🌳U.S. Federal Reserve Keeps Rates Steady While it Warns of Higher for Longer in Dot Plot Projections; Grayscale Files for New Ether Futures ETF

21 Sep 2023, Thursday

2:27 AM

🌳U.S. Federal Reserve Keeps Rates Steady While it Warns of Higher for Longer in Dot Plot Projections; Grayscale Files for New Ether Futures ETF

BTC

ETH

S&P Futures 500

$27,028.25

$1,618.75

$4,435.75

(-0.74%)

 (-1.44%)

(-1.19%)

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

GM Treehouser 🌳

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August 2023 Market Recap

Our Daily View

What We Are Covering Today

  • U.S. Federal Reserve sees one more rate hike by the end of the year; U.K. inflation unexpectedly slowed in August (more in Macro & TradFi)
  • Grayscale files for new Ether futures ETF; CoinEx resumes services with new wallet system after $70M hack (more in DeFi & CeFi)
  • Stablecoin trends diverge significantly; Bitcoin's on-chain activity highlights pivotal $27K price juncture (more in On-Chain)
  • Near-term IV crush post-Fed announcement; ETH skew retreats into negative territory reflecting bearish sentiment (more in Crypto Derivatives)
  • BTC and ETH face bearish trends; breaking key support levels suggest potential downward shifts (Crypto Technical Analysis)

Macro & TradFi

The U.S. Federal Reserve decided to maintain its current interest rates on Wednesday. However, it adopted a more assertive stance on monetary policy, which its officials are becoming more confident will effectively combat inflation without causing substantial economic disruption or substantial job losses. The Fed's primary overnight interest rate could potentially experience one more increase before the end of the year, reaching a range between 5.50% and 5.75%, according to the Fed’s Dot Plot. Furthermore, interest rates are anticipated to remain considerably tighter than previously anticipated, extending through 2024, with two quarter-point rate cuts up on the table.

Meanwhile, in August, UK inflation rates grew at a slower pace than anticipated, registering at 6.7%, prompting a reevaluation of the likelihood of the Bank of England (BoE) continuing its consecutive interest rate hikes. Contrary to expectations of a rise from July's 6.8% to 7% in August, the data triggered an initial drop in the pound and adjustments in financial market expectations for future BoE rates. Notably, core inflation metrics, which exclude volatile components such as food and energy, also experienced a downturn. Despite the unpredicted inflation slowdown, many economists still anticipate a 0.25 percentage point rate increase by the BoE's Monetary Policy Committee.

U.S. equities slumped on Wednesday in light of the U.S. Federal Reserve's decision to maintain stable interest rates. All three major U.S. indices saw a retreat following this announcement, with the DJIA decreasing by 0.22%, the S&P 500 experiencing a 0.94% drop, and the NASDAQ plunging by 1.53%. The decline was driven by megacap stocks such as Microsoft Corp and Nvidia Corp, recording declines of 2.4% and 2.94%, respectively. In the commodities market, oil prices also saw a decline on Wednesday, as WTI retreated from the $90 handle to trade at $89.22 per barrel, while Brent crude traded at $93.13 per barrel.

DeFi & CeFi

  • Grayscale files for new Ether futures ETF
  • CoinEx resumes services with new wallet system after $70M hack
  • PayPal rolls out PYUSD stablecoin to Venmo users
  • JPEX applies for deregistration in Australia
  • Wormhole integrates native USDC transfers for four blockchain networks

Digital currency investment company Grayscale has filed with the Securities and Exchange Commission (SEC) for a new Ether futures exchange-traded fund (ETF) called the Grayscale Ethereum Futures Trust ETF. The proposal seeks to list and trade shares of the ETF under the New York Stock Exchange Arca Rule 8.200-E. Grayscale Advisors will manage the ETF, which is in the process of becoming registered as a commodity pool operator with the Commodity Futures Trading Commission. The ETF aims to maintain its holdings in Ether futures contracts with a constant expiration profile and will not require an Ether custodian. This follows a trend of firms filing for ETH futures ETFs, such as Valkyrie in mid-August, and Grayscale’s partial victory when its petition for review of the SEC’s ruling against a Bitcoin ETF was granted.

In other news, cryptocurrency exchange CoinEx is resuming deposits and withdrawals following a $70M hack. CoinEx, which previously outlined plans to create a new wallet system, will reopen these services for BTC, ETH, USDT, USDC, and other tokens starting September 21. Users have been advised not to use old addresses, as assets sent there could be permanently lost. The exchange will gradually resume services for more assets as it ensures the stability of the new wallet system. CoinEx stated that the $70M exploit was caused by compromised private keys for some of its hot wallet addresses, temporarily storing funds from and for user deposits and withdrawals. According to blockchain analytics firm Elliptic, the hack was perpetrated by the North Korean "Lazarus Group" resulting in the theft of various cryptocurrencies including BTC, ETH, SOL, and TRX.

On-Chain

Moving on to On-chain analytics, we examine Glassnode’s analysis of the three predominant stablecoins, where distinct trends emerge: USDT's supply has burgeoned by $13.3B since its November 2022 low, whereas USDC experienced a decrease of $16.7B, likely reflecting US institutions gravitating towards markets with higher interest rates. Most notably, BUSD witnessed a staggering 89% reduction, amounting to a $20.4B drop, attributed mainly to issuer Paxos transitioning to redemption-only due to SEC enforcement actions.

In other news, Bitcoin's on-chain activity has markedly surged to unprecedented levels since April. This heightened utility, coupled with the third-largest resurgence of dormant BTC in the past three months witnessed recently, underscores the $27K price point's pivotal role in the market. Such activity suggests that this price level is becoming a significant point of contention or interest among investors, potentially indicating a critical juncture for future market movements.

Crypto Derivatives

  • Funding rate flips to positive for both BTC and ETH.
  • Deribit Implied Volatility Index (DVOL) for BTC steadies at 42.72% while it retreated on ETH to 36.17%.
  • 30-day 25-delta skew (C-P) on BTC rose to 3.62% while it fell for ETH to -0.11%.
  • The futures market witnessed $60.90M worth of liquidations in the last 24 hours, with longs representing 63.80% of the total.

Top 3 USDT Perpetual Funding Rate Arbitrage Opportunities

Net Annualized APR

Perp (USDT pair)

Long on

Short On

17.66%

SOL

dYdX

Binance

14.88%

ETH

dYdX

OKX

9.96%

BNB

Bybit

Binance

Source: @CexyArbBot Telegram Bot

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.

In the options market, the 7-day implied volatility (IV) for BTC rose steadily into the U.S. Federal Reserve meeting on Wednesday, reaching a weekly high of 36.15%, but subsequently retreated after the announcement. IV on ETH exhibited a similar pattern, however, now trading below the 30% handle, which is lower than what BTC is currently trading at.

The term structure of BTC continues to show a contango pattern, albeit with signs of steepening. Implied volatility (IV) took a significant hit on the short-term end of the curve following the Federal Reserve announcement, whereas IV for medium to longer-dated maturities experienced an increase.

Meanwhile, the 30-day 25d (C-P) skew for BTC has been steadily increasing, reaching a September peak of 3.64%. Conversely, the skew for ETH shifted into negative territory, highlighting the notable difference in sentiment among traders regarding BTC and ETH.

Finally, @Paradigm observed bullish trades being executed for BTC, while ETH saw a mix of large bullish and bearish trades leading up to the Federal Reserve meeting. Noteworthy BTC trades encompass a 250x 27-Oct-23 $30K/$34K call spread and a 225x 24-Nov-23 32K call purchase. As for ETH, notable trades involve a 5,000x 28-Jun-24 $1.4K put and a 2,000x 24-Nov-23 $1.8K call acquisition.

Crypto Technical Analysis

BTC's recent descent to approximately 27K, a retraction to the descending trendline, confirms the persistence of the prevailing downward channel pattern. Presently, should BTC break this level, the subsequent support is positioned at 25.8K, marking a potential 4.53% decline from its current price. It's noteworthy that BTC is seemingly challenging its resistance at the bull market support band, represented by the 20-week simple moving average (SMA) and the 2-week exponential moving average (EMA). If BTC fails to surpass this pivotal support-turned-resistance band, it indicates a probable bearish trajectory in the near term. RSI is at 55.61, suggesting a neutral selling zone.

ETH experienced a surge reaching approximately 1.61K and is now retesting the 1.6K to 1.63K support bracket. Significantly, this support has remained steadfast, and, as the descending trendline of the descending triangle pattern narrows, it suggests a potential imminent downward shift. If ETH breaks below this crucial support, the next notable support level stands at 1.41K, translating to a potential decline of 9.02% from its current valuation. Furthermore, with the RSI positioned at 42.77, the momentum suggests a bearish trajectory ahead.

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