🌳Zhongrong's Defaulted Payments Deepen Concerns On Chinese Economy; Coinbase Approved For US Crypto Futures Trading

17 Aug 2023, Thursday

3:26 AM

🌳Zhongrong's Defaulted Payments Deepen Concerns On Chinese Economy; Coinbase Approved For US Crypto Futures Trading

BTC

ETH

S&P Futures 500

$28,560.00

$1,795.75

$4,414.50

(-2.18%)

 (-1.73%)

(-0.85%)

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

GM Treehouser 🌳

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July 2023 Market Recap

Our Daily View

What We Are Covering Today

  • Zhongrong's missed payments deepen Chinese market concerns, while Fed minutes reflect inflation worries amid a divided stance. (more in Macro & TradFi)
  • Coinbase wins approval to offer Crypto futures trading in US; PayPal halts UK crypto sales till 2024 (more in DeFi & CeFi)
  • Stablecoin movements hint at market shifts; notable crypto user suffers sophisticated hack (more in On-Chain)
  • Post-Fed minutes, BTC and ETH implied volatility dips with evident 7-day put skew (more in Crypto Derivatives)
  • BTC breaks the previously identified support, while ETH aligns with the earlier analysis, approaching the lower channel boundary. (more in Crypto Technical Analysis)

Macro & TradFi

The turmoil in China's financial sector is intensifying as Zhongrong International Trust Co., one of the country's major shadow banks, has missed payments on numerous investment products, revealing deeper troubles within the embattled shadow banking system. This default has triggered unusual protests in Beijing. Investors are urging more aggressive intervention from Beijing, as previous incremental policies have failed to restore confidence. Zhongrong's liquidity challenges and missed payments underscore the broader impact of the property slump and China's weakening economy on the financial industry, with many trust products tied to real estate projects by troubled developers. The situation raises concerns about a negative feedback loop between property stress and financial strain, with potential repercussions for credit expansion and overall economic growth.

In other news, The Federal Reserve's policy meeting in July revealed a continued concern among officials that inflation might not ease, necessitating further interest rate hikes. This consensus was challenged by two officials who favored maintaining rates unchanged. The July rate hike pushed the benchmark rate to its highest level in 22 years. Despite prior projections of two more hikes in 2023, Chair Jerome Powell emphasized a meeting-by-meeting approach. The minutes reflected an evolving consensus, with some officials suggesting a need to balance policy decisions to avoid over-tightening or under-tightening. Market responses indicated uncertainty about future rate hikes, with investors not anticipating another increase this year and expecting rate cuts in 2024 with the upcoming Jackson Hole conference anticipated for further signals.

Lastly, U.S. stocks declined as the Federal Reserve's July meeting minutes indicated officials' awareness of overtightening risks while remaining committed to curbing inflation. The Nasdaq dropped 1.2%, the S&P 500 declined by 0.8%, and the Dow Jones Industrial Average closed with a 0.5% decrease. Retailers Target Corp. and TJX Companies Inc. surpassed earnings expectations, but Target reported lower comparable store sales due to reduced discretionary spending. Asian equities experienced declines as well, impacted by concerns stemming from developments in China.

DeFi & CeFi

  • Coinbase wins approval to offer crypto futures trading in US
  • PayPal to halt UK crypto sales until 2024
  • Dubai Fines OPNX and its Founders
  • Crypto Custody BitGo Completes $100 Million Funding at a Valuation of $1.75 Billion
  • Binance.US request for protective order against SEC goes to magistrate judge

Coinbase Global achieved a pivotal regulatory feat, securing approval for cryptocurrency futures targeting U.S. retail customers. This strategic move marks an expansion beyond its institutional client base and coincides with an ongoing SEC lawsuit. Facilitated by the National Futures Association (NFA), Coinbase's shares climbed 3% to $81.55, signifying market confidence in the development. The NFA's endorsement offers access to an untapped market, highlighting Coinbase's commitment to growth in the face of regulatory challenges. CEO Brian Armstrong's concerns regarding potential offshore relocations by U.S. crypto firms due to regulatory constraints are substantiated by this maneuver. As the crypto landscape leans towards derivatives, illustrated by global volumes of about $1.85 trillion in July, this strategic shift aligns with broader industry trends.

In other news, PayPal is set to temporarily suspend cryptocurrency purchases for UK customers on its platform starting in October, aligning with new regulations governing crypto promotions in the country. The UK's upcoming rules entail stricter advertising standards for crypto, including mandatory risk warnings and the removal of "refer a friend" bonuses. The move aims to ensure regulatory compliance and is anticipated to last until early 2024, with PayPal signaling its commitment to adhering to market regulations and collaborating with authorities. During this period, customers will still retain the ability to hold and sell existing crypto holdings. PayPal's UK foray into cryptocurrency began in 2021, and its regulatory response reflects a broader trend of increased oversight worldwide due to past crypto industry collapses.

On-Chain

According to @lookonchain, a fund has deposited a total of 60M $USDC into Circle over the past week, with 47.4M $USDC originating from a withdrawal on Binance, thus redeeming the underlying assets of USD. This reallocation of assets suggests that the fund may be anticipating a significant market movement in the TradFi securities markets. By consolidating its position in USD, the fund appears to be positioning itself with more fiat cash reserves, enabling it to swiftly capitalize on potential off-chain market opportunities that may arise from an anticipated market shift.

Meanwhile, a prominent crypto investor, @0xArhat, recently fell victim to a sophisticated hacking attack, resulting in the loss of both his wallet's funds and his on-chain reputation. The breach, believed to have originated from a malicious contract he unknowingly signed, not only drained his assets across Arbitrum, Binance, and Polygon zkEVM, but also disabled him from further participation in governance voting and identity verification. The attacker strategically targeted wallets with smaller balances, perhaps assuming such breaches would fly under the radar.

Crypto Derivatives

  • BTC and ETH funding rates remain positive.
  • Deribit Implied Volatility Index (DVOL) for BTC and ETH remain largely unchanged at 36.93% and 33.69%, respectively.
  • 30-day 25-delta skew (C-P) for BTC decreased to 0.34% while that of ETH dipped to -2.43%.
  • The futures market witnessed $162.07M worth of liquidations in the last 24 hours with longs representing 89.73% of the total.

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

Net Annualized APR

Perp (USDT pair)

Long on

Short On

18.15%

DOGE

Binance

Bybit

12.97%

ETH

Binance

OKX

12.91%

LTC

Binance

dYdX

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

Bitcoin's ATM IV has shown an uptick from yesterday, possibly influenced by In the latest Fed meeting minutes, most Fed officials continued to see "significant" upside risks to inflation which would require further rate hikes. Such sentiment from the Fed underscores heightened market uncertainty, which could be driving the increased volatility expectation in Bitcoin, signaling investors are bracing for potential price fluctuations in response to a potential hike in interest rates.

Both BTC and ETH term structures persist in a contango state. There has been a significant rise in the IV of near-dated tenors, potentially due to the hawkish commentary from Fed officials at their last meeting.

BTC and ETH's 7-day and 30-day (C-P) skews have notably declined, reflecting a shift in market sentiment. Specifically, BTC's 7-day skew plummeted from 2.89 to -1.33, while ETH's shifted from -0.12 to -2.22. Even as BTC's 30-day skew stays positive, the increasing tilt toward puts suggests traders are potentially bracing for more downside or seeking protection against unforeseen market movements.

The primary trading structures observed by @Paradigm for BTC during today's session were the purchase of 600x 29-Dec-23 $25K/$40K Bear Risk Reversals, the acquisition of 475x 29-Sep-23 $33K Calls, and the buying of 400x 25-Aug-23 $30K / 1-Sep-23 $31K Call Calendars. These trades underscore the diverse strategies adopted by traders in the current BTC market conditions.

Crypto Technical Analysis

Moving on to technical analysis, Bitcoin (BTC) has encountered a notable decline, mirroring the broader performance in traditional financial markets. This resulted in consecutive breaches of the previously identified trendline and the $28.8K support level on the 4-hour chart. Observing the daily timeframe, BTC is now trading close to the 100-day Simple Moving Average (SMA), with the next potential support around $28.3K, an area that served as a previous resistance zone in both April and May. Notably, the Relative Strength Index (RSI) has significantly dropped, measuring 20.9 and 36.2 for the 4-hour and daily timeframes, respectively.

ETH, on the other hand, has adhered to the previous analysis. In tandem with BTC's descent, ETH's price has retreated from the upper boundary of the channel to approach the lower boundary. It appears to have found a current support level, aligning with the $1.78K support zone last witnessed in May. Although there was a brief breach, the price has retraced just above the 200-day SMA line, reinforcing the existing support level. Should these supports falter, ETH's price could potentially extend its decline to the local low at $1.64K, representing a potential downside of more than 8%.

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Treehouse Research 🌳