U.S. Debt Ceiling Discussions Advance Amid Default Risk; DCG Winds Down Its Institutional Trading Arm

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Our Daily View

What We Are Covering Today

• US debt ceiling negotiations progress amid looming default risk while German GDP contraction raises EU recession concerns (more in Macro & TradFi)
• Binance launches NFT Loans for NFT-backed loans; DCG shuts down institutional trading subsidiary, TradeBlock (more in DeFi & CeFi)
• On-chain data points to significant miner revenue growth and heightened long-term holder activity, hinting at possible future Bitcoin price trends (more in On-Chain)
• Volatility risk premium increases for both BTC and ETH as RV falls; 7-day skew shows larger put premiums for BTC and ETH (more in Crypto Derivatives)
• Both BTC and ETH see retracements from the previous drop and face their old support levels as the new resistance zones (more in Crypto Technical Analysis)

Macro & TradFi

US President Joe Biden has indicated that the ongoing budget discussions with Republicans to prevent a potentially harmful debt default are "making progress". This update comes at a crucial time when data released on Thursday revealed that the Treasury's cash balance plummeted to just $49.5 billion on Wednesday. This marks a significant decline from $76.5 billion the previous day and $140 billion on May 12. He mentioned having multiple constructive interactions with House Speaker Kevin McCarthy, with their respective teams currently negotiating, indicating forward movement in these crucial discussions. Treasury Secretary Janet Yellen has set a deadline on 1 Jun 23 to avoid a potential U.S. debt default.

On the other hand, according to Destatis, the national statistical agency, Germany's gross domestic product (GDP) has seen a contraction of 0.3% in the first quarter, sparking concerns over a possible sustained recession in Europe's most substantial economy. This revised figure also represents a decrease from its initial growth estimate of zero. Destatis has also indicated the main drivers behind this economic decline with a significant decline in German industrial production (the largest in 12 months) and a sharp drop in retail sales in March. There's a prevailing concern among economists that Europe's largest economy could remain in a sluggish state for an extended period.

Lastly, US stocks ended higher after a blowout forecast from Nvidia, sparking a rally in AI-related stocks. The S&P 500 climbed 0.88%, the NASDAQ surged 1.71%, while the Dow Jones Industrial Average declined 0.11%. Following a surge in performance, SOX (The PHLX Semiconductor Index) has increased by 6.3%, reaching its highest point since April 2022. Among the notable stocks, chip designer Nvidia stands out as the top performer, experiencing a substantial 26.7% increase and trading at record-breaking levels, reaching an intraday high of $394.80. Meanwhile, oil prices pulled back, continuing a significant decline from the previous session, as traders sought additional information regarding OPEC's intentions regarding future production cuts. The WTI fell by 0.4% to $71.56 per barrel.

DeFi & CeFi

• Binance launches NFT Loans on its platform
• DCG shuts down institutional-focused subsidiary, TradeBlock
• OKX’s new upgrade to allow Hong Kong users to trade crypto on its app
• Circle’s Euro-backed stablecoin, EUROC, goes live on Avalanche
• Worldcoin raises $115M in Series C round led by Blockchain Capital
• Consortium Farenheit secures bid to acquire Celsius’ assets
• NFT lending platform, Astaria, led by ex-Sushi CTO launches publicly

As Binance continues to expand its NFT offerings, it introduced NFT Loans on its NFT marketplace. This new feature allows users to use NFTs as collateral when borrowing cryptocurrencies. Currently, the new service allows users to borrow ETH with blue-chip NFTs, including renowned collections such as Bored Ape Yacht Club (BAYC), Mutant Ape Yacht Club (MAYC), Azuki, and Doodles. Plans to expand the selection are in the pipeline. Not only will transactions be gas-free for users, but they can also enjoy competitive interest rates and instant liquidity. With this “Peer-to-Pool” model, users can unlock the value of their NFTs without having to sell them as Binance acts as the pool for loans, which provides liquidity and an added layer of security.

Meanwhile, Digital Currency Group (DCG) has decided to wind down operations for its institutional brokerage subsidiary, TradeBlock. A representative stated that the reason for this move was “due to the state of the broader economy and prolonged crypto winter, along with the challenging environment for digital assets in the US”. DCG has been facing continued financial challenges as an aftermath of the 2022 crypto contagion. Earlier this year, DCG shut down its wealth management division, HQ Digital.

On-Chain

@Glassnode revealed a noteworthy surge in miners' revenues in May, accumulating 12.9 Bitcoin per block in mining rewards. Notably, this event marked only the fifth occurrence in Bitcoin's history where fee revenues surpassed block rewards, fueling the ongoing excitement surrounding the BRC-20 narrative within the BTC ecosystem. While this development suggests a potential shift in Bitcoin's mining profitability dynamics, with transaction fees gaining prominence over block rewards, its long-term sustainability is yet to be tested. Consequently, the impact of this development on future miner behaviors and strategies remains a pressing question.

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Meanwhile, another analysis composed by @gigisulivan from CryptoQuant illustrates an uptick in engagement from long-term Bitcoin holders. The Spent Output Age Bands metric proves beneficial in ascertaining which demographic exerts the most impact on the ongoing price dynamics. A surge in activity can be observed from the 5+ year group that results in a subsequent price drop, potentially indicating an escalation in this trend in the forthcoming days or weeks. In addition, there has been a marked increase in activity within the 3-5 year age band, the highest since early January. The 2-3 year band also witnessed a smaller but noticeable spike in April. Coupling these trends with Bitcoin's price gradually finding its footing below the 27k mark might serve as an early warning that the recent steady price decline might pick up pace shortly.

Crypto Derivatives

• BTC and ETH funding rates remain positive
• 30-day BTC ATM IV fell to 42.46% while ETH ATM IV fell to 42.22%
• Deribit Implied Volatility Index (DVOL) is 47.76% and 46.91% for BTC and ETH respectively
• 30-day 25-delta skew for ETH and BTC is negative at -2.41% and -4.14% respectively

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

The futures market saw $65.3M in liquidation yesterday with 60.3% coming from shorts at $39.37M.

Looking at the BTC ATM IV term structure, the entire curve has shifted down since yesterday. In particular, the end-June expiry has shifted down by about 3%, while the back end of the curve only shifted down by about 0.5%. Similarly, the ETH ATM IV term structure also experienced a small decrease in IV across the curve where the back end dropped by about 0.5% and the end-June expiry fell by about 2.5%. Examining 7-day implied volatility vs realized volatility, the level of volatility risk premium increased last night when RV decreased by about 3%.

The 7-day 25-delta in BTC continues to exhibit put premium as the level currently stands at -3.36%. For the ETH skew, compared to yesterday, skew has reduced (become less negative) as it made a recent high of -1.52%, but it is currently at -2.84%. At the moment, it seems that investors are looking to hedge more of their downside risk in BTC relative to ETH. It is also worth noting that the 6-month 25-delta skew for BTC turned negative earlier this week as investors hedge against possible future weakness.

Since yesterday, the majority of BTC call volume flowed into contracts expiring on 30 Jun. Taking a closer look at the open interest on that day, most call contracts were transacted at the $35K strike price, followed closely by the $30K strike price, while max pain is at $24K. For puts, on the other hand, most of the open interest lies at the $22K strike price.

The top traded strategies for BTC, since yesterday, have been long risk reversals (which could be a bet on skew to flip if delta-hedged) and short straddle (expecting a contraction in volatility). For ETH, the top traded strategies have been long ratio call spreads (expecting a sharp upward move in the underlying or volatility), short risk reversals, and bull diagonal spreads. Some noteworthy trades recorded by @tradeparadigm were 2,250 $1500 30 Jun puts bought outright and 1,500 $1700 / $1500 30 Jun put spreads sold in ETH. For BTC, the top trades were 572 $24K / $28K 30 Jun bull risk reversals bought and 275 $24K 30 Jun puts sold.

Lastly, the VIX fell to 19.14.

Crypto Technical Analysis

Onto technical analysis, BTC on the 4H chart has seen a healthy bounce back from the previous dip. The pullback has seen some resistance at the $26.6K level as the previously broken support level turns into a resistance zone. The current resistance is further reinforced as it also represents the range between 38.2% and 50% Fibonacci retracement level. As such, further downsides remain to be possible if BTC fails to break the $26.6K level, which could likely lead to a drop to $25K as the psychological support and the lower highs trendline on the daily level. RSI has also reclaimed its ground and is currently sitting at 43.85 at the 4H timeframe.

On the other hand, ETH has, again, followed a similar pricing trajectory as BTC by testing its previous support turned into resistance level at the lower bound of the rising channel. If the lower bound is broken, ETH may go back to the consolidation phase and trade within the channel range. However, a bounce back from the current level remains possible and will likely lead to a test of the thin support at $1.76K. Lastly, RSI has reclaimed its footing and is currently at 45.08 at the 4H timeframe.

Access institutional-grade commentary on TradFi × Crypto markets

By Treehouse Research

Read Past Issues

Daily Readings

TradFi

• Exclusive: Egypt defers payments for wheat imports amid dollar crunch

• US raises concerns with China about actions against US companies

• US credit default swaps flash default warning and speculators rush in

• JPMorgan not renewing First Republic customers' personal credit lines -source

• Argentina VP says IMF hinders growth in Revolution Day speech

• Fitch puts Fannie Mae, Freddie Mac on negative watch as US debt deadline looms

• US default fears spark clearing house collateral scrutiny

• Fed lending to banks lowest in latest week since crisis began in March

• Brazil announces funding, tax cuts in bid to boost industry

• Canada April factory sales most likely down 0.2% - Statscan flash estimate

• US oil and gas auction yields nearly $80 mln for federal coffers

• US triple-A credit rating put on downgrade notice by DBRS

• South Africa lifts interest rates to 14-year high to fight inflation

• U.S. pending home sales unchanged in April

• German economy entered recession as inflation hurt consumers

• Turkey's cenbank holds policy rate at 8.5% ahead of election runoff

• Canada April factory sales most likely down 0.2% - Statscan flash estimate

• Moody's: Emerging market credit to be tight amid U.S.-led risks

• UK retail sales fall in May after April rise, outlook less gloomy: CBI

• Brexit to blame for a third of Britain's food bill rise, researchers say

• ECB tells governments to roll back relief measures

• The end of King Dollar? The forces at play in de-dollarisation

• Bank of Korea stands pat but warns against rate cut bets

Crypto

• Blockchain.com CEO says US default would hit crypto initially

• U.S. Presidential Candidate Ramaswamy Takes Potshot at DeSantis Bitcoin Remark.

• DCG Sunsets Trade Execution, Prime Brokerage Unit TradeBlock.

• CoinDesk at 10: The Ghost of Libra Lives On.

• Brazil's Central Bank Selects 14 Participants for CBDC Pilot.

• The Relationship Between Economic News and Crypto Prices May Be Improving.

• Centralized Exchanges Are Here to Stay.

• DeSantis and the Growing Culture War Around Bitcoin.

• Norway Should Consider a National Strategy for Crypto Regulation: Norges Bank Report.

• Blend Seizes 82% of NFT Lending Market Share: DappRadar.

• French Lawmakers Strike Softer Deal on Crypto Influencer Law.

• South Africa’s Crypto Firms Will Soon Need to Apply for Registration or Face a Heavy Fine.

• Ex-Sushi CTO Led NFT Lending Platform Astaria Rolls Out to Public.

• South Korea Lawmakers Pass Law Requiring Officials to Disclose Crypto Holdings: Report.

• Bitcoin's Hot Ordinals Economy is Getting a Dollar-Backed Stablecoin.

• Paradigm broadening crypto-only focus to areas including AI

• Circle launches euro-backed stablecoin on Avalanche

• Etonec and Mina Foundation to Create ZK-Powered Compliance Tool By Year’s End.

• Ripple president explains why the company acquired a stake in crypto exchange Bitstamp

Deal Flow

• Sam Altman’s Crypto Project Worldcoin Raises $115M, Led By Blockchain Capital.

• USBTC Aims to Become Bitcoin Mining Giant After Deal to Buy Celsius Assets.

• Hong Kong Asset Manager Metalpha Secures $5M from Bitmain for Grayscale-Based Fund.

Yours sincerely,
Treehouse Research 🌳