Survey Shows Weakened Consumer Sentiments In US; Binance Exits The Canadian Market Amidst New Regulatory Environment

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Our Daily View

What We Are Covering Today

• Michigan consumer sentiment plunges in May amid inflation concerns and economic worries (more in Macro & TradFi)
• Binance exits Canada due to new regulations; Worldcoin aims to raise $100M (more in DeFi & CeFi)
• Number of addresses holding 1 BTC or more hit 1 million milestone (more in On-Chain)
• BTC term structure shows IV drop significantly since Friday; End of month contracts concentrates on calls with 32K strike price (more in Crypto Derivatives)
• BTC and ETH break below the bottom of the consolidation range as it seeks acceptance above key levels (more in Crypto Technical Analysis)

Macro & TradFi

Emerging market currencies showed a mixed performance on Monday morning as markets open. The Thai baht strengthened after pro-democracy parties achieved a decisive victory in the country's elections. The South African rand rallied following efforts to ease tensions with the US, and investors awaited the outcome of Turkey's presidential race, affecting trading in the Turkish lira. Asian stocks started cautiously on Monday as investors awaited China's policy rate decision and economic data this week, with Hong Kong futures trending downward while Japan's market showed an upward trajectory.

In the United States, consumer sentiment took a hit in May, primarily due to concerns over rising inflation and the state of the economy. The preliminary consumer sentiment index for May, conducted by the University of Michigan, recorded a reading of 57.7, reflecting a significant 9.1% decline compared to April. This level of consumer sentiment is the lowest observed since June 2020. The decline can be attributed to multiple factors, including increasing inflation rates, economic worries, and ongoing conflicts such as the war in Ukraine. The decline in consumer sentiment signals a growing pessimism among consumers regarding the economy, potentially leading to a decrease in spending and posing a risk to overall economic growth.

Last Friday, the S&P 500 and the Dow Jones Industrial Average (DJIA) recorded a second consecutive loss on a weekly basis, impacted by concerns surrounding regional banks and increasing consumer inflation expectations. Despite the prevailing worries regarding the debt ceiling, potential rate hikes, banking stress, and long-term inflation outlook, the S&P 500 only experienced a marginal decline of less than 0.5% for the week, maintaining its position around the $4,100 level and registering a year-to-date gain of approximately 7%. During the last trading session, major equity indices were generally flat with the S&P 500 seeing a decline of 0.2%, the DJIA dropping slightly by approximately 9 points, and the tech-heavy Nasdaq Composite falling by 0.35%. Following the release of the survey data, bond yields slightly increased, with the 10-year Treasury yield rising to 3.461% from the previous day's 3.396%.

DeFi & CeFi

• Canada says accept crypto rules or leave; Binance opts out
• Worldcoin by OpenAI is set to raise $100M
• Jump trading faces lawsuit over alleged $1.3B profit from TerraUSD
• BTC miner Rhodium faces lawsuit over alleged $26M in unpaid fees
• Ethereum’s Beacon Chain updated after finality issues
• Musk’s tweet about Milady memes pumps up the price of Milady NFTs

Binance has announced its decision to cease operations in Canada, citing a challenging regulatory environment. The company specifically mentioned the new guidance provided by the Canadian Securities Administrators (CSA) on stablecoins and investor limits as factors contributing to this decision. While Binance expressed disagreement with the regulations, it also expressed hope for future collaboration with Canadian regulators to improve the regulatory framework for cryptocurrencies. In a tweet on Friday, the company stated, "We had high hopes for the rest of the Canadian blockchain industry. Unfortunately, new guidance related to stablecoins and investor limits provided to crypto exchanges makes the Canada market no longer tenable for Binance at this time."

Recent patches by Ethereum developers have addressed two finality issues with the Prysm Labs and Teku clients, which impacted Ethereum's consensus layer, known as the Beacon Chain. On May 11th and May 12th, unidentified problems prevented block finalization, resulting in outages lasting for 25 minutes and over an hour, respectively. Later, on Saturday night, @superphiz, a Beacon Chain community health analyst, tweeted that Teku and Prysm, two of Ethereum's consensus layer clients, have already implemented fixes to the issue. While there are no official statements on the causes of the problem, @superphiz speculated that the "exceptional scenarios" were likely due to the "high load of some Consensus Layer clients."

Lastly, Financial Times has reported that Worldcoin, the crypto firm founded by OpenAI CEO Sam Altman, is reportedly in advanced negotiations for a $100 million fundraising round. Noteworthy previous backers of the company include entities such as Khosla Ventures and Andreessen Horowitz's crypto-oriented fund. Worldcoin's unique proposition involves leveraging eyeball-scanning technology to establish a universal identification mechanism, which could provide complimentary access to the company's proprietary global currency. As reported by The Information, an earlier sale of 100 million tokens marked the total value of the company's tokens at an estimated $3 billion.

On-Chain

According to data from Glassnode, the number of Bitcoin wallet addresses holding one whole BTC or more has surpassed one million, reaching this milestone on May 13th. This increase in the number of "wholecoiners" can be attributed to the significant drop in Bitcoin's price last year, with notable spikes occurring during market crashes. Starting from early February 2022, when Bitcoin's price began declining from its November 2021 highs, approximately 190,000 new wholecoiners emerged. However, CoinGlass data reveals that out of the approximately 19 million BTC currently in circulation, around 1.89 million BTC (equivalent to $50.7 billion) are held on major centralized exchanges such as Binance and Coinbase. Glassnode also estimates that a significant amount of 3 million BTC (worth $80.4 billion), roughly 17% of the total circulating supply, is considered "lost forever." This estimation includes BTC sent to "burn addresses," wallets with lost keys, and dormant large accounts that have remained untouched for over ten years.

Between May 11th and 12th, the Ethereum network experienced two incidents in which more than 60% of validators stopped performing their duties, resulting in a loss of Finality. Finality ensures that a supermajority of validators agree on the final state of the blockchain, making it tamper-proof. Due to the absence of a significant number of validators, the network's performance was degraded, leading to missed slots and delayed block proposals. The issue arose because certain consensus layer clients encountered older attestations and struggled to handle new incoming ones, causing system malfunctions. However, validators using different client designs were unaffected and continued processing transactions. The affected validators returned online within 20 minutes and an hour, and the participation rate quickly recovered. These incidents did not impact end users' transactions on the Ethereum mainnet. However, the second incident resulted in the first-ever Inactivity Leak, where inactive validators are penalized until they rejoin the chain or face dilution. The penalties incurred during the inactivity leak reduced ETH issuance during that period (@glassnode).

Crypto Derivatives

• BTC and ETH funding rates remain positive
• 30-day BTC ATM IV dropped to 45.27% but only dipped slightly to 47.17% for ETH.
• 30-day 25-delta skew remains in put premium for both BTC and ETH at -1.56% and -4.89% respectively

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

The futures market saw $206.68M in liquidation over the past 3 days with 57% coming from longs at $117.48M.

While short-term IV in BTC term structure rose slightly higher, IV has fallen significantly across the board compared to Friday. 30-day skew has remained in put premium at a level of -1.45%, relatively unchanged since Friday. A similar trend can be seen in the term structure and skewness of ETH contracts. However, the magnitude of change in IV since Friday is smaller. RV increased to 45.51% and 46.70% respectively for BTC and ETH with the variance risk premium staying flat with BTC at -0.95% but turning positive for ETH at 2.33%.

On the flow side, BTC call volume in the last 24H was roughly evenly split across maturities towards the end of the month. BTC puts, on the other hand, volume decreased as the maturities extended further out. Analyzing the open interest across all expirations, there are significantly more calls indicating that investors are more bullish about the price movements going forward. Strike prices of these contracts concentrate at around $32K for calls and $25K for puts.

Looking closer at near-term contracts, the majority of them are concentrated on the end of months with more than 75K contracts expiring on 26th May. Out of these contracts, traders have mostly entered contracts at the $32K strike call options with the max pain at $27K.

Noteworthy trades over the weekend were predominantly executed in a delta-neutral format as investors hedge their positions. The largest trades included the purchaseof 10K ETH call contracts for 28 July at $2.3K, 10K ETH put contracts for 30 Jun at $1.9K, and writing 7,500 ETH call contracts at $2.4Kfor 28 July. (@tradeparadigm).

Lastly, VIX remained stagnant at 17.03.

Crypto Technical Analysis

Moving on to technical analysis, BTC briefly broke below the $26K level on Friday but quickly rebounded and surpassed $27K. Currently, BTC is attempting to regain footing above the trendline drawn on the 4-hour chart after being rejected once on Sunday. Furthermore, the $26.5K level appears to be a robust established support level worth monitoring as it previously acted as a resistance level before transforming into support during BTC's upward movement towards its yearly highs in March. Therefore, breaches below this crucial level would indicate a likelihood of further decline.

As for ETH, like BTC, it experienced a brief drop below a significant support level of $1.8K, which marked the lower boundary of the consolidation range. Currently, ETH is trading at the bottom of the consolidation range. For ETH to make a noteworthy upward move towards $2,000, the upper bound of the range, it needs to regain acceptance above the $1.8K level. Reclaiming the $1.9K level is also important for ETH as it serves as the midpoint of the range and has witnessed notable fluctuations around this level in previous weeks.

Access institutional-grade commentary on TradFi × Crypto markets

By Treehouse Research

Read Past Issues

Daily Readings

TradFi

• Pakistan's external financing requirements for IMF deal unchanged - IMF

• Asian shares braced for China data, Fed speakers

• Canada housing market upturn could delay shift to BoC rate cuts

• Activist investor Engaged Capital plans proxy battle at Shake Shack -WSJ

• China c.bank rolls over medium-term policy loans, rate unchanged

• Biden expects to meet lawmakers Tuesday for debt talks, says he is optimistic

• Turkey's lira sinks to two-month low in post-election trade

• Philippines' finance minister says no reason for rate hike

• Argentina plans new rate hike, more FX intervention as inflation soars

• China's recovery lifts U.S. companies' sales as domestic consumers pull back spending.

• Thailand opposition on course to crush military parties in election rout.

Crypto

• Binance Announces Exit from Canada, Citing Regulatory Tensions

• Quadriga CX Bankruptcy Claimants to Get 13% on the Dollar

• Lido Community Weighing On-Chain Vote to Deploy Version 2 on Ethereum

• SEC revises $22M punishment against LBRY, seeks $111K instead.

• Ethereum’s Beacon Chain updated after finality issues.

• Jump Trading faces lawsuit over alleged $1.3B profit from TerraUSD.

• Nifty News: Assassin’s Creed unveils ‘smart collectibles,’ MechaFightClub winds down and more.

• US lawmakers target perceived risks of crypto adoption in El Salvador with reintroduced bill.

• LG Electronics files patent for NFT-trading TV.

• Coinbase establishes advisory council with former US lawmakers.

• BitDAO proposes to replace BIT token in branding revamp.

• MakerDAO publishes 5-phase roadmap featuring funding for open-source AI projects.

• Bitcoin-ether correlation dips below 80% for first time in 18 months

• U.S. crypto firms set sail to Bermuda amid dark and stormy US regulatory environment

Deal Flow

• Bakkt delists majority of tokens from recently acquired Apex Crypto platform.

• Crypto VC Paradigm buys Coinbase shares worth $50 million

Yours sincerely,
Treehouse Research 🌳