🌳U.S. Services Sector Shows Resilience, Fueling Rate Speculations; 21Shares and ARK Push for First U.S. Ethereum ETF

GM Treehouser 🌳

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Our Daily View

What We Are Covering Today

• U.S. services sector unexpectedly strengthened in August; Philips Jefferson confirmed as vice chair of Federal Reserve (more in Macro & TradFi)
• 21Shares, ARK Invest file for spot Ether ETF; Vitalik Buterin highlights the use of ZK-proofs in privacy and regulation (more in DeFi & CeFi)
• Uniswap data reflects bullish ETH sentiment; Glassnode reveals August's broad cryptocurrency capital exodus (more in On-Chain)
• Options market sees temporary implied volatility surge amidst spot whipsawing in the US trading session (more in Crypto Derivatives)
• BTC tests crucial support; ETH reveals death cross of 50 SMA and 200 SMA (Crypto Technical Analysis)

Macro & TradFi

The U.S. Senate confirmed Philip Jefferson as the Federal Reserve's vice chair and Lisa Cook for a 14-year term at the central bank, with Jefferson receiving broad bipartisan support. Both, having backed every rate hike since their appointment in May 2022, played roles in elevating the benchmark interest rate to its present 5.25%-5.50%. As the Fed approaches its 19-20/Sep/23 meeting, a stable policy rate is anticipated, though a year-end rate adjustment remains possible. This series of confirmations, including the anticipated approval of Adriana Kugler, is set to make the Fed board the most diverse in its history. This diverse board’s composition and policy stance could influence the bank's approach towards inflationary concerns and future rate adjustments, potentially impacting financial markets and the broader U.S. economy.

In other news, the U.S. services sector unexpectedly strengthened in August, as new orders increased and businesses faced higher input costs, potentially indicating ongoing inflation pressures. The Institute for Supply Management (ISM) reported a non-manufacturing PMI of 54.5, the highest since February, up from July's 52.7, surpassing expectations of 53.9. Additionally, the ISM reported that manufacturing PMI contracted for the 10th consecutive month in August. As fresh data points toward a strong economy, policymakers are likely to maintain rates at the upcoming Sep 19-20/Sep/23 meeting, leaving room for a potential final rate hike by year-end.

US equities slide after the stronger-than-expected services data stoking interest rate worries. The DJIA fell by 0.57%, the S&P 500 lost 0.70%, and the NASDAQ dropped 1.06%. Growth-heavy technology led the decline as the sector lost 1.4%, while defensive utilities pushed higher, up 0.2%. Meanwhile, Brent crude oil settled higher by 0.24% to $90.82 per barrel, fuelling concern about inflationary pressures. The Monetary Authority of Malaysia, Bank Negara Malaysia, is anticipated to maintain interest rates at 3.00% at 15:00 SGT today. Concurrently, Japan's Q2 GDP figures are scheduled for release at 07:50 SGT tomorrow.

DeFi & CeFi

• 21Shares, ARK Invest file for spot Ether ETFs
• Vitalik Buterin discusses ZK-proof extensions to privacy-enhancing protocols
• Arkham Intelligence identifies 1,750 wallet addresses linked to Grayscale
• New venture fund Alpha Protocol Ventures established with $20M
• Coinbase, Framework Venture Funds invest $5M in Socket Protocol

21Shares and ARK Investment Management are seeking to offer the first US ETF that invests directly in Ether. They have filed an application with the US Securities and Exchange Commission (SEC) to launch the ARK 21Shares Ethereum ETF. If approved, this would be the first US exchange-traded fund backed by Ethereum, trading under the ticker ARKE. The move comes amid increasing competition to gain approval for the first US spot Bitcoin ETF. 21Shares and ARK have also filed applications for 6 other crypto-focused ETFs for US investors, including one for Bitcoin and Ether futures. Following Grayscale’s recent victory against the SEC, competition for ETF approval has been ramping up, and many firms seem to be hopeful for a positive outcome. Critics argue that spot ETFs are unnecessary because investors can buy Bitcoin directly from exchanges, but proponents believe it will simplify the process and reduce friction for investors.

In other news, Ethereum co-founder Vitalik Buterin published a co-authored research paper exploring extensions to privacy-enhancing protocols through zero-knowledge (ZK) proofs. He initially discussed Tornado Cash, which allowed users to deposit and withdraw funds without linking addresses, citing its pitfall as the inability to distinguish normal users from criminal activity. The concept of a ZK-proof improvement entails membership proofs and exclusion proofs, which prove that a user’s funds came from or were unaffiliated to a deposit, respectively. This is achieved by proving membership in association sets that satisfy certain requirements, through regulation or social consensus. The user can specify the extent of their association set, ranging from all previously made deposits to only their own deposits. Users are incentivized to expand their sets in order to safeguard their privacy, but they have the agency to exclude suspicious actors from their circles. The paper explains that privacy and regulatory compliance need not be regarded as mutually exclusive and that ZK-proof solutions are set for tremendous growth and popularity in the near future.

On-Chain

According to @Glassnode, in the Uniswap Pool, approximately 30.4% of the capital is strategically allocated within a confined 11% price window, encompassing a potential decline of -2.7% and an ascent of +8.6%. Simultaneously, a secondary liquidity layer emerges, demonstrating a protective buffer of -8.5% to the downside and a more aggressive +23.7% to the upside. These configurations indicate that Uniswap Liquidity Providers anticipate a favorable upward trajectory for ETH, suggesting a prevalent bullish sentiment and optimism concerning Ethereum's market position.

Elsewhere, Glassnode’s Aggregate Realized Value metric offers a comprehensive perspective on capital flows within the cryptocurrency sector, amalgamating the realized capital of industry leaders, BTC and ETH, with the supply of the top five stablecoins: USDT, USDC, BUSD, DAI, and TUSD. Analysis reveals that predating major recent events, there was a marked capital exodus initiated in early August, resulting in an approximate $55B departure from the digital asset realm throughout the month. This pivotal shift can be attributed to concurrent capital withdrawals from Bitcoin, Ethereum, and stablecoins alike. The significance of this is that synchronized outflow underscores a broader sentiment of caution and repositioning among investors, highlighting potential market headwinds or a strategic reallocation of assets.

Crypto Derivatives

• Funding rate remains positive on both BTC and ETH.
• Deribit Implied Volatility Index (DVOL) for BTC steadied at 39.43%, while it rose to 39.30% for ETH.
• 30-day 25-delta skew (C-P) falls lower for BTC to -4.71%, while it eased higher to -4.08% for ETH.
• The futures market witnessed $57.82M worth of liquidations in the last 24 hours, with longs representing 54% of the total.

Top 3 USDT Perpetual Funding Rate Arbitrage Opportunities

In the options market, BTC's implied volatility experienced a momentary spike during the US trading session before subsequently retracting to 33.69% for the 30-day IV and 31.26% for the 7-day IV. Similarly, in the case of ETH, implied volatility surged when the spot price briefly touched $1,680, only to subsequently revert to its previous levels.

Meanwhile, the term structures for both BTC and ETH remain unchanged, with the exception of a notable implied volatility compression occurring within the medium-term tenors spanning 3 to 6 weeks.

Elsewhere, the 30-day (call-put) skew continues its descent, briefly touching a one-month low at -5.54%. This tightening negative skew mirrors the persistent bearish sentiment in options markets since the widespread crash in August. Conversely, the longer-term skew remains stable in positive territory, showing no significant shifts over the past day.

Lastly, @Paradigm has reported bullish trading activity, with investors purchasing calls for both BTC and ETH. Noteworthy transactions involve the acquisition of 200x 27-Oct-23 $30K calls for BTC and 6,250x 24-Nov-23 $2K calls for ETH. Nonetheless, substantial volumes of put spreads continue to be purchased for both BTC and ETH, with strikes placed at $25K-$22K and $1.55K-$1.4K, respectively.

Crypto Technical Analysis

Moving on to Technical Analysis, BTC currently trades around the $25.7K mark, testing the support range between $24.7K and $25.8K. The pivotal support to monitor is $24.7K; if compromised, we could see a descent towards the next significant support at $21.1K, translating to a potential decline of 18.08%. On the upside, the resistance is pinpointed at $28K, presenting an 8% potential appreciation from the current position. The RSI stands at 35.87, which is still in the oversold region. Notably, an emerging death cross, characterized by the crossover of the 200-day SMA and 50-day SMA, is taking shape. This bearish technical formation, last witnessed in January 2022, was followed by a substantial 56% retracement over the subsequent six months.

Moreover, ETH is trading at its $1.63K support, paralleling BTC's testing of its foundational support. Should ETH relinquish this pivotal support, a descent to the next support at $1.47K is imminent, equating to a 9.96% retraction from its present value. A significant resistance awaits at $1.95K. The RSI, standing at 36.99, signals that ETH is still oversold. Notably, a death cross surfaced on 1st September when the 50 SMA traversed beneath the 200 SMA. Following this bearish indicator, ETH has consistently anchored its stance within the lower channel, consolidating around the $1.63K mark.

Access institutional-grade commentary on TradFi × Crypto markets

By Treehouse Research

Daily Readings

TradFi

• US services sector picked up in August, along with prices

• US economy grew modestly in recent weeks, Fed survey shows

• US Senate confirms Jefferson as Fed vice chair, Cook to new term on board

• Digital euro package should be focus of next EU Commission - McGuinness

• Wall St slides as economic data stokes inflation and interest rate worries

• U.S. airlines flag high fuel costs, Southwest's August bookings disappoint

• US SEC approves new fee rules on market data surveillance system

• Microsoft says compromise of its engineer's account led to Chinese hack of US officials

• City of London calls for 'big moves' to boost post-Brexit finance

• Apple and Arm sign deal for chip technology that goes beyond 2040.

• India's consumer market set to become the world's third largest by 2027, behind the U.S. and China.

• China’s Share of US Imports Falls to Lowest Since 2006

• UK and eurozone housebuilding hit by ‘perfect storm’

Crypto

• Following SEC delays, ARK Invest and 21Shares file for spot Ether ETF.

• Genesis Global Capital Files for Over $600M in Unpaid DCG Loans: Court Docs.

• The Protocol: Ethereum Learns of Potential Defector as ‘Supreme Court’ Mooted.

• Tornado Cash Developer Roman Storm Pleads Not Guilty to Money Laundering, Other Charges.

• Change to US accounting rules will be a boon to companies holding crypto in 2025.

• Binance creates smart contract to refund users affected by $3M rug pull.

• Financial privacy and regulation can co-exist with ZK proofs — Vitalik Buterin.

• HashKey signs MOU for crypto exchange insurance.

• Arkham Intelligence identifies over 1,750 wallet addresses tied to Grayscale Bitcoin Trust

• Binance moves to delist privacy coins in Belgium

• Telegram Bot Project Banana Gun Opens First Round of Pre-Sales on 8 Sep

• SOMA Finance to Issue Retail Compliant Digital Security $SOMA

Deal Flow

• IP Infrastructure Story Protocol Raises Over $54 Million in Funding Led by a16z

• New Venture Fund Alpha Protocol Ventures Established with $20M

• Coinbase, Framework Venture Funds Invest $5M in Socket Protocol, in Bet on Blockchain Interoperability.

Yours sincerely,
Treehouse Research 🌳