Home
Treehouse Daily9 Jan 2024

🌳 PBOC Considers Required Reserve Ratio Cut to Spur Growth; SEC Warns of Crypto Risks Amid ETF Decisions.

image of the blog detal

BTC

ETH

S&P Futures 500

$46,659.94

$2,308.17

$4,797.00

(+6.81%)

 (+5.06%)

(+1.18%)

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


GM Treehouser 🌳

Welcome to our Treehouse Daily newsletter, where Treehouse brings you financial news and insights free daily! We believe you’ll find this helpful.

Also, in case you have missed it, check out our latest research piece 👇

You can also access our research articles on the Bloomberg Terminal with the command “NH TRH < GO >"!


Our Daily View

What We Are Covering Today

  • PBOC hints at Required Reserve Ratio cut to aid growth; Evergrande executive faces detention (More in Macro & TradFi)
  • Gary Gensler releases warning ahead of potential Bitcoin ETF approval; CFTC releases DeFi report (More in DeFi & CeFi)
  • BTC realized cap recovered significantly in 2023; An early MKR whale since 2018 moved $6.5M worth of MKR to Binance (More in On-Chain)
  • Bitcoin IV declines suggest ETF optimism; market hedges against approval uncertainty (More in Crypto Derivatives)
  • Both BTC and ETH witnessed substantial price surges, with BTC surpassing the resistance and ETH facing rejection (More in Crypto Technical Analysis)

Macro & TradFi

The People's Bank of China (PBOC) is signaling a potential reduction in the reserve requirement ratio (RRR) for banks, aiming to bolster lending and support economic growth. This move comes despite the PBOC's recent injection of substantial liquidity through various mechanisms, including policy loans and funding to policy-oriented banks. Zou Lan, head of the PBOC's monetary policy department, highlighted the central bank's commitment to using a mix of tools, including open market operations, to maintain strong credit growth and favorable financial conditions. The possibility of an RRR cut aligns with Bloomberg economist predictions and the ongoing monetary easing expectations in China, as evidenced by low government bond yields and reduced commercial bank deposit rates. This strategy is part of China's broader economic and financial stabilization efforts, despite the PBOC already releasing significant funds into the economy through recent policy actions.

Elsewhere in China, the Evergrande Group, already grappling with significant debt issues, faces a new setback as Liu Yongzhuo, an executive director of its electric vehicle subsidiary, China Evergrande New Energy Vehicle Group, was recently detained. The arrest, made on suspicion of illegal activities, adds another layer of complexity to Evergrande's ongoing financial struggles and restructuring efforts. This development comes just ahead of a crucial court hearing in Hong Kong, scheduled for January 29, where Evergrande will confront demands from offshore bondholders to liquidate the company. The detention of a key figure in Evergrande's electric vehicle venture is likely to further complicate the group's restructuring process, deepening the challenges for the world's most indebted property group.

Yesterday, U.S. stock markets witnessed a notable rebound, primarily driven by significant gains in the technology sector. The Dow registered a modest increase of 0.58%, while the tech-heavy Nasdaq and S&P 500 indices saw more substantial gains of 2.11% and 1.41%, respectively. Nvidia played a pivotal role in this rally, soaring by 6.43% following the announcement of three new graphics chips designed to enhance PC performance. Looking ahead, investors are keenly awaiting the release of inflation data from China, scheduled for Friday, 12 January at 9:30 SGT. This data is critical as it may influence the People's Bank of China's monetary policy decisions, potentially leading to policy easing measures. Additionally, the U.S. banking sector is gearing up for the fourth-quarter earnings season, set to commence this Friday, which will provide further insights into the financial health and performance of major U.S. banks amid the current economic landscape.

DeFi & CeFi

  • Gary Gensler issues warning on crypto ahead of potential spot Bitcoin ETF approval
  • US CFTC releases report on DeFI, pointing out problems as well as giving recommendations
  • Bitcoin ETF Approval Odds Raised to Over 90% by Bloomberg Analysts, Drop on Polymarket
  • Spot Bitcoin ETF fee war begins, issuers amend S-1 filings with lower sponsor fees
  • Mysterious Bitcoiner spends $64K to inscribe 9MB of data on Bitcoin
  • Japanese e-commerce giant Mercari to allow Bitcoin payments for products

SEC Chair Gary Gensler has issued a warning on social media, cautioning investors about the risks and volatility associated with crypto investments, just as the Securities and Exchange Commission (SEC) is expected to rule on spot Bitcoin exchange-traded fund (ETF) applications. Gensler highlighted concerns about potential non-compliance with federal securities laws by asset managers offering crypto investment products and warned against fraud in the crypto space, citing scams, bogus coin offerings, Ponzi schemes, pyramid schemes, and other crimes. The warning came shortly after several spot Bitcoin ETF issuers submitted amended applications, one of the final steps before potential approval. The SEC has faced criticism for not approving a spot crypto ETF, while regulators in neighboring Canada have allowed such ETFs since 2021. The recent S-1 filings, while indicating a positive move, do not guarantee approval, and the SEC still has the option to deny applications.

CFTC Commissioner Christy Goldsmith Romero has unveiled a report on Decentralized Finance (DeFi) from the Digital Assets and Blockchain Technology Subcommittee. The report highlights the diverse nature of DeFi systems, operating on a spectrum between centralization and decentralization, with a key concern being the lack of clear responsibility. Romero stressed the report's importance in informing policy discussions and addressing potential risks to consumers, investors, financial stability, market integrity, and illicit finance. Recommendations include enhancing technical capacity, mapping existing systems, assessing regulatory boundaries, prioritizing risks, and encouraging collaboration with stakeholders. Special attention is given to anti-money laundering and digital identity issues, advocating a comprehensive approach to regulating identity information across different DeFi ecosystem layers.

On-Chain

Data from @glassnode suggests that the realized cap of Bitcoin has been on the rise since reaching a trough at the beginning of the year with a maximum drawdown of 19%. The Realized Cap is the cumulative sum of all realized profits minus realized losses. In other words, it is the aggregate value that has flowed into Bitcoin on-chain, minus capital flowing out via losses. Currently, the realized cap is at $436B, only a 7% drawdown from the previous high, indicating that investors are re-pricing BTC at a higher valuation on the secondary market, showing increasingly bullish sentiments as we anticipate the outcome of the ETF approval in the next two days. 

Meanwhile, an early holder/dormant whale of MKR, identified by the wallet address 0x807, has returned after being silent for two and a half years. This address first redeemed 11.082K MKR in 2018, worth around $6.5M, in which they did not take profit until the peak of the market in 2021 when they sent 4.6K MKR to Binance and Coinbase. Today, this wallet sent another 1.6K MKR to Binance, potentially indicating another selling intent. With this move, however, the wallet still holds 6.9K MKR, currently valued at $12.27M. As such, MKR holders should take caution as it may suggest that the whale is selling his substantial holdings.


Crypto Derivatives

  • Funding rates remained positive for BTC and ETH. 
  • Deribit Implied Volatility Index (DVOL) for BTC and ETH fell to 67.08% and 69.42%, respectively.
  • The 30-day 25-delta skew (C-P) for BTC rose to 0.74%, while that of ETH decreased to 0.28%.
  • The futures market witnessed $273.63M liquidations, with shorts representing 57.17%.

Top 3 USDT Perpetual Funding Rate Arbitrage Opportunities

Net Annualized APR

Perp (USDT pair)

Long on

Short On

41.03%

BTC

Binance

dYdX

20.47%

SOL

Binance

dYdX

14.10%

ADA

OKX

Binance

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.


The 7-day Implied Volatility (IV) for Bitcoin has shown a modest decrease, settling at 79.39%, signaling a growing sentiment of market confidence in the imminent approval of a new financial instrument. Correspondingly, the 30-day IV has followed suit, receding to 64.73%. These developments come in the wake of comments from Gary Gensler regarding the cryptocurrency sector, which have been interpreted as precursors to the likely approval of a spot Bitcoin ETF, further consolidating market optimism.

The IV term structure for BTC and ETH is currently demonstrating pronounced backwardation, with short-term IV levels remaining notably high. An acute pivot in the term structure is observable for options expiring in one day, indicating market anticipation of an SEC decision on the ETF in the near term. In contrast, the more level term structure observed for options with longer maturities indicates a uniform long-term perspective for BTC, which is consistent with its recent trajectory towards price stabilization. This relative calmness in the long-dated IV landscape suggests that the market's perspective on BTC's intrinsic value and long-term prospects is steady, despite the immediate uncertainties that loom.

The BTC 25-delta 30-day and 7-day call-put skews have exhibited stability, with both metrics orbiting the neutral zero mark. The 30-day skew has seen a slight uptick, now at 0.45%, whereas the 7-day skew has modestly declined to -0.78%. This behavior indicates a vigilant approach among market participants, who appear to be strategically positioning themselves to mitigate potential downside risks amidst the prevailing uncertainty surrounding the approval of a BTC ETF.

Lastly, the report by @Paradigm highlighted option flows on 8 Jan showcased notable option activity, reflecting an inclination towards downside protection and complex option constructs. On the BTC front, there was a sale of 700x 29-Mar-24 50/65k Call Spreads and a 500x 29-Mar-24 45/65k Bear Risk Reversal. ETH trades were highlighted by the sale of 3250x 23-Feb-24 2100 Puts and a 2250x 26-Jan-24 2/2.4k Bull Risk Reversal.

Crypto Technical Analysis

Moving to technical analysis, Bitcoin experienced a robust surge yesterday, decisively breaking through the $45.5K resistance that we had anticipated in the past week. Presently, the price has not only breached the upper boundary of the previously identified upward channel but has also briefly touched the $47K level. Despite this, a clear breakout is yet to be confirmed as BTC hovers around the upper boundary of the channel, showcasing some noticeable retracements since reaching $47K. Meanwhile, the Relative Strength Index (RSI) on the 4-hour chart is reaching its overbought territory, currently standing at 64.22. As such, if the price continues its upward trajectory, the next immediate resistance is expected on the daily chart near the $47.5K to $48.0K level, representing the 2022 high. On the flip side, in the case of an imminent retracement back into the previous channel, the lower boundary remains a crucial immediate support level, sitting at approximately $43.0K.

In contrast, ETH, while undergoing a similar surge on the 4-hour chart, faced rejection at the previously identified resistance trendline at $2.35K. Despite this, the movement effectively broke above the descending channel observed on the chart, indicating a bullish sentiment for ETH. If ETH continues its upward trajectory, the immediate resistance is anticipated at $2.4K, located at the upper boundary of the horizontal channel. However, a retracement is highly plausible, potentially causing ETH to swiftly move towards the support at the channel's lower boundary, approximately at $2.15K. This represents a potential 6% downside from the current level. Meanwhile, the RSI on the 4-hour chart currently stands at 57.06 which suggests that the market is neither overbought nor oversold, indicating a stable trading environment with potential for either movement.

Access institutional-grade commentary on TradFi × Crypto markets

By Treehouse Research

Daily Readings

TradFi

Crypto

Deal Flow

Yours sincerely,
Treehouse Research 🌳

bg-social

Join the Fixed Income Revolution