🌳 US Fed Defends Pause in Interest Rate Hikes; Invesco Reapplies for Spot Bitcoin ETF in quick succession to WisdomTree and BlackRock

22 Jun 2023, Thursday

3:45 AM

🌳 US Fed Defends Pause in Interest Rate Hikes; Invesco Reapplies for Spot Bitcoin ETF in quick succession to WisdomTree and BlackRock

BTC

ETH

S&P Futures 500

$30,138.00

$1,915.25

$4,410.25

(+6.08%)

 (+6.37%)

(-0.60%)

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

GM Treehouser 🌳

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May 2023 Market Recap

Our Daily View

What We Are Covering Today

  • Fed Chair defended the decision to pause interest rate hikes in the US, UK grapples with stubbornly high inflation (more in Macro & TradFi)
  • Invesco files for the spot Bitcoin ETF in quick succession to WisdomTree and BlackRock; Polygon initiates proposal to potentially upgrade Polygon PoS to a zkEVM validium (more in DeFi & CeFi)
  • Whales withdraw $150M of ETH from Binance and Kraken; major dormant coin movement in BTC (more in On-Chain)
  • Bullish sentiment and negative skew in crypto options; $179M in short positions liquidated (more in Crypto Derivatives)
  • BTC and ETH maintain upward surge as BTC approaches yearly highs; Potential market structure shift with BTC pullback and higher-low formation (more in Crypto Technical Analysis)

Macro & TradFi

In a critical congressional hearing on Wednesday, the Federal Reserve defended the recent decision to pause its interest rate hikes after 10 consecutive rate hikes in 15 months. Jerome Powell attributed this to prudence, considering the swift and substantial elevation of the benchmark rate from near-zero to 5-5.25% since Mar 2022. Powell signaled potential future tightening, while the Fed evaluates how much further it will need to raise borrowing costs to control high inflation. Federal Reserve officials indicated their support for two more quarter-point rate rises this year as early as July. If implemented, this would raise the funds rate to 5.5-5.75%, with no reductions expected until 2024. In the same hearing, Powell emphasized the need for strong central-bank supervision over the stablecoin regulations that are currently being developed by lawmakers in the House Financial Services Committee. He expressed the view that payment stablecoins are a form of money in advanced economies and, therefore, require federal involvement.

The UK’s May inflation rate remained stubbornly high at 8.7% in May, surpassing the forecasted 8.4%, putting pressure on the Bank of England to hike interest rates. This marks the fourth consecutive month of unexpected price rises, which have alarmed policymakers, the government, and many households. The Bank of England is expected to increase rates by at least 0.25% to 4.75%, with a potential for a larger 0.5% rise. Core inflation, excluding volatile food and energy prices, rose to 7.1% from 6.8% the previous month, the highest rate since March 1992. The UK's inflation rate of 8.7% is higher compared to other countries; France has an inflation rate of 6%, Germany has a rate of 6.3%, the entire EU has a rate of 7.1%, and the US has a rate of 2.7%.

U.S. stock markets declined Wednesday, with tech stocks being hit particularly hard due to concerns over potential further interest rate hikes. Higher rates tend to reduce the appeal of companies that promise long-term growth, making the tech sector more vulnerable. The S&P 500 fell by 0.52%, the Dow Jones by 0.30%, and the Nasdaq Composite, laden with tech stocks, dropped by 1.21%. Among tech giants, Alphabet saw a 2.07% drop, Microsoft a 1.33% decline, and Nvidia slid by 1.74%. Meanwhile, Amazon also fell by 0.76% after the Federal Trade Commission sued them over allegations of misleading customers into Prime subscriptions.

DeFi & CeFi

  • Tether deploys native USDT on Kava
  • SubWallet releases Polkadot H1 2023 staking report
  • Invesco reapplies for spot BTC ETF
  • Cardano node upgrade to boost performance
  • Polygon Labs proposes to upgrade the PoS chain to ZK layer 2

Invesco, the investment management company with $1.4T in AUM, has refiled for a spot Bitcoin exchange-traded fund (ETF) in collaboration with Galaxy Digital. Invesco argues that the absence of a spot Bitcoin ETF pushes investors towards riskier alternatives, citing insolvencies in various platforms. The company emphasizes the importance of investor protection and proposes a surveillance sharing agreement with a regulated market to address concerns about market manipulation. The SEC's stance on market manipulation and lack of regulation in the spot Bitcoin market remains a key factor. The SEC's timeline for announcing its decision regarding a Bitcoin ETF is still uncertain, but expectations suggest a potential decision by September.

In other news, Polygon Labs has introduced a proposal to upgrade the Polygon PoS chain to a zkEVM Validium, secured by zero-knowledge proofs. With over $2B of on-chain assets and a significant transaction volume, the current Polygon PoS chain faces challenges related to security, legacy technology, and user experience. zkEVM Validium aims to improve scalability and reduce fees compared to rollups. The upgrade will leverage the existing validator set and maintain the use of MATIC tokens for staking and earning transaction fees. The proposal will undergo community discussions and governance procedures, with the potential for mainnet deployment by Q1 2024 if consensus is reached.

On-Chain

35,860 ETH ($64 million) withdrawn from Binance
27,000 ETH ($48 million) withdrawn from Binance in four transactions
23,660 ETH ($42 million) withdrawn from Kraken in five transactions

Earlier this week, three newly created wallet addresses withdrew a total of over $150 million worth of Ethereum (ETH) from the exchanges Binance and Kraken in the past week, according to blockchain tracker Lookonchain. Specifically, the first whale withdrew 35,860 ETH ($64 million) from Binance, while the second withdrew 27,000 ETH ($48 million) from Binance in four transactions and the third wallet withdrew 23,660 ETH ($42 million) from Kraken in five transactions. These large withdrawals may indicate a trend of traders opting for self-custody of their cryptocurrency in response to the recent regulatory crackdown in the US digital asset sector.

According to Santiment, Bitcoin's Age Consumed metric has surged in the past few days, indicating a revival in network activity. This metric measures the movement of previously inactive Bitcoin addresses, with a higher Age Consumed suggesting dormant addresses re-entering circulation. Such activity often precedes potential price jumps in the Bitcoin market, as we saw with BTC crossing $30K. Historically, increased Age Consumed has correlated with notable price movements since a surge in network activity signifies a shift from long-term investment to active trading, potentially generating increased buying and selling pressure.

Crypto Derivatives

  • Funding rates for BTC and ETH remain positive.
  • The Deribit Implied Volatility Index (DVOL) for BTC and ETH increased to 55.83% and 51.66% respectively.
  • The 30-day 25-delta skew (P-C) for BTC remains negatively skewed at -6.07%, favoring call options, whereas for ETH it flipped negative to -10.26%.

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

Net Annualized APR

Perp (USDT pair)

Long on

Short On

18.03%

DOGE

dYdX

Bybit

10.96%

BTC

Bybit

dYdX

10.95%

BNB

Binance

Bybit

Source: @CexyArbBot Telegram

1) Pairs observed include BTC, ETH, SOL, BNB, XRP, LTC, DOGE vs USDT perps 

2) CEX observed include Binance, Bybit, OKX & DYDX

@CexyArbBot allows you to customize CEX, 100+ pairs & lookback periods combo

In the past 24 hours, the crypto market experienced a significant wave of liquidations totaling $226.98M. The majority of the liquidated positions were shorts, accounting for a staggering 78.8% of the total.

The term structure for BTC remains elevated across all tenors, with a notable backwardation in the options term structure indicating higher IV for shorter-term options. The slight kink in the curve, with July options trading at higher levels than August expiration, reflects market expectations of potential BTC price momentum in the near term. Additionally, there is a growing focus on ETH, as evidenced by the spike in IV for shorter-dated tenors to take advantage of its higher deltas and increased sensitivity to price movements.

Both the BTC and ETH options skew (P-C) have continued to steepen, indicating a stronger preference for call options among traders. The positive sentiment observed for BTC has extended to ETH, as indicated by the negative skew, reflecting traders' willingness to pay higher premiums for call options and their anticipation of further positive price movements in the coming week for both major cryptocurrencies.

The volatility risk premium (VRP) for both BTC and ETH has seen notable changes. Traders are willing to pay higher premiums to participate in potential upside movements in both assets. Moreover, the VRP for ETH has flipped positive again, indicating increased speculation in the markets. These dynamics suggest that market participants are actively seeking exposure to potential price gains in both BTC and ETH, willing to pay a premium for the opportunity.

Turning to notable trade structures reported by @paradigm, BTC options have witnessed significant activity in call spreads and calendars across various expirations from June to July 2023. Noteworthy trades include the purchase of 1,200x 30 Jun 23 $30K Calls, the purchase of 300x 28 Jul 23 $31K / 29 Dec 23 $40K Call Calendar, and the sale of 475x 30-Jun-23 $29 Calls. As for ETH, trading interest has been mixed, with notable trades including the purchase of 6,500x 28 Jul 23 $19K Calls and the sale of 4,750x 30 Jun 23 $19K Straddle.

Lastly, the VIX fell to 13.20%.

Crypto Technical Analysis

Turning our attention to technical analysis, BTC experienced a significant increase in value above the crucial level of 28.8K during the US trading session yesterday. However, it fell short of reaching the yearly high of 31K. At present, BTC is making efforts to establish itself above the 30K level, which is another important support level to consider if it intends to maintain its low-time frame trading range. Since BTC surpassed its downward trendline, traders have been monitoring the possibility of a shift in market structure. They are particularly interested in observing whether BTC will undergo a pullback and establish both a higher high and a higher low, which would provide further confirmation of an upward momentum.

In a similar vein, Ethereum (ETH) has successfully surpassed a significant resistance level. However, it has not yet approached its yearly high of 2.14K, which was recorded in mid-April 2023. Presently, ETH is making an effort to overcome the 1.92K level, which serves as another crucial resistance level. By analyzing the daily chart, we can identify another potential trading range that ETH may break out of, with its support level situated at 1.77K.

The ETH/BTC chart illustrates the comparatively weaker performance of ETH compared to BTC during their recent upward surge. The pair has recently reached its lowest point of the year and rebounded from a significant support level of 0.06203. In order for Ethereum to catch up with Bitcoin's remarkable ascent, the ETHBTC pair needs to surpass certain key levels, including the resistance level of 0.06445 and the upper-end of the descending trendline.

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