundation and Algorand Inc., which support the Algorand blockchain, making it a security. The agency argued that decentralization does not exempt a protocol or token from SEC oversight.

In addition, the SEC reopened the comment period on a rulemaking that could categorize many DeFi protocols as an "exchange" under the law. The government agency has issued a 166-page document that addresses the comments submitted during the previous period in response to its proposed rulemaking. This would subject DeFi protocols to regulatory frameworks, including KYC and AML rules, increasing the cost and time required to set up a crypto project. The proposed change would affect validators of blockchain transactions, members of DAOs, and open source developers.

On-Chain

As for on-chain, the distribution of INJ's supply shows that retail investors have been buying since November 2022 and is seeing substantial growth with the price increase. On the other hand, whales have been distributed to smaller retail sizes. Additionally, the 30-day market-value-to-realized-value (MVRV) for INJ, which measures short-term profit or loss for holders, is at its highest levels in six months, putting it in the Danger Zone where INJ's price has historically declined shortly after a local top is formed (@santiment).

The price of INJ has risen sharply from $1.20 to $9.20 in 2023, and there has been strong trading volume along with the price spike, indicating strong momentum. However, for the price to continue rising, even higher trading volumes will be necessary, and traders should watch out for divergence between price and trading volume.

INJ is the native token of Injective Protocol, a decentralized layer-2 exchange protocol that allows for decentralized trading of spot and derivatives.

Turning to Avalanche, AVAX has been gaining momentum recently. Its daily active addresses reached a six-month high earlier this week, and its price has increased from $10.64 to $20.51 in 2023. According to Coindesk and Artemis.xyz, Avalanche's daily active addresses reached almost 80,000 on 12 April 2023. Its daily active user base has grown by 85% in the past 90 days, making it one of the fastest-growing protocols, ahead of BNB Chain, Tron, Ethereum, Aptos, and Bitcoin. Only four other protocols have grown faster: StarkNet, Arbitrum, Stacks, and Canto, according to Artemis.

The increase in active addresses coincided with several financial institutions joining Avalanche's Evergreen subnet "Spruce," and the upcoming Avalanche Summit II in Spain on 3-5 May 2023.

Crypto Derivatives

• BTC and ETH funding rates remain positive
• 30-day ATM IVs for BTC and ETH fell to 52.92% and 59.31% respectively
• 30-day 25 delta call skew for BTC and ETH falls to 1.04% and 1.30% respectively

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

The futures market experienced $102.76M in liquidations over the past 24 hours, with longs accounting for the majority at $80.88M.

In the options market, term structure remains in contango for BTC and flat for ETH. The variance risk premium tightened to 5.46% for ETH as the 7-day IV fell to 55.5%, while the 7-day RV remained unchanged at around 50%. The 30-day call skew for both BTC and ETH decreased to 1.04% and 1.30%, respectively. The BTC put-call open interest ratio increased from 0.49 to 0.51.

On the flow side, BTC volume recovered from the weekend low, while ETH volume remained deflated. For BTC, most of the volume came from the 30 Jun put contracts, with the bulk of the puts concentrated on the 22K strike price.

Noteworthy trades include buying 1K BTC contracts of 30 Jun put butterfly with 27K/22K/17K strike prices and the 750 BTC contracts of 5 May 30K calls (@tradeparadigm).