🌳U.S. PPI Falls Sharply, Hinting at Fed Policy Change; MAS Broadens Scope of Project Guardian with New Digital Asset Initiatives

16 Nov 2023, Thursday

2:51 AM

🌳U.S. PPI Falls Sharply, Hinting at Fed Policy Change; MAS Broadens Scope of Project Guardian with New Digital Asset Initiatives

BTC

ETH

S&P Futures 500

$37,768.25

$2,080.00

$4,517.25

(+6.32%)

 (+4.89%)

(+0.02%)

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

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What We Are Covering Today

  • U.S. producer prices record steepest drop since 2020 with a 0.5% decrease in PPI; PBOC injects unprecedented 1.45 trillion yuan to bolster Chinese economy and liquidity (More in Macro & TradFi)
  • MAS expands asset tokenization initiative with 5 new industry pilots; SEC delays HashDex spot BTC ETF, Grayscale Ether futures (More in DeFi & CeFi)
  • Smart whale's flawless Ethereum trades net 4.5M DAI since October; dYdX price surge enables whale's potential 1.5M DAI profit in Kraken market (More in On-Chain)
  • BTC volatility spikes with PPI impact; backwardation suggests robust institutional buying interest (More in Crypto Derivatives)
  • Both BTC and ETH see large price increases in the last 24 hours as they bounced back from their respective support levels. (More in Crypto Technical Analysis)

Macro & TradFi

U.S. producer prices in October 2023 exhibited their steepest decline since April 2020, with the Producer Price Index (PPI) for final demand receding by 0.5%, defying economists' projections of a modest 0.1% increase. This downtrend, largely driven by a significant 15.3% reduction in gasoline prices, contributed to a year-on-year PPI increase of just 1.3%, marking a noticeable deceleration from the 2.2% ascent observed in September. Additionally, the broader commodity sector saw a 1.4% reduction in goods prices, while food prices dipped by 0.2%. Core goods prices, which exclude the often volatile food and energy sectors, inched up by a mere 0.1%. Concurrently, service costs remained static, despite increases in specific areas such as airline fares and healthcare. The core PPI, a more refined measure excluding food, energy, and trade services, nudged up by 0.1%, culminating in a 2.9% year-on-year rise, slightly below September's 3.0%. This unexpected easing of inflationary pressures is reshaping market expectations, suggesting a potential pivot in the U.S. Federal Reserve's aggressive monetary policy tightening, with forecasts now leaning towards a possible interest rate cut by May.

On the other hand, the People's Bank of China (PBOC) has notably escalated its economic support measures, administering a substantial injection of 1.45 trillion yuan ($200 billion) into the financial system through its medium-term lending facility. This maneuver, the largest since late 2016, surpasses the due amount by 600 billion yuan, while maintaining the loan interest rate at a steady 2.5%. Concurrently, China is mobilizing at least 1 trillion yuan for urban infrastructure and affordable housing projects to invigorate the property sector. Despite these significant fiscal injections, market analysts from Standard Chartered and Societe Generale SA indicate the potential for a further reserve requirement ratio cut by the PBOC, albeit with a slightly diminished likelihood following this recent monetary expansion. This strategic move comes against a backdrop of heightened liquidity concerns, underscored by smaller financial institutions facing exorbitant borrowing rates in recent weeks, and the PBOC's concurrent plan to issue 45 billion yuan in Hong Kong bills, slightly exceeding the maturing bills' value, to fortify cash conditions and underpin the yuan's stability.

In the latest trading session, the S&P 500, NASDAQ Composite, and DJIA all recorded gains, rising by 0.2%, 0.1%, and 0.5% respectively. However, the market's response was tempered by significant corporate developments, including an 11% decline in Cisco Systems' shares following weaker-than-expected guidance and a 5% decrease in Palo Alto Networks' stock due to a disappointing billing forecast.

DeFi & CeFi

  • MAS expands asset tokenization initiative with 5 new industry pilots
  • SEC delays HashDex spot BTC ETF, Grayscale Ether futures
  • NYDFS rolls out stricter guidelines for cryptocurrency listings & de-listings
  • IMF praises CBDCs’ payment utility
  • Microsoft, Tencent join Ethereum platform Infura
  • Germany’s Commerzbank wins crypto custody license
  • Poloniex exchange resumes withdrawals after $100M hack
  • OpenSea NFT users report massive email phishing campaign

The Monetary Authority of Singapore (MAS) expanded Project Guardian, a DeFi-to-TradFi integration initiative, with five new industry pilots exploring asset tokenization. Citi, T. Rowe Price, and Fidelity International are exploring bilateral digital asset trade mechanisms, while Ant Group is testing a treasury management solution for global liquidity enhancement. BNY Mellon and OCBC are collaborating on a cross-border foreign exchange payment solution, Franklin Templeton is testing a tokenized money market fund issuance, and JPMorgan and Apollo are focusing on improving asset servicing by addressing manual processes using digital assets. MAS has also introduced a new initiative named “Global Layer One” to design an open digital asset infrastructure and is working on an Interlinked Network Model for seamless digital asset exchange. The “Global Layer One” ultimately aims to have seamless cross-border transactions and allow tokenized assets to be exchanged on a global scale, all while adhering to applicable regulatory standards and guidelines.

In other news, the U.S. SEC has postponed decisions for HashDex's Bitcoin futures ETF transformation to a spot vehicle and Grayscale's Ether futures ETF launch, delaying decisions amid growing anticipation for a spot Bitcoin ETF approval, a move they have already done for a number of other ETF hopefuls. Meanwhile, the SEC hasn't indicated its ruling yet, citing past concerns about market manipulation and surveillance-sharing. Despite the delays, Bitcoin surged by over 5% to $37,500 with Franklin Templeton facing a Nov 17 deadline, while further decisions on other applications are expected in early 2024.

On-Chain

Recent market intelligence from @lookonchain reveals a smart whale with a strong ETH trading record since October, achieving a total profit of approximately 4.5M DAI. This investor recently spent 22.8M DAI to acquire 11,523 ETH for $1,979 each. This whale has conducted 7 trades involving millions in the past month with each yielding significant profits. This series of trades, meticulously detailed by Lookonchain, highlights the whale’s adept maneuvering in the Ethereum market.

On the other hand, @lookonchain has identified a whale who has deposited 1 million DYDX, valued at 4 million DAI, to Kraken. This strategic move could have yielded an unrealized profit of approximately 1.5 million DAI in the last 24 hours. Currently, the whale's holdings are estimated at 1.03 million DYDX, equivalent to about 4.17 million DAI. DYDX holders should be cautious as this activity may point to a potential large profit-taking opportunity in the DYDX market.

Crypto Derivatives

  • Funding rates remained positive for BTC and ETH.
  • Deribit Implied Volatility Index (DVOL) for BTC and ETH rose to 61.15% and 64.37%, respectively.
  • The 30-day 25-delta skew (C-P) for BTC rose to 8.81% and 30-day 25-delta skew (C-P) ETH rose to 7.13%.
  • The futures market witnessed $143.60M liquidations in the last 24 hours, with shorts representing 77.22% of the total.

Top 3 USDT Perpetual Funding Rate Arbitrage Opportunities

Net Annualized APR

Perp (USDT pair)

Long on

Short On

45.62%

ETH

OKX

dYdX

18.23%

SOL

Bybit

dYdX

8.64%

BNB

Bybit

OKX

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.

BTC 7-day implied volatility rose from 49.16% to 59.30%, while the 30-day implied volatility has also increased from 51.71% to 57.77%, suggesting that the market is anticipating more short-term uncertainty and potential price fluctuations in Bitcoin. The recent rise in BTC's IV can be possibly linked to the PPI rate undershooting expectations by 0.6%, hinting at a possible pause in the Fed's rate hike cycle.

Meanwhile, BTC's term structure has shifted considerably into backwardation, with near-term expiries of up to 8 days experiencing a large rise in IV, indicating a market consensus that current option prices may be undervalued and leading to a surge in short-term demand. This trend is likely attributed to recent buy-the-dip spot activity by institutional inflows, which saw inflows totaling $240M in the past week.

The recent shift in Bitcoin's options market also reveals a nuanced sentiment among traders; the 25-delta 7-day skew surged to 10.02% from 7.23%, reflecting a growing preference for short-term bullish positions and anticipation of upward price movement in the near future. Concurrently, the modest decline in the 30-day skew to 8.81% from 6.08% suggests a tempered optimism for the medium term, indicating that traders are hedging against potential volatility or price corrections. These movements underscore a market bracing for potential upside in the immediate term while adopting a more cautious stance in the slightly medium-term future.

During @Paradigm’s US Session Hours, in the BTC market, the top trades were a call calendar sold with a size of 700, spanning from 29-Mar-24 at a 70K to 28-Jun-24 at a 100K, and another call calendar sold with a size of 500, from 29-Dec-23 at a 40K to 26-Jan-24 at a 46K. For ETH, prominent trades included a sold put sized at 10K for 24-Nov-23 at a 1.9K, and a purchase of a custom strategy call option sized at 6.5K, structured from +1.00-Call-29 Dec 23 at 2.3K to -1.00-Call-26 Jan 24 at 3.1K.

Crypto Technical Analysis

Shifting focus to technical analysis, BTC has rapidly bounced back from the previously identified support at the lower boundary of the rising channel, affirming the bullish scenario outlined in yesterday’s analysis. The RSI has also experienced a swift increase, rapidly approaching the overbought zone. Presently, BTC has confirmed a breakout above the upper boundary of the channel and appears to have stabilized around the $37.6K level. If this momentum persists, BTC faces no immediate resistance until approximately the $41.0K level, a long-term resistance last observed in April 2022. This represents another potential 9% increase from the current level. Conversely, BTC may undergo a slight retracement from the present level before aiming for a higher price. This could lead to a short-term correction toward the $37.0K level at the upper boundary of the rising channel.

ETH, on the other hand, has undergone similar movements in the last 24 hours. The price has rebounded from the rising lower trendline observed on the 4-hour chart, swiftly surpassing the 50-period SMA after briefly breaking below it the day before. If the bullish momentum persists, ETH is poised to test the $2.12K resistance for the third time. However, akin to BTC, there is a possibility that the price will undergo a temporary correction before resuming its upward movement. This could lead ETH to revisit the trendline at approximately $2.01K, representing a potential 2.5% retracement.

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