US and European Central Banks Grapple with Diverging Rate Hike Outlooks; Debt Ceiling Bill Passes House; Multichain CEO Disappearance Hinders Protocol Progress

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Our Daily View

What We Are Covering Today

• Germany and France's inflation drop more rapidly than expected; Fed officials debate rate hike skip in June (more in Macro & TradFi)
• Cross-chain protocol Multichain is still unable to contact CEO Zhaojun; Hong Kong Virtual Assets Consortium (HKVAC) officially launches with Huobi as the first member (more in DeFi & CeFi)
• Bitcoin's Inscription Transactions suggest evolving network utility amid reduced interest in DeFi tokens (more in On-Chain)
• BTC IV largely falls across the curve with notable kinks on 1 June and 16 June, ETH-BTC skew spread widens (more in Crypto Derivatives)
• ETH and BTC slumped by more than 1.5% yesterday during Asian hours; ETHBTC continues to outperform (more in Crypto Technical Analysis)

Macro & TradFi

Inflation in Germany and France has fallen more rapidly than expected, reaching the lowest levels in over a year. This has raised optimism that the European Central Bank (ECB) may soon stop raising interest rates. Germany's inflation dropped from 7.6% in April to 6.3% in May, driven by lower energy prices and inflation for food and other goods. French inflation declined to 6% in May, down from 6.9% the previous month. The drop in inflation in these two major economies and a significant decrease in Spanish inflation have increased expectations that the ECB might halt rate increases by July. This has led to bond rallies and a decline in the euro's value against the dollar. However, policymakers remain cautious and stress the need for core inflation to approach the 2% target before ending rate hikes.

Loretta Mester, President of the Cleveland Federal Reserve, believes there is no compelling reason to delay another interest rate hike if economic data confirm the need to control US inflation. Mester emphasized the importance of raising rates and mentioned the recent agreement on the US borrowing limit as a positive step in reducing economic uncertainty. She acknowledged that forthcoming employment and inflation data could influence her decision. However, some policymakers suggest pausing rate increases with Fed Governor Philip Jefferson and Philadelphia Fed President Patrick Harker rejecting further hikes in order
to assess the impact of previous tightening measures.

In the early Asian hours, the U.S. House of Representatives passed a bill to suspend the $31.4 trillion debt ceiling, despite divisions among lawmakers. Bipartisan support from Democrats and Republicans overcame opposition from conservative members, avoiding a potential catastrophic default. Last night, the Dow Jones Industrial Average dropped 0.41%, the S&P 500 fell 0.61%, and the Nasdaq Composite saw a loss of 0.63%. Asia-Pacific markets showed mixed performance on Thursday ahead of the final vote on the U.S. debt ceiling bill. Japan's Nikkei 225 gained 0.18%, while the Topix rose by 0.22%. South Korea's Kospi and Kosdaq edged higher. Hong Kong's Hang Seng index faced downward pressure, with futures indicating a potential entry into bear market territory at 18,163, compared to the HSI's previous close of 18,234.27. Notably, HSI futures hit their lowest level since November 28, 2022.

DeFi & CeFi

• Cross-chain protocol Multichain announces that it is unable to contact its CEO, Zhaojun
• Web3 wallet-as-a-service provider, Magic, announces a $52M round led by PayPal Ventures
• Binance is under scrutiny by the Ontario Securities Commission (OSC) for possibly breaching local regulations
• CNHC team, which issues the CNHC offshore RMB-pegged stablecoin, detain by Chinese authorities
• Cross-chain bridge Stargate sunsets Fantom pools and USDC transfers to and from Fantom
• dYdX v4 to have an open-source front-end for web, iOS, and Android
• Curve deploys Tricrypto-NG to optimize Tricrypto transaction fees
• Hong Kong Virtual Assets Consortium (HKVAC) officially launches with Huobi as first member

In the ongoing situation with the cross-chain protocol Multichain, the team released a statement stating that their CEO, Zhaojun, has been unreachable for more than two weeks. This has hindered the team's ability to access the necessary servers for maintenance. They have urged partners to stop using smart contracts on affected chains, including Kekchain, PublicMint, Dyno Chain, and eight others. There are rumors circulating that the CEO may have been arrested by Chinese authorities. The protocol's dependence on the CEO has raised concerns about its lack of decentralization.

On May 31, Hong Kong launched the Hong Kong Virtual Assets Consortium (HKVAC) to establish the region as a secure digital asset market. The HKVAC will rate digital asset trading platforms based on nine trustworthiness criteria, using ratings ranging from AAA to D. It will also provide two main crypto market indexes: the Cryptocurrency Large Market Cap Index and the Cryptocurrency Risk Rating Based Index. This announcement coincides with the opening of crypto trading exchanges to the retail market in Hong Kong on June 1. Huobi has become the first member of the consortium.

On-Chain

According to analysis by @Glassnode, Inscription Transactions in the Bitcoin network remain highly popular, especially due to BRC-20 tokens. Currently, these transactions account for an impressive 25% of all transaction fees. The widespread usage of Inscription Transactions has significant implications for the network and its stakeholders, highlighting the network's evolution beyond its traditional roles. This is indicative of the network's evolution, expanding its utility beyond its conventional roles as a store of value or medium of exchange.

When examining the momentum of new addresses for DeFi tokens, the monthly average consistently lags behind the yearly average. The only notable surge coincided with the downfall of the FTX market, suggesting divestment rather than fresh demand due to increased market risk perception. Additionally, there has been a sharp decline in new address creation since March, coinciding with the Shapella upgrade. Currently, the index records approximately 600 new wallets daily containing a DeFi token, indicating the ongoing challenge faced by DeFi tokens in attracting interest, despite the recovery of ETH prices in the first quarter of 2023.

Crypto Derivatives

• BTC and ETH funding rates largely remain positive, BTC funding rate on OKX flips to negative
• 30-day BTC ATM IV for BTC and ETH declined to 38.89% and 37.91% respectively
• Deribit Implied Volatility Index (DVOL) for BTC and ETH declined slightly to 43.93% and 42.28% respectively
• 30-day 25-delta ETH and BTC are skewed to the put side

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

The futures market experienced $87.68M in liquidations with 81% attributed to long positions totaling $71.2M.

Implied volatility showed an increase on June 1st and June 16th, while decreasing across other tenors. The term structure for BTC remained in backwardation on the front end of the curve. ETH saw a decline in implied volatility across all tenors except on June 1st, possibly influenced by the voting on the US debt ceiling bill in the House. When comparing 7-day implied volatility to realized volatility, the level of volatility risk premium for both BTC and ETH remained at high single digits.

In terms of skew, both BTC and ETH options maintained put skew. However, the spread between ETH and BTC widened, with put skew on ETH tightening on the front end while skew on BTC increased. Currently, the 7-day 25-delta for BTC and ETH stands at -2.64% and -4.46%, respectively.

Regarding trade flows, significant volumes were observed for 30-Jun-23 $22K BTC puts and 29-Dec-23 $2.3K ETH calls. According to @tradeparadigm, the volumes came from 134x 30-Jun-23 24000/22000 put spread sold and 28500x 29-Sep-23 / 29-Dec-23 2300 call calendar sold for BTC and ETH structures respectively.

Other noteworthy trades reported by Paradigm included the sale of a 15000x 28-Jul-23 / 29-Sep-23 2200 call calendar and a 2500x 30-Jun-23 1900 / 29-Dec-23 1900 call calendar for ETH. Additionally, there was an outright purchase of 100x 2-Jun-23 28000 calls for BTC.

Lastly, the VIX rose slightly to 17.93.

Crypto Technical Analysis

Shifting our focus to technical analysis, yesterday, BTC broke below both the $27.5K and $27K levels, primarily during Wednesday's Asian afternoon trading session, with a 1.5% drop in just one hour. The daily chart indicates a downward trend for BTC, characterized by lower highs and lower lows. Its failure to surpass the quarterly open suggests a bearish outlook. A potential scenario is further descent, forming another lower low around the $25K level, which has previously acted as significant resistance.

ETH is also experiencing a downtrend with lower highs and lower lows, but it has shown resilience by staying above important levels like the quarterly open and the surpassed descending trendline. In a pessimistic scenario, ETH may continue downward and find support near $1.7K. On the other hand, if ETH maintains its strength, it could test the range between $1.9K and $1.92K before approaching the resistance at $2K.

Finally, the ETHBTC pair has been demonstrating strong upward momentum, consistently trending higher since surpassing the 0.06789 resistance level. This highlights the relative strength of ETH compared to BTC and explains why ETH has maintained its position above crucial levels. If this performance continues, the next level to watch for is the 0.07097 resistance level.

Access institutional-grade commentary on TradFi × Crypto markets

By Treehouse Research

Read Past Issues

Daily Readings

TradFi

• US House passes debt ceiling deal as default threat looms

• EV maker Lucid to raise $3 bln, mainly from Saudi's PIF

• Intel shares jump as chipmaker sees second-quarter revenue at upper end of outlook

• Nordstrom delivers surprise profit as inventory woes ease

• Australian home prices climb for third straight month in May

• U.S. banks sink on concerns about office real estate loans

• Michael Kors owner Capri cuts revenue forecast as US demand wavers

• Wall St falls as labor data spurs rate hike jitters before debt ceiling vote

• Salesforce posts slowest quarterly revenue growth since 2010

• Fed's Harker: Inclined to 'skip' a rate hike in June

• Bank of England to take Bank Rate to 5.00% next quarter as inflation proves sticky, Reuters poll shows

• India's economy gains pace amid global slowdown

• US home prices to fall less than expected despite high borrowing costs, Reuters poll shows

• Asia markets mostly higher as U.S. debt ceiling bill heads to House floor.

Crypto

• Bitcoin, Crypto Prices Brace for Downturn in Coming Liquidity Shock, Observers Say.

• Jimbos Protocol to Work With U.S. Homeland Security to Help Recover $7.5M From Flash Loan Exploit.

• TradFi Giant TP ICAP Brings Crypto Spot Trading to Institutional Investors.

• NFT Artist Fewocious Reveals Upcoming Collection “Fewos”.

• USDC Issuer Circle Has Ditched All U.S. Treasuries From $24B Reserve Fund Amid Debt Ceiling Showdown.

• Crypto Bridging Protocol Multichain ‘Unable to Contact’ CEO Zhaojun.

• A House Bill Would Make It Harder for the SEC to Argue Crypto Tokens Are Securities.

• EU Formally Signs New Crypto Licensing, Money Laundering Rules Into Law.

• Sell Crypto Volatility in May, and Go Away?.

• Sotheby's Second 3AC NFT Auction Includes Landmark Dmitri Cherniak Work.

• Team Behind Offshore Yuan, Hong Kong Dollar Stablecoins Detained by Chinese Police: Report.

• Gate.io denies liquidity problems after Multichain CEO goes missing.

• Fantom starts paying developers to generate gas fees.

• Hong Kong Virtual Assets Consortium launched with Huobi as first member.

• TRC-20 USDT circulation hits record high 5 years after Tron mainnet launch.

• Binance to block privacy coins in four European countries

• Binance lays off non-performers amid shrinking market share

• Tron vulnerability put $500 million at risk; now 'resolved'

• Crypto folks send $1.1 million to NotLarvaLabs founder for 'nothing in return'

• Crypto exchange volumes plummet to lowest monthly level since 2020

Deal Flow

• U.S. Sen. Elizabeth Warren Calls for Shutdown of Crypto Funding for Fentanyl.

• StepStone VC Raises $97M for Two Blockchain Funds.

• Crypto Infrastructure Firm Anoma Foundation Raises $25M.

• PayPal Ventures Leads $52M Round for Crypto Firm Magic.

• Venture Capital Firm Tribe Capital Targets $100M for Latest Crypto Fund: Sources.

• Tether expands reach in Georgia through investment in CityPay​.io.