🌳Strong Q2 Market Performance With Investors Waiting For Key Economic Data And Policy Decisions; Celsius Granted Approval To Sell Its Token Holdings; Azuki Discusses Next Steps After The Chaotic Elemental Mint

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Our Daily View

What We Are Covering Today

• Strong market performance in Q2; investors await key economic data and policy decisions (more in Macro & TradFi)
• Celsius to start converting altcoins to BTC and ETH starting 1 July; Azuki teases with new anime series after Elementals mint disappoints (more in DeFi & CeFi)
• Unique users bridging to zkSync Era is currently 3X that of Arbitrum (more in On-Chain)
• Decreasing implied volatility and bullish trading structures suggest optimistic market sentiment for BTC and ETH (more in Crypto Derivatives)
• BTC and ETH trades range-bound over the weekend (more in Crypto Technical Analysis)

Macro & TradFi

Wall Street concluded the second quarter on a high note. The S&P 500 gained 15.9% in the first half of the year, while the tech-driven Nasdaq Composite had an exceptional surge of 31.8%, marking its strongest performance in four decades. The strong quarter was buoyed by data indicating progress in the Federal Reserve's efforts to combat inflation. The Commerce Department's Personal Consumption Expenditures (PCE) report revealed lower-than-expected inflation in May, coupled with a sudden slowdown in consumer spending. These developments provide further confirmation that the Fed's series of interest rate hikes are yielding the desired outcomes. On the other hand, Asian stocks struggled during the first half, with Chinese equities facing declines.

Looking ahead to this month, the Federal Reserve is expected to raise interest rates in line with their previous indications. According to CME's FedWatch tool, financial markets are currently pricing in an 84% probability of a 25 basis-point rate hike following the conclusion of the Federal Open Market Committee's July policy meeting. The new quarter begins with optimism and positive momentum, fueled by robust economic data from the United States and growing confidence that risky assets can withstand a prolonged period of higher global interest rates. Asia is anticipated to lead the way, with a wave of significant regional economic data releases and key policy decisions scheduled for the week. Monday will witness the release of purchasing managers index (PMI) reports from various Asia-Pacific countries, offering insights into private sector services and factory activity in June.

US markets had a strong close last Friday, with the Dow Jones Industrial Average climbing 285.18 points, or 0.84%, while the S&P 500 recorded a gain of 53.94 points, or 1.23%. The Nasdaq Composite also saw a significant increase, adding 196.59 points, or 1.45%. Concurrently, the dollar index (DXY) fell 0.42% against a basket of global currencies, with the euro gaining 0.41%. Trading volume on Monday is expected to be light due to the U.S. Independence Day holiday on July Fourth.

DeFi & CeFi

• Celsius to start converting altcoins to BTC and ETH starting 1 July
• Poly Network attacker issues billions in SHIB, BNB, BUSD
• Azuki teases with anime series and new artwork after Elemental miss
• Chicago Mercantile Exchange to Introduce $ETH/$BTC Ratio Futures
• Fidelity Investments refiles application for spot Bitcoin ETF
• Maple Finance to Offer Crypto-Collateralized Loans to Web3 Businesses
• Ubisoft unveils first Web3 Game Champion Tactics

Celsius has received approval from the judge overseeing its bankruptcy proceedings to potentially sell its major holdings in altcoins such as Cardano (ADA), Polygon (MATIC), Solana (SOL), and several others starting from July 1. According to court documents from December, Celsius had control over significant amounts of MATIC, ADA, SOL, LINK, DOT, LTC, and AAVE. The current positions and the extent of the assets to be excluded from the sale are not entirely clear. As of now, the cumulative value of these holdings exceeds $170M and Celsius also holds millions of dollars in stablecoins along with 650M CEL tokens.

Over the weekend, attackers exploited a vulnerability in PolyNetwork's cross-chain protocol, allowing them to issue billions of tokens. By manipulating the bridge function, which facilitates token swaps between different blockchains, the attackers tricked the system into minting non-existent tokens on various networks. Specifically, they created 24B of BUSD and BNB on the Metis blockchain, 999T SHIB on the Heco blockchain, and additional tokens on networks like Avalanche and Polygon. This resulted in the attackers holding tokens worth over $42B immediately after the attack. However, due to a severe lack of liquidity, they were unable to monetize their substantial token stash.

Azuki, a prominent NFT brand, faced backlash after the underwhelming launch of its "Elementals" NFT collection. Despite quickly selling out and generating $38M, technical issues and a condensed minting window left many collectors unable to acquire the NFTs. The subsequent release of artwork that closely resembled the original collection sparked rumors of supply dilution and led to a significant 44% drop in the floor price. To address these concerns, Azuki's team, including pseudonymous co-founder Zagabond, engaged in a private call with the community, outlining plans to revive the NFT ecosystem and restore confidence among stakeholders. Lastly, the team shared in the community call that the anime series that was previously announced will be self-funded and feature its character universe.

On-Chain

Based on data provided by @ahkek4, a crypto data analyst, the zkSync Era network has been consistently attracting capital inflows since its initial launch. A comparison of bridging activities from the ETH mainnet reveals that the number of unique users bridging to zkSync Era has been steadily rising, accounting for over 63% of the total user group at the moment. This percentage is approximately three times higher than the number of users bridging to Arbitrum, currently the largest L2 network.

Crypto Derivatives

• BTC and ETH funding rates remain positive
• 30-day BTC ATM IV fell to 40.23% while ETH ATM IV slightly rose to 39.07%
• Deribit Implied Volatility Index (DVOL) is 47.85% and 46.54% for BTC and ETH respectively
• 30-day 25-delta skew (C-P) for BTC and ETH is at 2.26% and -0.18% respectively

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

Over the last 24 hours, the futures market witnessed liquidations totaling $65M, with short positions comprising 53% of the overall liquidated positions.

The ATM (At-the-money) Implied Volatility (IV) term structure of BTC and ETH remains in contango. However, an overarching trend of decreasing IV across all maturities has been observed recently. This signifies a market sentiment shift towards a less volatile future for both cryptocurrencies.

IV across all tenors are positively skewed with the 7-day skew at 5.35% and the 180-day skew at 6.00%. For ETH, the 25-delta 7-day skew also demonstrates a call premium at around 5.68%, indicating bullish market sentiment. BTC has a higher skew than ETH for the long-term, which goes against conventional sentiment about ETH’s Volatility compared to BTC.

Upon examining the distribution of open interest in BTC options across all expiry dates, it is apparent that a significant portion of the open interest is clustered around call options, most notably at the $35K strike price. Conversely, the majority of put options are amassed at the $24K strike level. These positions imply a dominant bullish market sentiment in the near term, with investors showing a stronger preference for betting on potential price increases (call options) as opposed to anticipating price drops (put options).

Shifting focus to the key trading structures observed by Paradigm in the American session, the leading structures were 1,000x 29 Sep 2023 $35K / $40K call spreads bought, 1,000x 29 Dec 2023 $35K / $45K call spreads bought, 1000x 25 Aug 2023 $35K (tied) calls bought outright, and 800x 7 Jul 2023 $31.5K calls bought outright. For ETH, the highest traded structures were 45,500x 29 Dec 2023 $1.9K / $2.5K call spreads bought, 10,000x 29 Sep 2023 $2.2K calls bought (tied), and 6500x 7 Jul 2023 $2K calls bought outright. This significant upside buying on Paradigm reflects the traders' bullish expectations on both BTC and ETH.

The VIX rose slightly to 13.59.

Crypto Technical Analysis

BTC remains relatively stable over the weekend. Apart from the 2% price swings last Friday, prices are now consolidating in a range between $29.4K and $31.45K, with the potential for an upside move if significant volume enters the market. The MACD signals a cautious sentiment with moving averages indicating a possible bearish crossover.

ETH has shown notable price gains, rising from $1.85K to $1.94K since Friday. Breaking above the upper trendline and surpassing the $1.90K resistance level, which now acts as support, reinforces its upward momentum. In case of a retracement, the next support level stands at $1.83K, a historically significant level from March and May. The MACD signals strong bullish momentum, with the next major resistance for ETH at $2.0K.

ETH/BTC bounced back above its horizontal support at 0.0625 level after ETH's relative outperformance last Friday. ETH/BTC may continue its bearish momentum toward the 0.06 level in the near term.

Access institutional-grade commentary on TradFi × Crypto markets

By Treehouse Research

Read Past Issues

Daily Readings

TradFi

• PIMCO CIO says preparing for 'harder landing' for global economy, Financial Times reports

• China's June factory activity slows as conditions weaken - Caixin PMI

• Qatar leads most Gulf markets higher after Eid

• Barclays seeks to stop being corporate banker to Odey Asset Management, Financial Times reports

• Treasury's Yellen to visit China this week to expand communications

• Asia-Pacific markets rise as investors digest private surveys on factory activity.

• Is India the next China? Analyst says he is 'very, very bullish' on one of them.

• China's central bank gets a new party secretary.

Crypto

• Poly Network Attacker Issues 'Worthless' Billions in SHIB, BNB, BUSD in Latest Crypto Hack.

• AI-generated fake news sparks rumors of Gary Gensler’s resignation.

• Bittrex challenges SEC’s authority in crypto lawsuit, seeks dismissal.

• Hong Kong establishes task force to advance Web3 development.

• FedNow “early adopter” list contains no blockchains, but some may integrate later.

• Polygon proposes architecture for ‘Polygon 2.0,' including aggregator bridge.

• Crypto VC is struggling only from a North American perspective — Animoca Brands CEO.

• South Korean crypto lending firm Delio under investigation by regulators.

• Celsius debtors can swap altcoins for bitcoin and ether starting July 1

• QuickNode adds support for XRP Ledger

• Citigroup is reviewing its partnership with digital asset custodian Metaco: Bloomberg

• Ubisoft announces First Web3 Game Champions Tactics

Deal Flow

• DeFi Protocol AlloyX Closes $2 Million Pre-Seed Round with Circle Ventures Involved

Yours sincerely,
Treehouse Research 🌳