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Treehouse Daily23 Oct 2023

🌳Federal Reserve Cautions on Geopolitical Risks; Hong Kong Addresses Crypto-Related Money Laundering Concerns

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BTC

ETH

S&P Futures 500

$30,129.75

$1,674.25

$4,259.25

(+5.14%)

 (+7.00%)

(-0.82%)

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

  • Federal Reserve warns of geopolitical financial risks; U.S. auto loan delinquencies rise sharply (More in Macro & TradFi)
  • Hong Kong’s customs chief urges crypto money-laundering risk regulation amid JPEX fallout; Maker annualized revenue soars past $200M to new all time high (More in DeFi & CeFi)
  • LINK, marked by accumulations by South Korean CEXs, saw an outstanding performance amidst other altcoin surges over the weekend (More in On-Chain)
  • Bullish sentiment across the board with derivative indicators and the heightened IVs setting the term structures into a slight backwardation (More in Crypto Derivatives)
  • BTC surpasses $30K; ETH approaches key $1.67K boundary amid bullish indicators (More in Crypto Technical Analysis)

Macro & TradFi

The Federal Reserve has expressed concerns over escalating geopolitical tensions, particularly in the Middle East and Ukraine, and their potential detrimental effects on the global financial system. The recent Financial Stability Report highlighted the risk of global markets facing disruptions due to intensified conflicts, potentially leading to global inflation spikes and production halts. Additionally, rising global borrowing costs, spurred by expectations of a continuously strong U.S. economy, could compound these risks. The implications are significant: if these tensions exacerbate, it could result in a broader economic slowdown, affecting vulnerable sectors such as commercial real estate, leading financial institutions to sustain significant losses.

Elsewhere in the US, amid a pandemic-driven computer chip shortage, and persistently high interest rates projected to last through 2026, 6.1% of subprime auto borrowers now find themselves at least 60 days overdue on their loans, a peak since 1994. This sharp increase from the 2.6% recorded in May 2021 reflects the compounded pressures of heightened borrowing costs and sustained inflation. Notably, Fitch Ratings suggests that these subprime borrowers might be early indicators of broader macroeconomic challenges. Moreover, with Gen Z and millennials experiencing particularly high auto loan delinquency rates, and interest rates for used cars reaching up to 21% for those with poor credit, the auto loan sector might face significant headwinds in the near future.

U.S. stocks faced considerable setbacks on Friday, with the DJIA declining by 0.86%, the S&P 500 by 1.26%, and NASDAQ by 1.5%. The energy sector felt the pinch from declining oil prices, leading Schlumberger to fall 2.93% after missing its revenue targets. Even though American Express surpassed estimates, it dipped 5.38% due to heightened provisions for credit losses. Meanwhile, the Nikkei has highlighted that BOJ officials are contemplating adjustments to yield-curve control settings, reflecting the rising long-term rates consistent with U.S. trends. Investors are keenly awaiting Singapore's CPI data, set to release at 13:00 SGT today, and are also gearing up for the release of the Fed's Core PCE Price Index, a key inflation metric, slated for 20:30 SGT on Friday.

DeFi & CeFi

  • Hong Kong’s customs chief urges crypto money-laundering risk regulation amid JPEX fallout
  • Maker annualized revenue soars past $200M to new all time high
  • Magic Eden pauses BRC-20 trading
  • New EIP aims to revamp the tokenized vaults standard for RWAs
  • Hybrid exchange GRVT becomes first appchain in zkSync’s hyperchain ecosystem
  • Circle announced two tools for gasless payment experience and easy smart contract development

Hong Kong's customs chief, Louise Ho Pui-shan, has called for addressing money-laundering risks associated with cash-for-crypto shops after the JPEX cryptocurrency exchange scandal revealed regulatory gaps. The investigation into JPEX revealed that over-the-counter (OTC) cryptocurrency platforms are not subject to licensing or regulatory frameworks. Hong Kong's Customs and Excise Department is therefore reviewing potential governance measures to combat money laundering and terrorist financing and enhance investor protection in the OTC cryptocurrency sector. Ho emphasized the importance of international cooperation to tackle money laundering and noted that her department has observed increased cryptocurrency-related money-laundering cases, particularly in large-scale schemes.

Maker Protocol, issuer of the stablecoin DAI, experienced a notable surge in its annualized revenue, reaching an all-time high of $203M and surpassing the previous peak of $172.3M in May 2021. This growth is attributed to increased deposits of tokenized real-world assets (RWAs) for minting DAI, as well as higher yields for DAI holders. RWAs have gained significant importance, accounting for 42.7% of the protocol's total deposits, which amount to $7.54B. Two specific vaults, Monetalis Clydesdale and BlockTower Andromeda, contribute to over three-quarters of RWA deposits in the Maker Protocol. Rising U.S. treasury yields, influenced by the Federal Reserve's interest rate adjustments to combat inflation, have played a significant role in boosting the protocol's revenue.

On-Chain

Amidst the weekend surge, @santiment observed that LINK reached a three-month high in whale transactions. On Saturday alone, the network recorded 226 whale transactions, alongside 4,932 active addresses and a total LINK trading volume of 802.2M. While many altcoins experienced an upturn over the weekend, LINK notably distinguished itself with its exceptional performance.

Subsequent analysis by @lookonchain has revealed that two South Korean cryptocurrency exchanges, Bithumb and Upbit, collectively amassed $9M worth of LINK tokens during this price surge. However, Bithumb recently halted its accumulation and withdrew 220,000 LINK (equivalent to $2.05M), resulting in a slight decline in LINK's price from its peak. As a result, data has shown that exchanges now retain 20.26% of the token supply, marking the highest proportion of the circulating supply. This situation signals potential centralization risks, prompting LINK investors to diligently monitor exchange movements of the token to mitigate the resulting price fluctuations.

Crypto Derivatives

  • Funding rates remained positive for BTC and ETH.
  • Deribit Implied Volatility Index (DVOL) for BTC and ETH rose significantly to 45.33% and 45.54%, respectively.
  • 30-day 25-delta skew (C-P) rose significantly for BTC and ETH to 6.41% and 4.41%, respectively.
  • The futures market witnessed $240.2M worth of liquidations since Friday, with shorts representing 65.35% of the total.

Top 3 USDT Perpetual Funding Rate Arbitrage Opportunities

Net Annualized APR

Perp (USDT pair)

Long on

Short On

8.44%

BTC

dYdX

OKX

8.11%

DOGE

Binance

OKX

6.41%

SOL

Binance

dYdX

Source: @CexyArbBot Telegram Bot

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.


Following the weekend's price surges, BTC's Implied Volatility (IV) has surged to its highest point in the last 30 days. ETH has mirrored these movements, reaching a new 30-day high in IV. Currently, BTC's 7-day IV stands at 47.18%, while the 30-day IV is at 45.33%. Both figures were well below 40% just before the weekend.

Regarding term structures, the heightened IV has pushed BTC into a slight backwardation state, with near-dated contracts showing higher IVs. ETH has undergone similar structural changes, although the degree of backwardation is notably less pronounced.

The skew dynamics have confirmed the bullish narrative from the weekend, with the 30-day and 7-day 25-delta (C-P) skews reaching a 30-day high of 6.57% and 6.41% respectively. ETH has experienced a more substantial increase in skewness, rising from slightly above 0 just before the weekend to a peak of nearly 8%, signaling a growing bullish sentiment toward the token.

In @Paradigm's weekly derivatives report, BTC option flows were predominantly characterized by structures focused on upside buying. Strong bids were observed for BTC Nov/Dec topside options, with 2-month IVs breaking through 45v. Notable flows included the purchase of 2,075x 3-Nov-23 29,000 / 29-Dec-23 34,000 BTC call calendar, 1,375x 29-Dec-23 32,000 BTC call, and 1,150x 24-Nov-23 32,000 BTC call options.

Crypto Technical Analysis

On the 4-hour chart, BTC actively trades near the $30.3K mark. Since our last analysis, BTC has decisively surpassed the resistance at $28K, now venturing beyond the $30K threshold, confirming the ongoing validity of the ascending wedge pattern. If the current momentum falters and this level is compromised, the subsequent support is established around the $25.9K mark, representing a potential decline of roughly 14.5% from the present valuation. Conversely, a robust resistance is delineated near the $31K region. The RSI currently stands at 72.09, indicating a strong upward trajectory, but may indicate that BTC is approaching overbought conditions.

On the other hand, the ETH price action is drawing significant attention as it approaches the $1.67K threshold on the 4-hour chart, which aligns closely with the upper boundary of the prevailing descending wedge. Historically, a descending wedge can be indicative of a bullish reversal when the asset price breaks above its upper trendline. Should Ethereum maintain its momentum and breach this upper trendline, an upward trajectory might be initiated, with the immediate resistance projected at the $1.72K mark. This represents an approximate upside of 8.6% from its current trading position. However, in scenarios of retracement, the next significant support lies at $1.465K, which previously has acted as a consolidation zone. The RSI stands at 75.56, lingering near the overbought territory.

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