Unemployment Claims In The U.S. Soar To Record Levels Since October 2021; Ethereum Developers Finalize Line-up For Dencun Upgrade

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Our Daily View

What We Are Covering Today

• U.S. jobless claims surge to highest level since October 2021; China’s economy continues to cool with weakening consumer and producer prices (more in Macro & TradFi)
• Binance.US cancels delisting of $USDT trading pairs; Ethereum developers confirm the final line-up of ‘Dencun’ upgrade (more in DeFi & CeFi)
• Notable shift in geographical distribution of BTC supply; Coinbase experiences a net $1.28bn outflow following the SEC lawsuit (more in On-Chain)
• A contango shift in BTC and ETH implied volatility term structures reflects recent regulatory clarity (more in Crypto Derivatives)
• BTC, ETH price action continues to compress; ETHBTC ratio remains little changed from yesterday (more in Crypto Technical Analysis)

Macro & TradFi

U.S. unemployment benefit applications surged last week to 261K, marking the highest level since October 2021—a jump of 28,000 from the previous week. The rise was particularly notable in Ohio, Minnesota, and California, exceeding economists' predictions of 236K and signaling potential labor market cooling. However, continuing unemployment claims dropped to 1.76 million, the lowest since mid-February, suggesting that finding jobs after layoffs might not be as challenging. Overall, while the U.S. labor market has demonstrated resilience, these latest figures indicate signs of potential cooling, with more layoffs announced in the first five months of 2023 than in all of last year.

The eurozone slipped into a mild recession during the winter, with the economy contracting by 0.1% in both Q4 2022 and Q1 2023, largely due to the impact of Russia's war in Ukraine. Germany's economic weakness significantly contributed to this downturn, despite growth in France, Italy, and Spain. Inflation concerns persist, but the European Commission forecasts GDP growth of 1.1% in 2023 and 1.6% in 2024. To combat inflation, the European Central Bank is likely to continue raising interest rates, with a 0.25-point hike to 3.5% expected next week. According to the Organization for Economic Cooperation and Development, the recovery in the eurozone is predicted to be slow and protracted, projecting a 0.9% growth this year.

China saw a minor rise in consumer prices in May, while producer prices continued their descent, indicating weak economic demand and a challenging business climate. The consumer price index increased by 0.2% year-on-year, matching predictions and slightly higher than April's 0.1%. However, core inflation, excluding fluctuating food and energy costs, dropped to 0.6% from 0.7%. In contrast, producer prices declined by 4.6% in May, a steeper fall than the 3.6% drop the previous month and more than the anticipated 4.3% decrease. These figures, coupled with shrinking manufacturing activity, contracting exports, and a cooling housing market, suggest China's economy, the world's second-largest, continued to decelerate in May.

Overnight, the S&P 500 marked the start of a new bull market with a 0.6% rise, cumulating in a 20% increase since its October low, largely driven by tech companies. This momentum pushed the tech-focused Nasdaq 100 up by 1.3%. The Dow Jones also rose by 0.5% to 33,833. Concurrently, Treasury yields fell, with the 10-year Treasury note yield dropping to 3.714% from 3.782%. This upbeat performance extended globally as Japanese, South Korean, Australian, and Hong Kong stocks opened higher. Notably, Korean shares reached their highest point since June last year.

DeFi & CeFi

• Binance.US cancels delisting of $USDT trading pairs
• Ethereum developers confirm final line-up in upcoming ‘Dencun’ upgrade
• Synthetic spot market V3 alpha is now live
• SEC’s asset freeze hearing for Binance to occur on 13 June
• AliExpress to launch NFT in partnership with The Moment3
• Circle rolls out support for USDC stablecoin on Arbitrum
• Taiko Labs raises $22M in two separate fundraising rounds
• Web3 social platform Lens Protocol closes $15M funding round

Binance.US has responded to community feedback and decided not to remove any $USDT trading pairs. However, they will remove 10 specific $BTC and $BUSD trading pairs as of 12pm EDT on June 8th. Previously, Binance.US had announced the removal of over 100 trading pairs, which included more than 90 $USDT pairs such as AAVE/USDT and APE/USDT. In addition, they have temporarily paused OTC trading services.

The forthcoming Dencun upgrade, also known as a hard fork, is scheduled to take place later this year and will incorporate five Ethereum Improvement Proposals (EIPs). These EIPs are designed to enhance data storage capacity and reduce fees. EIP-4844, also known as proto-danksharding, is the central component of this upgrade. By expanding the blockchain's capacity for data "blobs," this feature is expected to lower gas fees for layer 2 rollups, thus scaling the network. While an exact date for the upgrade has not been specified, it is intended to be implemented and go live before the end of 2023.

Elsewhere, the alpha version of Synthetix V3 spot markets is now live. This allows individuals to exchange the V3 protocol's stablecoin for synthetic assets, also known as "synths." According to SCCP-304, the spot market system has introduced a synthetic ETH token by establishing a dedicated market for it. Synths comply with the ERC-20 standard, ensuring compatibility with a wide range of protocols, standard smart contracts, wallet applications, and various other platforms.

Lastly, Taiko Labs, the company behind Taiko—a scaling solution for Ethereum's Layer 2—has secured $22 million in funding across two rounds. The initial seed round closed in Q3 2022, raising $10 million and was led by Sequoia China. The recent pre-Series A round, led by Generative Ventures, brought in $12 million.

On-Chain

Recent data from Glassnode suggests that while the U.S. Securities and Exchange Commission's (SEC) recent regulatory actions have not significantly impacted the overall demand for cryptocurrencies, there has been a notable shift in the geographical distribution of Bitcoin trading volume. The supply of Bitcoin held or traded within the United States has decreased by 11% since mid-2022, with a substantial portion of that balance shifting to Asian markets, leading to increased supply dominance there. A tweet from @glassnode underscores this trend, emphasizing a clear divergence in Bitcoin supply changes across different regions. The tweet suggests that the SEC's regulatory approach has influenced where the demand for cryptocurrencies is satisfied, rather than changing the overall demand itself.

Blockchain data and research firm Nansen reports that substantial sums of money have been withdrawn from Coinbase and Binance following the SEC's lawsuit against these exchanges. According to Nansen, Coinbase and its custodial arm experienced negative net flows of around $1.28 billion after the SEC's action. Two institutional investors, Cumberland and Brevan Howard Digital, were among the top three wallets withdrawing funds from Coinbase. Similarly, Binance, the world's largest crypto exchange, saw negative net flows of approximately $1.43 billion within 24 hours of the SEC's lawsuit announcement, although the exchange still holds over $54 billion across its known wallets. Despite these significant outflows, the withdrawn amounts represent only a fraction of the total funds held by both exchanges.

Crypto Derivatives

• BTC and ETH funding rates remain positive
• 30-day BTC ATM IV for BTC and ETH increases to 37.22% and 35.45% respectively
• Deribit Implied Volatility Index (DVOL) for BTC and ETH declines slightly to 41.28% and 40.88% respectively
• 30-day 25-delta skew for both BTC and ETH is on the put side

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

In the futures market, liquidations totaled $40.45 million, with long positions accounting for 57.1% ($23.10 million) of the total and short positions making up the remaining 42.9% ($17.36 million).

Drawing upon the current market dynamics, it can be observed that the implied volatility (IV) term structures for both BTC and ETH have transitioned into a contango state, likely as a result of recent easing of regulatory concerns. A notable deviation occurred on July 28th, where ETH's term structure intersected with that of BTC. The spread between ETH's and BTC's IV term structures presents a pronounced difference compared to last week's market scenario. Previously, the spread was characterized by backwardation, indicating heightened short-term volatility expectations. However, this week, we've observed a marked shift, with the spread entering a contango phase and settling around -0.8.

In terms of skew, both BTC and ETH options have maintained a put skew, with the spread between ETH and BTC widening to 1.78. The current 30-day 25-delta for BTC and ETH stands at -1.28% and -3.06%, respectively.

There's a substantial decrease in the total amount of liquidations in the futures market, contrasting starkly with the heightened activity seen on June 6th and 7th. This period was marked by robust enforcement actions from the U.S. Securities and Exchange Commission (SEC) against prominent cryptocurrency exchanges like Binance and Coinbase. These legal actions caused considerable turbulence in the futures market, which has since eased.

Significant trades included 600 contracts of the Long Ratio Call Spread amounting to $16.02 million, the sale of 410 contracts of the Bear Call Spread valued at $10.92 million, and the execution of a custom strategy involving 284.5 contracts, totaling $7.55 million.

Lastly, the VIX decreased to 13.65.

Crypto Technical Analysis

In the realm of technical analysis, BTC has seen little change, as it increased by only 0.6% yesterday. Following the large movements at the week's start, BTC has continued to consolidate in a range-bound manner, similar to the mid of last month, when BTC fluctuated by only about 1% in either direction. Presently, minor support exists at the $26.3K level, while overhead resistance persists at the $27.4K level. As of yesterday, both the MACD and RSI indicators remained relatively stable, suggesting no strong trend.

Much like BTC, ETH experienced a slight gain of 0.7% yesterday as price action remained compressed within the trading range defined by the two trendlines. Yesterday's low for ETH reached the support level previously established at $1830. However, ETH may encounter resistance at the $1875 level, a price point that had been rejected in April and May. Looking ahead, it appears that both BTC and ETH will continue with subdued, range-bound price action, as neither MACD nor RSI indicates a strong trend.

Although the ETHBTC pair is currently above the descending trendline, its price sits just below the crucial 0.07 level. If ETH continues to outperform BTC, the next resistance zones to watch are 0.0709 and 0.72, which the price had previously failed to break through in February and March. Conversely, a move below the trendline may indicate a potential downside.

Access institutional-grade commentary on TradFi × Crypto markets

By Treehouse Research

Read Past Issues

Daily Readings

TradFi

• Shares rise, Treasury yields fall as US jobless claims surge

• Exclusive: Chinese energy storage, battery firms consider big investments in Vietnam

• Wall Street ends up amid record low volatility ahead of eventful week

• Oil prices partially recover after US, Iran deny reported nuclear deal

• Euro zone saw winter recession, more challenges ahead

• AI startup Cohere raises funds from Nvidia, valued at $2.2 billion

• Morning Bid: China inflation could spoil the weekend party

• US weekly jobless claims race to 1-1/2-year high, economists urge caution

• Bank of Canada hiked rates over alarm at household spending, stubborn inflation

• Exclusive: Bunge finalizing $30 billion-plus merger with Viterra -sources

• Exclusive: Bank of America promotes Bettamio to co-head of investment banking; Ahmad to co-head capital markets

• Goldman Sachs planning for sluggish growth, higher inflation

• Visa, MasterCard fight off new UK mass actions over fees for now

• EU’s Breton demands Meta act against online content targeting children

• GM embraces Tesla’s EV charging system, Wall Street cheers

• GameStop shares plummet after fifth CEO exit in 5 years

• Behold Wall Street’s new bull market, maybe

• Carvana shares surge as much as 68% after upbeat second-quarter outlook

Crypto

• First Mover Asia: Bitcoin Remains Resilient Near $26.5K, Despite Ongoing Binance, Coinbase Fallout.

• FTX Bankruptcy Judge Says U.S. Courts Should Have Full Control Over $7.3B in Disputed Assets.

• Solana Foundation: SOL is ‘Not a Security’.

• Optimism Says Ether Now Treated as Native Cryptocurrency Alongside OP Token.

• Kraken NFT Marketplace Launches With Support for Ethereum, Solana and Polygon Collections.

• SEC’s Gensler Rebuffs Crypto Complaints, Says Gave Ample Warning Heat Was Coming.

• Ethereum Developers Cement Final Lineup of Changes in ‘Dencun’ Upgrade.

• Circle Rolls Out Support for USDC Stablecoin on Arbitrum.

• First Mover Americas: SEC-Targeted Tokens Tumble.

• DeFi Protocol Curve Finance Now Lets Users Mint crvUSD for Staked Ether.

• Bitcoin Traders Shrug Off U.S. SEC’s Action Against Binance, Coinbase.

• Gary Gensler: Crypto market is like 1920s stock market, full of ‘fraudsters’.

• Circle hires former CFTC, US Treasury executive as chief legal officer.

• US DOJ opposes bankrupt Bittrex’s plan to repay customers ahead of credited fines.

• Binance may have lied to US lawmakers, argue senators: Report.

Deal Flow

• Lens Protocol raises $15 million to boost decentralized social media

• Taiko raises $22 million across two rounds for its ‘Type 1 zkEVM’

• Aave-Developed Lens Protocol Raises $15M to Expand ‘Social Layer’ of Web3.

• HyperPlay raises $12M in Series A funding round.

Yours sincerely,
Treehouse Research 🌳