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Treehouse Daily26 Dec 2023

🌳Bank of Japan Governor States The Possibilities Of Shifting Its Monetary Policies; The SEC Sets New Deadline For ETF Final Amendments

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BTC

ETH

S&P Futures 500

$43,448.64

$2,267.25

$4,707.75

(-0.94%)

 (+1.08%)

(-0.32%)

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


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Our Daily View

What We Are Covering Today

  • Bank of Japan Governor Kazuo Ueda suggested the probability of moving away from Japan’s long-term low interest rate environment; Ukraine drafts law to lower the conscription age to 25 (More in Macro & TradFi)
  • SEC sets Dec 29 as the deadline for final amendments for BTC spot ETF applications; Hong Kong authorities expressed interests in accepting spot crypto ETF applications (More in DeFi & CeFi)
  • Bitcoin's transfer volume surges; Wallet growth spikes across top cryptocurrencies (More in On-Chain)
  • BTC IV moderates, signaling market calm; Term structure sharpens on 17-day expiries (More in Crypto Derivatives)
  • Both BTC and ETH experiences slight retracements from their respective local highs with BTC forming a potential double top pattern to the downside (More in Crypto Technical Analysis)

Macro & TradFi

Bank of Japan Governor Kazuo Ueda suggested that the probability of meeting the central bank's 2% inflation target is increasing. Ueda indicated a potential shift from Japan's current monetary policy if there is a sustainable and stable likelihood of achieving this target. The BOJ is closely monitoring economic developments and firms' approaches to wages and pricing, yet no specific timeline for policy change is set due to ongoing uncertainties. Despite Ueda's remarks hinting at policy changes, the Japanese bond market remained largely unaffected. The BOJ's considerations are driven by recent trends in service inflation and changes in corporate pricing strategies, alongside the need to transform public perceptions around inflation and wage growth. These developments suggest a gradual move away from Japan's prolonged low-inflation environment, although the situation remains cautiously observed due to high global economic uncertainties.

Meanwhile, a draft law proposed in Ukraine's parliament suggests lowering the conscription age from 27 to 25 years, amid the ongoing conflict with Russia. This change, part of a broader military mobilization strategy, aims to address the challenges faced by the Ukrainian military as the 22-month battle against Russia continues. President Volodymyr Zelenskyy, who has not yet publicly supported the proposal, emphasized the sensitivity of mobilizing an additional 450,000-500,000 Ukrainians, a decision still under discussion by the military and government. While Ukraine's exact troop numbers are unclear, it is estimated to have around 1 million people under arms. David Arakhamia of Zelenskyy's party indicated that the bill, requested by the military, was set to be introduced in parliament, highlighting the military's need for solutions and the public's demand for clarity on pressing issues.

On Friday, December 22, US stocks closed with slight gains, marking the eighth consecutive winning week. The S&P 500 and Nasdaq both edged up by about 0.2%, while the Dow Jones dipped slightly by less than 0.1%. Key movements included Nike's more than 10% drop after cutting its full-year outlook, Intel leading the Dow with a 2% rise, and Ansys topping the S&P 500 with an 18.1% surge amidst acquisition talks. Moderna led the Nasdaq 100, gaining 4.1% due to a new Covid variant.

DeFi & CeFi

  • SEC sets Dec 29 as the deadline for BTC Spot ETF final amendments
  • Hong Kong announces readiness to consider spot ETF applications
  • FTX debtors propose a new deal with SBF over the Embed acquisition in June 2022
  • zkSync network down for 5 hours on Christmas day
  • Hashdex names BitGo as Bitcoin ETF custodian
  • Yuga Labs's metaverse projects dominated the top 10 land NFT sales

The United States Securities and Exchange Commission (SEC) has set a December 29 deadline for final amendments to applications for spot Bitcoin exchange-traded funds (ETFs), as reported by Reuters and confirmed by Fox Business journalist Eleanor Terrett. In a key meeting on December 21, SEC officials met with representatives from firms including BlackRock, Grayscale Investments, ARK Invest, and 21 Shares, discussing the impending deadline which is seen as a precursor to potential ETF approvals in early January. The SEC is pushing applicants to adopt a cash redemption model instead of in-kind creations and to name authorized participants in their filings. While none had completed these requirements by December 22, Bloomberg analysts remain optimistic about the approval of the first spot Bitcoin ETFs by January 10, indicating a significant step forward in the integration of Bitcoin into mainstream financial products.

In other news, on Friday night, Hong Kong's Securities and Futures Commission (SFC) and Hong Kong Monetary Authority (HKMA) announced their readiness to consider applications for spot crypto exchange-traded funds (ETFs), marking a significant shift in the city's regulatory approach towards cryptocurrencies. Since 2018, when a "professional-investors only" policy was adopted for virtual assets, there has been a notable change in the virtual asset environment. This year, Hong Kong has been relaxing its stance on crypto, with the SFC updating its regulations in October to allow a wider range of investors to participate in spot crypto and ETF investing. SFC Chief Executive Officer Julia Leung has also indicated a move towards permitting retail investors to buy spot crypto ETFs, emphasizing the welcome of proposals that enhance efficiency and customer experience while addressing potential risks. This development is part of a broader trend of virtual assets becoming more integrated into mainstream finance.

On-Chain

In December, Bitcoin's market dynamics underwent a pronounced transformation, as indicated by data from Glassnode, which showed a significant increase in daily transfer volumes—a metric that had previously plateaued. The volumes soared from a dormant average of $2.4 billion to over $5.0 billion per day, marking the highest activity recorded since June of the previous year. This surge reflects a phase shift within the market and also suggests a rekindled investor confidence and a heightened trading momentum. The doubling of transfer volumes during the rally underlines Bitcoin's volatility and the market's susceptibility to rapid shifts in investor sentiment and external economic stimuli.

Elsewhere, latest analysis from Santiment reveals that Bitcoin's wallet growth, specifically the count of wallets holding more than zero coins, has seen a substantial uptick of 1.8% within a mere ten-day period, with the total reaching 916.75 million. This growth is not isolated to Bitcoin; other major cap assets, including prominent stablecoins such as Tether and USDCoin, are also experiencing a surge in the rate of new address creations. This trend, highlighted by Santiment, reflects a broadening base of participants and could be indicative of a wider wave of market FOMO, particularly noticeable in Bitcoin and Dogecoin. ADA stands out as the only top market cap asset not witnessing this extreme pace in address growth, suggesting a divergent investor sentiment or strategic positioning within the cryptocurrency landscape.

Crypto Derivatives

  • Funding rates remained positive for BTC and ETH.
  • Deribit Implied Volatility Index (DVOL) for BTC and ETH rose to 58.16% and 59.58% respectively over the Christmas holidays.
  • The 30-day 25-delta skew (C-P) for BTC is at 2.26% while ETH is at 2.67%.
  • The futures market witnessed $127.75M liquidations, with shorts representing 63%.

Top 3 USDT Perpetual Funding Rate Arbitrage Opportunities

Net Annualized APR

Perp (USDT pair)

Long on

Short On

54.71%

SOL

Binance

dYdX

23.64%

BNB

Binance

OKX

20.76%

BTC

Bybit

dYdX

Notes:

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

2) CEXs observed include Binance, Bybit, OKX & dYdX.

3) Lookback period is 24 hours.


The 30-day implied volatility (IV) for BTC has moderated to 55.47%, indicative of a market expectation for reduced medium-term price volatility. This decline may imply a consolidation phase within the market's dynamics. In contrast, the 7-day IV has receded to 40.13%, reflecting a market sentiment of diminished short-term volatility. The divergence in Bitcoin's 7-day and 30-day implied volatilities reflects market sentiment that near-term regulatory approvals in the next 7 days are improbable. Meanwhile, the moderated 30-day volatility suggests a more optimistic outlook for positive regulatory developments in January, presenting a potential strategic play for investors.

The term structure of BTC is maintaining a contango pattern. The term structure chart for Bitcoin's implied volatility reveals an acute market focus on the 17-day horizon, where the IV spikes before leveling off, indicating trader anticipation of heightened volatility around the potential approval of a Bitcoin ETF, explaining the perpendicular shape.

The 25-delta 30-day call-put skew has remained relatively unchanged at 2.25% and the 7-day skew fell to 2.20%, highlighting a market sentiment where medium-term expectations for Bitcoin's price movement remain unchanged, while short-term bias has marginally softened. This suggests that traders are holding steady on their medium-term outlook, with a minor recalibration of short-term speculative positions.

During @Paradigm’s Asia / Europe Session Hours, highlighted option flows last Friday emphasized downside coverage with strategic put purchases and structured positions. Key BTC trades included the sale of 500x 29-Dec-23 42.5K Puts, 425x 29-Dec-23 44.5K Puts, and the notable positioning of 300x 29-Dec-23 43.5K Straddles, demonstrating a balanced approach to market volatility. Additionally, a complex inverse strategy involved the purchase of 150x 29-Dec-23 45/47K Call Spreads, paired with the sale of 143x 29-Dec-23 45K / 29-Mar-24 45K Call Calendars, reflecting a nuanced anticipation of price movements. In the ETH market, attention was drawn to sizeable bullish bets, with the procurement of 10,000x 26-Jan-24 3K Calls and 5,000x 29-Mar-24 3K Calls, indicating a strong confidence in upward momentum. Simultaneously, the market saw mixed straddle strategies with the acquisition of 2,500x 29-Dec-23 2.3K Straddles and the sale of 2,250x 29-Dec-23 2.3K Straddles, showcasing a hedge against price swings in either direction.

Crypto Technical Analysis

Upon examining the BTC daily chart, the price is currently undergoing a slight retracement following its peak at $44.2K. Correspondingly, the RSI has stabilized back to a normal range, currently positioned at 58.9. These developments suggest that BTC may be forming the left side of a double-top pattern, potentially signaling further short-term retracements to the downside. Should this trend materialize, the price is likely to descend to the $40.5K-41.2K range, which corresponds to the lows preceding the recent surge towards the $44K mark. Conversely, BTC could also witness another surge of upward momentum as we near the ETF deadlines. In this scenario, if the market is dominated by bullish sentiment, the price might ascend towards the $45K level, which has been a significant resistance point since the start of the year and a crucial psychological barrier. Subsequently, it may aim for the $48K resistance, marking the yearly high.

Similarly, ETH has exhibited a downward retracement on the daily chart, with the RSI stabilizing around 55.3. Presently, the ETH price is approaching the lower trendline, which has been formed by the local higher lows since late October and acts as the immediate support at approximately $2.25K. Should the price breach this level, the subsequent support is anticipated at the $2.1K mark, aligning with the previous highs established since late April. Conversely, if a bullish momentum regains dominance over ETH, its price might challenge the year-to-date high of $2.4K, signifying a potential increase of nearly 6% from its current position.

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