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Treehouse Daily23 Feb 2023

Fed Minutes Reveal Higher Terminal Rates On The Table; Frax Finance Votes To Become Fully Collateralized

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BTC

ETH

S&P Futures 500

$24,134.75

$1,638.50

$4,010.25

(-1.21%)

 (-1.36%)

(-0.03%)

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

  • Fed minutes suggest openness for higher terminal rates (more in Macro & TradFi)
  • Frax Finance community in favor to remove algorithmic element of stablecoin (more in DeFi & CeFi)
  • Number of addresses holding 1k+ BTC reaches a 3-year low of 2021; $ANKR addresses hit second-highest level since 2021(more in On-Chain)
  • Straddle sellers add pressure to IV as it crashes below RV (more in Crypto Derivatives)
  • BTC and ETH bounce back up from key levels with momentum supporting price (more in Crypto Technical Analysis)

Macro & TradFi

In the Federal Reserve meeting minutes released yesterday, almost all policymakers agree that the abnormally high inflation figures will be the key factor to the magnitude of further rate hikes. The committee is also open to a higher terminal rate if such action is needed. This higher rate will also stay elevated until the targeted 2% inflation figure is achieved. In addition, the statement also said that the current labor market is still tight with companies trying to retain workers in the face of slowing demands.

On the other hand, the ties between China and Russia deepen during the talk between Russian President Vladimir Putin and Chinese State Councilor Wang Yi. During the meeting, the relationship between the two nations was described as “solid as a mountain” with China having little intention of abandoning this diplomatic partnership.

Lastly, following the concerns that the Fed will continue to hike rates, US markets dipped further yesterday with DJIA, SPX, and NASDAQ falling by 0.26%, 0.16%, and 0.13% respectively. Meanwhile, 2-year Treasury yields went down yesterday to 4.682% and 10-year rates to 3.947%.

DeFi & CeFi

  • Frax Finance votes to eliminate the algorithmic element of its stablecoin FRAX
  • Google Cloud partners with Tezos Foundation to develop Web3 technology
  • PolygonScan not updating for an hour caused speculation regarding the state of the Polygon blockchain
  • BlackRock launches metaverse ETF
  • Blur’s CEO reveals his identity in a Twitter post
  • Coinbase discloses recent cyberattack targeting its employees

With 98% of the vote, Frax Finance's new proposal to remove the algorithmic component of its stablecoin FRAX is likely to be approved. Currently, FRAX is 92% backed by crypto collateral while the other 8% is stabilized algorithmically by the minting and burning process. In the proposal, it is stated that the small algorithmic backing of FRAX creates the perception that it is riskier for users to hold, especially after UST’s failure tainted the algorithmic stablecoin concept. If the proposal is to go through on 23 Feb, FXS buybacks will be halted until the collateral ratio hits 100%.

The partnership between Google and Tezos will make the deployment of nodes and indexers using the Tezos protocol simple for Google Cloud users interested in developing Web3 apps. Google would also provide some Tezos incubator startups with Google Cloud credits and mentorship from Google’s Startup Cloud program. This partnership is similar to the collaboration between Near Protocol and Google Cloud in Oct 2022.

A technical fault with PolygonScan made the blockchain explorer not update any blocks for 1.5 hours, causing fear that the Polygon blockchain might be the one suffering an outage. However, it was quickly discovered, though, that the Polygon blockchain was still operational and that the issue was only caused by the Polygon's nodes losing sync with the blockchain.

On-Chain

To provide corporate node services, Ankr has formally collaborated with Microsoft. The number of new $ANKR addresses has reached its second-highest level since 2021. There appears to be a distinct uptick in interest, as seen by the spike in whale transactions.

Onto BTC, the number of addresses holding 1k+ coins just reached a 3-year low of 2,021. It may suggest that larger holders are consolidating their holdings or distributing their coins to smaller holders which can be seen as a positive sign of long-term confidence. Alternatively, this decrease can also suggest a slowdown in global demand.

Crypto Derivatives

  • BTC and ETH funding rates fell
  • 30-day ATM IV crashed to 53.32% and 58.3% for BTC and ETH respectively
  • 30-day 25d call skew increased to 1.12% for BTC while put skew tightened to -3.01% for ETH

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

Net Annualized APR

Perp (USDT pair)

Long on

Short On

17.23%

BNB

OKX

BINANCE

12.45%

SOL

OKX

BYBIT

5.49%

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

For futures, total liquidations over the past 24 hours amounted to $125.84M, the majority coming from longs at $97.18M. Open interest for both BTC and ETH futures fell by 1.23% and 1.49% respectively.

On the options front, IVs crashed across the curve for both majors. Term structure is now in contango for both majors. BTC 25d skew revert to call premium on the front end while also tightening on the back end. Meanwhile, ETH put skew fell on the front end but climbed higher on the back end. 7-day RV dropped to 54.17 and 52.85 for BTC and ETH respectively. Currently, there is negative carry on BTC and ETH is close to zero.

On the flow side, short straddles and short ratio put spread were the top structures trading within BTC while bear call spread was ETH's top structure.

Lastly, the VIX fell slightly to 22.28.

Crypto Technical Analysis

Onto TA, BTC continued its free fall yesterday after failing to break past the $25K mark. It fell under the $23.9K level briefly but bounced back up with the RSI gaining momentum, rising from 35 to 47. On the H4, the 100 & 200 MA can be expected to cross later today. The next level to look out for is the $24.8K to $25.2K resistance zone if momentum continues to rise.

As for ETH, price broke below the rising channel, reaching a low of $1.59K. 4H RSI bounced off right above the underbought range, jumping to 43, still below the neutral mark. The next level to follow is the $1.66K - $1.69K resistance zone provided price breaks back into the trend channel.

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