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Treehouse Daily28 Mar 2023

CFTC Brings Lawsuit To Binance and CEO Changpeng Zhao; zkEVM Race Heats Up With Polygon Launch

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BTC

ETH

S&P Futures 500

$26,948.50

$1,708.50

$4,012.00

(-3.83%)

 (-4.04%)

(-0.12%)

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

GM Treehouser 🌳

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Our Daily View

What We Are Covering Today

  • Lyft appoints new CEO as a strategic move to combat its weakening market position against Uber (more in Macro & TradFi)
  • CFTC sues Binance and CZ for violating US laws; Polygon zkEVM beta hits mainnet with Vitalik Buterin sending his first transaction (more in DeFi & CeFi)
  • Bitcoin investors take profits as net inflows to exchanges surge, but Coin Days Destroyed metric remains in a quiet patch (more in On-Chain)
  • BTC funding rate turns negative (more in Crypto Derivatives)
  • Both BTC and ETH saw significant decline following the Binance lawsuit, further market confirmation is needed on future directions (more in Crypto Technical Analysis)

Macro & TradFi

According to a new report from Redfin, there has been a significant slowdown in the housing market in big cities on the West Coast, pandemic boomtowns, and popular remote worker destinations. This has been largely attributed to high mortgage rates and layoffs in the tech industry. However, real estate experts such as Emily Chenevert, chief executive at the Austin Board of Realtors, suggest that the slowdown may not be a bad thing, as prices were growing at an unsustainable rate in recent years, which was a market anomaly. This slowdown could create more opportunities for buyers, who now have more negotiating power and time to find the right home.

Meanwhile, Lyft has appointed board member David Risher as its new CEO as co-founders Logan Green and John Zimmer step back from active management. However, the two co-founders will remain on the board. Prior to serving on Lyft's board, Risher worked at Amazon and Microsoft before founding a childhood-reading non-profit in 2009. This strategic move comes as Lyft has struggled to compete with rival Uber, with its market share falling from 38% to 26% since early 2020.

Major equity indices were relatively flat in the last trading session, with the SPX and DJIA up 0.16% and 0.60%, respectively. However, NASDAQ closed with a slight loss of 0.47%. Treasury yields increased, with the 2-year and 10-year Treasury yields sitting at 0.969% and 3.531%, respectively.

DeFi & CeFi

  • Binance and CEO CZ sued by CFTC for trading violations
  • Polygon zkEVM launches on mainnet
  • MakerDAO moves forward with “Endgame” plan after receiving approval from the community
  • Y00ts announces migration to Polygon with rewards given to users
  • dYdX v4 completes third milestones with private testnet to start shortly
  • DeFi option vault Cega raises $5M in a new funding round led by Dragonfly
  • Binance.US acquisition of Voyager Digital blocked once more

The US Commodity Futures Trading Commission (CFTC) has filed a lawsuit against cryptocurrency exchange Binance and its founder, Changpeng Zhao, accusing them of offering unregistered crypto derivative products in the US. The lawsuit alleges that Binance operated a derivatives trading operation in the US and offered trades for cryptocurrencies including bitcoin, ether, litecoin, tether and Binance USD, which the suit referred to as commodities. The CFTC has charged Binance with violating laws around offering futures transactions, illegal off-exchange commodity options, failing to register as a futures commissions merchant, designated contract market or swap execution facility, poorly supervising its business, not implementing know-your-customer or anti-money laundering processes, and having a poor anti-evasion program. The suit also alleges that Binance directed customers in the US to use virtual private networks to evade restrictions on US-based customers.

Elsewhere, the race for zkEVM continues to heat up as Polygon zkEVM mainnet beta goes live. Vitalik Buterin sent the first transaction on the network and included a message that reads “A few million constraints for man, unconstrained scalability for mankind." The fully open-sourced Polygon zkEVM is already attracting multiple infrastructure providers, DApps, and gaming projects from day one, including Balancer, Lens, and The Graph, among others. This release marks the second zkEVM launch on mainnet after zkSync Era.

On-Chain

For on-chain, the net inflow of Bitcoin to exchanges increased by 4.18k BTC this week, which is the largest rise since May 2022. This indicates that investors are selling to secure profits, and similar net inflows in the past have correlated with major market volatility events that usually lead to a decline. Both Long-Term and Short-Term holders have sent more coins to exchanges. Short-Term Holders account for 92.5% of the total inflow volume, and 65% of their coins are in profit. Long-Term Holders make up only 7.5% of the total deposit volume, but 80% of their volume is also in profit, which is the largest increase since mid-2021 (@glassnode).

Meanwhile, the Coin Days Destroyed (CDD) metric, which measures the lifespan of a coin based on the amount of time investors hold it, has seen a modest uptick but remains well below a typical market level. This indicates that the average spent coin is relatively young. CDD upticks can be classified into two categories: sustained uptrends during bull markets and sharp peaks during bear market sell-offs. Binary CDD, which converts the CDD metric into a result of one if the magnitude exceeds a long-term average (returns zero if not), also shows that the market is in a quiet patch. This is typical of a transition phase where the bear market switches to an early bull market phase (@glassnode).

Crypto Derivatives

  • BTC funding rate goes negative at -0.0011% while ETH stays slightly positive at 0.0006%
  • 30-day ATM IVs decrease to 58.83% and 60.17% for BTC and ETH respectively
  • 30-day 25 delta call skew for BTC decreased to 0.62% while ETH put skew tightens to -2.12%

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

Net Annualized APR

Perp (USDT pair)

Long on

Short On

15.99%

BNB

BYBIT

BINANCE

14.48%

LTC

DYDX

BYBIT

12.54%

XRP

OKX

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

The total liquidations for futures in the last 24 hours amounted to $143.84M, with longs contributing $116.81M.

In the options market, the term structure flattens out and this might imply uncertainty in the market. 7-day IV falls below 60s, reaching 58.65% and 59.08% for BTC and ETH respectively. Variance risk premium remains slightly negative as it inches towards positive territory at -0.15% for BTC and -0.32% for ETH. Demand for puts vs calls seemed to be increasing in favor of puts as the BTC call skew continued to decrease while ETH put skew tightens.

The majority of the trading volume in the futures market comes from contracts expiring on 31 March, with about equal calls and puts. Moreover, the open interest in the market is also concentrated around the 31st March expiry, with 81,000 call contracts and 59,200 put contracts, having a total notional value of approximately $3.82 billion.

As for 31 March put contracts, most of the open interest comes from strike prices ranging from $15,000 to $27,000. On the call side, there are significant in-the-money (ITM) and at-the-money (ATM) call open interest with strike prices ranging from $20,000 to $29,000. Furthermore, the psychological strike price of $30,000 has 9K call contracts.

Finally, the VIX decreased and sits at 20.6.

Crypto Technical Analysis

On the TA front, BTC has dropped significantly following the SEC lawsuit against Binance. Specifically, BTC broke the previous trendline with a -2.6% red candlestick and currently trading further down with a -3.1% loss since the announcement last night. If bearish momentum persists, we might see a test of the 1H $26.33K (potential -2.5% downside) support before moving into the stronger 4H support at $24.27K (potential -10.1% downside). However, retracement is possible through retesting the upper trendline at $27.41K before the market eventually decides on the direction of the price movement.

Meanwhile, the narrative for ETH is largely the same as BTC due to the abnormal price movement last night being macro-induced. However, ETH is still trading within the broadening pattern with no clear signs of a breakout. Investors should watch closely at the movements within this range for an indication of the continuation of the bear rally or a reversal to the bulls. If price breaks the current level, the bears should expect ETH to test the support zone at roughly $1.64K. On the other hand, if the bulls return, the market should expect to retest the long term resistance zone between $1.76K - $1.77K which has been established since last July. Lastly, while price dropped significantly, RSI remains in the normal range and is currently sitting at 43.2 for the 4H timeframe.

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