🌳 U.S. CPI Moderation Suggests An Increasing Potential To Rate Cuts; Institutional Investors Boost Bitcoin ETF Holdings

16 May 2024, Thursday

2:50 AM

🌳 U.S. CPI Moderation Suggests An Increasing Potential To Rate Cuts; Institutional Investors Boost Bitcoin ETF Holdings

BTC

ETH

S&P Futures 500

$66,113.77

$3,022.66

$5,340.25

(+7.59%)

 (+5.38%)

(+1.31%)

Note: All percentages shown above are referenced to the previous business work day's 09:00 (GMT+8)


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Our Daily View

What We Are Covering Today

  • U.S. CPI deceleration hints at rate cuts; Putin aligns with China geopolitically (More in Macro & TradFi)
  • Millennium holds a significant amount of Bitcoin ETFs amongst other notable funds; K33 expects a positive market impact with FTX repayment (More in DeFi & CeFi)
  • Bitcoin MVRV ratio indicates buying chance; Ethereum builders’ transactions handling shows prioritization of speed over fees (More in On-Chain)
  • Bitcoin's volatility surges with short-term options; easing inflation drives bullish sentiment (More in Crypto Derivatives)
  • BTC and ETH breakout from previous significant resistance with both showing potential for further growth (More in Crypto Technical Analysis)

Macro & TradFi

U.S. core consumer price inflation (CPI), which excludes food and energy costs, rose by a modest 0.3% in April, marking its first deceleration in six months and signaling a potential shift toward easing inflationary pressures. This change alongside stagnant retail sales suggests that high borrowing costs and increasing consumer debt are prompting more cautious spending behaviors. Such trends offer the Federal Reserve a glimpse of returning to a disinflationary path, potentially supporting the case for future interest rate reductions. The importance of these developments is underscored by Federal Reserve Chair Jerome Powell's emphasis on a patient, restrictive monetary policy, indicating that while a rate cut later this year is becoming more plausible, it will require further consistent signs of easing inflation.

In other news, ahead of his state visit to Beijing, Russian President Vladimir Putin issued a sharp critique of Western policies, which he discussed in a comprehensive interview with the Chinese state news agency Xinhua. During this interview, Putin aligned closely with China, emphasizing a shared vision for a "multipolar" global order and criticizing the West for instigating global instability, specifically referencing the Ukraine conflict. This marks his inaugural international trip since assuming office for a fifth term, featuring discussions with Chinese President Xi Jinping, who shares Putin's views on reducing Western dominance in global affairs. Putin's remarks suggest an increasing geopolitical cohesion between Russia and China, aiming to reshape international relations and challenge the current Western-led global framework.

U.S. stock markets experienced a rally following the release of inflation data that hinted at the potential for the Federal Reserve to reduce interest rates later this year. The Nasdaq 100 led the gains, increasing by 1.49%, while the Dow Jones Industrial Average and the S&P 500 also rose, recording increases of 0.88% and 1.17%, respectively. Leading the surge, major tech companies such as Apple, Alphabet, and Nvidia saw their stocks climb by 1.22%, 1.27%, and 3.58%, respectively. In contrast, Boeing's shares dropped by 2.07% after the U.S. Justice Department concluded the company breached a deferred-prosecution agreement related to two fatal crashes that occurred five years ago. Investors are now looking ahead to upcoming economic data from China, including industrial production, fixed asset investment, and the unemployment rate, set to be released at 10:00 SGT today.

CeFi & DeFi

  • The quarterly filings to the SEC reveal Millenium as a large Bitcoin ETF holder
  • Research suggests that the repayment of FTX may yield positive impacts on the market
  • zkLink adopts a Sybil self-report mechanism for the airdrop similar to that of Layer Zero’s
  • Circle files to shift its headquarters from Ireland to the U.S. ahead of the planned IPO
  • Robinhood’s European crypto arm launched Solana staking
  • Ex-FTX executive Ryan Salame asks for no more than 18 months in prison

The quarterly 13F filings with the U.S. Securities and Exchange Commission on March 31, 2024, revealed several high-profile investors that have increased their stakes in spot Bitcoin ETFs, as revealed by the. Among the notable investors, Millennium Management disclosed holding approximately $2 billion in various Bitcoin ETFs, including significant investments in BlackRock’s iShares Bitcoin Trust and Fidelity Wise Origin Bitcoin Fund. Other major firms like Elliott Capital and Apollo Management Holdings also reported substantial allocations in these funds. This trend suggests growing institutional interest in cryptocurrency investments and the market optimism on its long-term value potential. 

Meanwhile, a recent report from K33, a digital asset brokerage firm, suggests that FTX’s approach to repay its creditors could positively impact the cryptocurrency market. Unlike Mt. Gox and Gemini, which plan to reimburse their creditors with cryptocurrency (a method that could create selling pressure in the market), FTX has opted to make cash repayments by liquidating its assets. This strategy could potentially offset the selling pressure by introducing new buying demand from cash recipients. The timing and approval of these repayments remain uncertain, but they could influence the market significantly, potentially leading to a quieter market in the summer and more activity towards the end of the year.

On-Chain

An analysis on CryptoQuant shows that over the past year, the Bitcoin MVRV Ratio has consistently been above the price of Bitcoin, indicating that the asset was overvalued relative to its historical transaction data. After reaching an all-time high, Bitcoin's price stabilized within the $60K to $65K range. However, the MVRV ratio experienced a notable correction, decreasing by approximately 30%. It transitioned from above 3 to the 2 range, ultimately settling below the price curve. This shift traditionally signals a transition into a 'buying zone'.

An analysis of Ethereum's block builders and their transactions per block reveals significant shifts in the network, particularly influenced by the MEV (Maximal Extractable Value) landscape. The Dune data shows a trend where builders are increasingly dropping low-fee transactions to gain speed advantages, in response to Geth enforcing a minimum tip of 1 gwei. This has sparked controversy regarding the impact of EIP-1559 and raised concerns about the network's evolving fee market. The trend toward zero miner tips and potentially new gas pricing models could disproportionately benefit advanced MEV strategies, favoring larger players and raising questions about the fairness and accessibility of the Ethereum ecosystem.

Crypto Derivatives

  • Funding rates remained positive for BTC and ETH.
  • Deribit Implied Volatility Index (DVOL) for BTC rose to 58.09% while that of ETH declined slightly to 61.98%.
  • The 30-day 25-delta skew (C-P) for BTC rebounded to 1.43% while that of ETH rose to -0.30%.
  • The futures market witnessed $151.63M in liquidations, with shorts representing 72.95%.

Top 3 USDT Perpetual Funding Rate Arbitrage Opportunities

Net Annualized APR

Perp (USDT pair)

Long on

Short On

25.85%

SOL

OKX

dYdX

14.46%

SOL

Bybit

dYdX

14.12%

BTC

OKX

dYdX

Notes:

1) Pairs observed include BTC, ETH, SOL, BNB, XRP, LTC, and DOGE vs. USDT perps. 

2) CEXs observed include Binance, Bybit, OKX & dYdX.

3) Lookback period is 24 hours.


Bitcoin ATM implied volatilities showed minimal changes, with the 7-day implied volatility (IV) marginally rising to 53.58% and the 30-day IV slightly increasing to 55.33% due to the overall positive sentiment from the CPI data.

The 7-day and 30-day Bitcoin skews have shifted significantly, indicating a bullish sentiment with rises to 3.09% and 1.43% respectively which appears to be largely influenced by the easing of the US Core CPI in April, aligning with estimates and down from 3.8% the previous month. This moderation in inflation has consequently increased expectations for the Federal Reserve to lower interest rates. This development suggests that investors are increasingly optimistic about Bitcoin’s prospects, likely due to anticipated liquidity improvements from potential rate cuts.

Lastly, @Paradigm highlighted option flows yesterday emphasizing custom strategies and call purchases. For BTC, transactions included a purchase of 500x 27-Dec-24 100k/120k Call Spreads and a significant 175x 31-May-24 77k/28-Jun-24 85k Call Calendar. In the ETH market, dominant trades featured an 18,575x 17-May-24 3k/24-May-24 3k Call Calendar sold and a massive 5,050x 28-Jun-24 3.5k/4k Call Spread bought.

Crypto Technical Analysis

Moving on to Technical Analysis, the Bitcoin 4-hour chart shows a notable bullish spike, with BTC trading around $66.3K, a 7%  gain from yesterday, breaching the previous significant resistance at $64K. This surge has driven the RSI into overbought territory at 78.94. With BTC surpassing the $64K mark, it now faces upcoming resistance around $68K, while the former resistance at $64K now serves as the new support. If the $68K resistance is broken, the price may then face the long-term resistance at $72K, representing the current all-time high.

On the other hand, the ETH 4-hour chart also highlights a significant upward movement with it currently trading around $3.04K, aligning with BTC's recent rally. ETH has breached the previous key resistance level at $3K, a bullish signal that may pave the way for further gains, if sustained. The RSI at 66.22 is approaching the overbought territory, indicating strong buying momentum. With ETH's price above the $3K mark, the next resistance to watch is near the $3.1K. If ETH can consolidate above this current level, it could attempt to challenge higher resistances at $3.3K, while a pullback might see it retesting the $3K level as new support.

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