Shanghai Upgrade Draws Nearer; Hawkish Powell Warns Potential Higher Terminal Rates

GM Treehouser 🌳

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Our Daily View

What We Are Covering Today

• Powell joins Fed warning on potential higher cycle peak in rates (more in Macro & TradFi)
• Shanghai upgrade finalized on Zhejiang, Ethereum’s first public testnet; Arbitrum to launch traditional programming environment Stylus; Lido releases v2 upgrade proposal (more in DeFi & CeFi)
• ADA sees a large increase in whale activity (more in On-Chain)
• ETH term structure turns back to backwardation (more in Crypto Derivatives)
• BTC bounces off the support level with ETH approaching the upper bound of the current rising channel (more in Crypto Technical Analysis)

Macro & TradFi

Global stocks recovered yesterday, starting with Asian shares and culminated with major US stock indices climbing ~1%, while bonds tumbled further on Jerome Powell’s speech. The Fed chairman echoed his peers in saying that higher terminal rates might be needed if the labor market remains strong, and that we are “in the early stage of disinflation” despite his expectation that inflation will drop in 2023. India’s Adani stock family mostly rose yesterday, with Adani Enterprises rallying more than 15% amid dip buying from special-situation funds.

On the other hand, US stocks closed up higher while bonds sold off; NASDAQ added 1.8%, SPX +1% while DOW +0.7% after a volatile trading session that saw similar scale of gains wiped out earlier intraday. 10-year US Treasury bonds traded another 5bps wider. Oil rallied while the dollar gave back some of its earlier gains.

DeFi & CeFi

• Ethereum Zhejiang testnet completes Shanghai upgrade, withdrawals of staked $ETH are starting to be processed
• Arbitrum to launch programming environment Stylus that enables devs to deploy apps written in traditional programming languages such as C++
• DCG sells shares of Grayscale at discount to raise $22M
• Lido releases proposal for V2 upgrade
• Naming service network SPACE ID raises $10M in strategic round led by Polychain Capital and dao5
• Aave V3 community approve proposal for Lido to distribute $LDO rewards across Ethereum, Arbitrum and Optimism
• Mars Protocol deploy its Red Bank Outpost on Osmosis Chain, enabling borrowing and lending function
• CoW Swap suffers exploit, over 110K $DAI transferred out

Barnabas Busa, an Ethereum developer, has announced the completion of the Shanghai upgrade on Zhejiang, Ethereum's first public testnet for withdrawals. This upgrade has allowed for both full and partial withdrawals of staked ETH to be processed successfully.

Up next, Offchain Labs, the company behind Arbitrum, has plans to launch a new programming environment called Stylus later this year. This environment will allow developers to write programs in traditional programming languages such as Rust, C, and C++. According to Offchain Labs, programs written in Stylus will be over ten times faster than those written in Solidity, while still being equivalent to the Ethereum Virtual Machine (EVM).

Finally, Liquid staking protocol Lido has proposed the V2 upgrade with two main focus points. First, the upgrade will introduce the Staking Router architecture and unlock withdrawals for staked ETH. The Staking Router has a modular design, allowing for the development of on-ramps for new node operators. Once the upgrade is completed, Lido will allow its users to unstake their staked ETH to receive ETH at a 1:1 ratio through two modes mechanism: Turbo and Bunker.

On-Chain

Self custody remains the most common means of retaining Bitcoin for traders and HODLers alike. More supply of Bitcoin continues to move to self-custody in comparison to exchanges with approximately $416.5 billion of Bitcoin that is not currently traded on any exchanges, compared to just $29.2 billion that is. This indicates a 14.26X as many coins off exchanges as there are on them (@santimentfeed).

ADA, on the other hand, has been seeing a large increase in whale activity as $100K+ transaction sizes reach the 2022 May level, when ADA jumped 36% in a week, forming a local top in early June (@santimentfeed).

Crypto Derivatives

• BTC and ETH funding rates remain positive
• 30-day ATM IV fell to 48.3% and 63.6% for BTC and ETH respectively
• 30-day 25d call skew rose to -0.57% and -2.30% for BTC and ETH respectively

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

For futures, total liquidations in the past 24H amounted to $79.0M, majority coming from shorts at $58.5M.

On the options front, BTC remains in contango with a fall in near-dated IV while ETH enters backwardation with a spike in near-dated IVs. On 10 Feb, there would be 246.4K contracts expiring which could lead to significant price fluctuation. Volume of put-call ratio is at 0.5 and 0.33 for BTC and ETH respectively.

On the flow front, the bulk of the 24H volume comes from near-dated options. 8 Feb has 54.4K contracts traded, 9 Feb has 42.1K contracts and 10 Feb has 55.1K contracts. Looking at the top instruments OI change, it could be seen that there is strong market interest in the $1,675 strike price which seems to be a speculative play on delta.

Lastly, the VIX fell by 3.96% to 18.66.

Crypto Technical Analysis

Onto TA, BTC has validated the $22.6K support zone on the 4H level and is trending upwards toward the next resistance level at 24K, which is also an important psychological resistance zone. On the daily timeframe, BTC is trading sideways with no clear resistance and support zone at the moment. If BTC breaks this sideway trend, we could see resistance and support levels at 24.25K and 20.8K respectively. It is important to note that daily RSI has been trending up, rising to a level of 65.1.

As for ETH, the rising channel continues to be respected at both the 1D and 4H timeframe. Similar to BTC, RSI has risen but price volatility did not hit the expected support level yesterday which could indicate a stronger sentiment from the bulls compared to the bears. The price could trend towards the 1.76-1.78K daily resistance level if ETH breaks through the current rising channel whereas 1.54-1.55K could act as the next support level if the bullish rally fades.

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Daily Readings

TradFi

• Iraq revalues currency to 1300 IQD per USD - cabinet statement

• Volkswagen boosts earnings in 2022, high inventory drags down cash flow

• ECB cuts interest rate on government deposits

• Arm CEO says firm fully committed to a market listing this year

• Investors to focus on buybacks, billionaire tax in Biden speech

• Fed's Powell says job strength shows inflation fight may last 'quite a bit of time'

• Bed Bath & Beyond staves off bankruptcy with $225 mln from stock sale

• Canada pledges C$46.2 bln in new funding to fix strained healthcare system

• Moody's cuts Egypt rating to B3, changes outlook to stable

• Microsoft will let companies create their own custom versions of ChatGPT, source says.

Crypto

• Blockchain-Based Render Network Token Rising After Community Vote for New Burn-and-Mint Model.

• Sam Bankman-Fried Appeals Judge’s Decision to Reveal Names of His $250M Bond Backers.

• NFT Market Share Battle Ramps Up Between OpenSea and Blur.

• Cloud Mining Firm BitFuFu to Delay SPAC IPO as Appetite for Crypto Stocks Languishes.

• Turkish Nonprofits Raise Millions of Dollars in Crypto for Earthquake Response.

• Crypto Super Bowl Advertising Will Be Absent This Year.

• Ethereum Testnet Processes First ETH Staking Withdrawals.

• Dell Joins Hedera Governing Council to Explore Developing Decentralized Applications.

• Former Coinbase Manager Pleads Guilty to Insider Trading Charges: Reuters.

• Binance to support users in Turkey’s earthquake region with $100 airdrops in BNB tokens.

• Lido plans to level up ahead of Ethereum Shanghai hard fork upgrade.

Deal Flow

• Crypto Lender SALT Raises $64.4M to Resume Operations.

• Crypto mining firms Hut 8 and US Bitcoin plan merger.

Yours sincerely,
Treehouse Research 🌳