BTC

ETH

S&P Futures 500

$49,510.47

$2,631.49

$4,972.50

(-1.27%)

 (-1.44%)

(-1.20%)

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

GM Treehouser 🌳

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January 2024 Market Recap

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Our Daily View

What We Are Covering Today

  • Investors recalibrate Fed rate cut expectations; China contests EU's proposed trade restrictions (More in Macro & TradFi)
  • Ripple to expand US options; Wormhole surpasses 1B messages amidst impending airdrop (More in DeFi & CeFi)
  • LTHs adjust holdings with ETFs' rise; STH loss metrics signal market risk levels (More in On-Chain)
  • Mark IV dips below shadow IV; BTC ATM Implied Volatility (IV) displays a downtrend across the 7 and 30-day maturities (More in Crypto Derivatives)
  • BTC tests $50K resistance; ETH sees pullback from $2.68K (More in Crypto Technical Analysis)

Macro & TradFi

Investors have adjusted their expectations for a Federal Reserve interest rate cut in May following the release of stronger-than-anticipated US inflation data for January, which showed inflation easing to 3.1% instead of the forecasted 2.9%. This resilience in inflation rates led to a decrease in the probability of a May rate cut from 50% to 30% and almost eliminated expectations for a cut in March. The report, highlighting that the core inflation rate remained steady at 3.9% year-over-year, suggests persistent price pressures despite a general trend of decreasing inflation over the past year. This inflation data challenges the Federal Reserve's strategy of rate cuts to manage inflation, suggesting a more cautious approach to monetary policy adjustments. The data's implications extend to the financial markets, causing declines in major stock indices and influencing the dollar's strength. It shows the complexity of the Fed's path toward stabilizing inflation at its 2% target.

In other news, China has vocally opposed the European Union's proposed trade restrictions aimed at three Chinese firms, citing them as "illegal sanctions" in response to allegations of supporting Russia's military actions in Ukraine. This stance comes as the EU considers imposing sanctions on around two dozen companies, including those based in China and India, marking a potential first in targeting businesses from these countries over the Ukraine conflict. The tension escalates amidst ongoing probes and investigations between the EU and China, touching on sectors from electric vehicles to liquor, and the backdrop of a secretive agreement between the Netherlands and the U.S. to restrict sensitive technology exports to China. Beijing's firm resistance underscores its commitment to protect the interests of Chinese companies while highlighting the growing rift in international trade relations, particularly in the context of geopolitical conflicts. These restrictions signify the EU's intensified efforts to thwart Russia's access to sanctioned goods.

Following the release of CPI data, U.S. stock markets saw notable declines across major indices: the S&P 500 dropped by 1.37%, the Dow Jones by 1.35%, and the Nasdaq by 1.80%. Tesla experienced a significant downturn, plummeting 12.13% post-earnings, attributed to CEO Elon Musk's warning of a potential sales deceleration in 2024 due to intensified competition and dwindling demand from cost-conscious consumers. In other news, Amazon's filings revealed that Jeff Bezos, having resigned as CEO in 2021 but continuing as executive chair, liquidated 12 million shares for approximately $4 billion from Friday to Monday. Market participants are now eagerly awaiting the U.S. Retail Sales data, scheduled for release on Thursday at 21:30 SGT.

CeFi & DeFi

  • Ripple to buy New York Crypto Trust Company to Expand U.S. Options
  • Wormhole crosses 1B in cross-chain messages ahead of token launch
  • Bitcoin money launderer ordered to pay $3.5M to romance scam, fraud victims
  • BTC ETFs surpass $10B after just one month
  • Ethereum Developers Create 'DN-404' Tokens After ERC-404s Send Network Fees Surging

Ripple is set to expand its operations in the U.S. by acquiring Standard Custody & Trust Co., along with its New York trust charter, marking a strategic move to diversify beyond its established payments network. This acquisition, awaiting approval from the New York regulator, signifies Ripple's ambition to offer a broader range of in-house financial services, particularly targeting financial institutions interested in asset tokenization. Through securing a New York trust charter, Ripple aims to enhance its regulatory footprint in the U.S., despite ongoing legal battles with the SEC. This acquisition aligns with Ripple's vision to integrate more infrastructure services for financial institutions using blockchain technology, positioning itself for long-term growth in the digital asset space.

The cross-chain messaging protocol Wormhole has achieved a significant milestone by surpassing 1 billion messages sent across its network since launching in September 2021. This achievement underscores the protocol's growing prominence in facilitating seamless communication and transactions across blockchain ecosystems. As of February 13, Wormhole processes an impressive daily volume of approximately 110,640 messages, translating to about $30 million in daily transfers. This includes a diverse range of transactions such as funds, oracle feeds, and non-fungible tokens (NFTs) across 30 blockchains, accumulating a staggering $39.6 billion in total volume since its inception. The protocol's utility and value were further highlighted in January when its total value locked (TVL) reached $1 billion, showcasing the trust and reliance users place in its services. The assets leading this valuation include ETH, FTM, and SOL, with respective contributions of $675 million, $174 million, and $96 million. Despite facing challenges like the collapse of the Terra ecosystem and the ensuing crypto winter, which saw its TVL peak at $3.8 billion in May 2022, Wormhole has continued to facilitate a significant portion of transactions between major blockchains like Polygon and Celo, and Solana to Polygon. With the upcoming launch of its token, for which 17% of the total 10 billion tokens will be airdropped to the community, Wormhole is set to introduce a token-based governance system, further enhancing its protocol's direction and community engagement.

On-Chain

Glassnode's data illustrates a significant rise in speculative activity preceding the approval of spot ETFs in January, prompting several Long-Term Holders (LTH) to transact their Bitcoin, possibly to secure profits or to diversify into new ETF products. The LTH supply has fallen by around 299.5K BTC since reaching its peak at 14.996M BTC in November of the previous year. Despite this, the Grayscale Bitcoin Trust (GBTC) has to be factored into this equation, as it has absorbed over 661K BTC in 2021, thus classifying its holdings as 'Long-Term Holder' assets. With GBTC experiencing approximately 151.5K BTC in redemptions, the remaining 148K BTC reduction in LTH supply is attributable to actual spending by LTH investors. This spending trend among LTHs is consistent with Glassnode’s earlier findings, which indicate that LTHs often begin distributing their holdings as market prices near all-time highs.

Another Glassnode’s BTC metric on Short-Term Holders (STH) in Loss delineates the market's risk profile. It segments the STH Supply into Profit (represented in orange) and Loss (depicted in red), visually differentiating between common pullbacks and heightened risk periods. Typically, a correction is indicated when STH Supply in Loss rises but remains below approximately 60%, suggesting that a segment of recent investors may be at a disadvantage due to their cost basis. However, there is a counterbalance from those holding coins bought at lower prices. In contrast, a market is considered 'high risk' when the STH Supply in Loss surges to a majority, pointing to a 'top-heavy' market condition where a significant number of investors are trapped by high acquisition prices. Currently, the STH Supply in Loss is declining, suggesting that the BTC market is not in a ‘top-heavy’ condition.

Crypto Derivatives

  • Funding rates remained positive for BTC and ETH.
  • Deribit Implied Volatility Index (DVOL) for BTC and ETH decreased to 52.13% and 53.83%, respectively.
  • The 30-day 25-delta skew (C-P) for BTC and ETH remains positive, with minimal changes at 4.73% and 5.50%, respectively.
  • The futures market witnessed $147.6M liquidations, with longs representing 65.7%.

Top 3 USDT Perpetual Funding Rate Arbitrage Opportunities

Net Annualized APR

Perp (USDT pair)

Long on

Short On

32.08%

XRP

Bybit

OKX

31.85%

XRP

Binance

OKX

29.81%

SOL

Binance

OKX

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 Bitcoin ATM Implied Volatility (IV) for both 7 and 30-day maturities shows a downward trend, signaling a market consensus on diminishing mid-term volatility. This trend suggests traders are increasingly confident, possibly due to the calming effect of the recent CPI data release, which has diminished the possibility of an interest rate cut in March.

The BTC market's term structure has preserved its contango configuration, characterized by a dip in Mark IV at the front end of the curve. This trend is likely also attributed to the market's reaction to January’s CPI print and core inflation rising higher than expected. This indicates that traders are reassessing the potential volatility in BTC prices and the likelihood of the Federal Reserve cutting interest rates.

BTC’s 25-delta skew across various maturities suggests positive market sentiment. The 7-day skew is experiencing a slight deviation from the 30-day skew, dropping to 2.89%, while the 30-day skew remains relatively unchanged at 4.73%. This indicates that traders expect positive near-term price action to decline while maintaining bullish sentiment in the medium term.

Lastly, @Paradigm highlighted that during Asia / Europe Session Hours, key BTC trades are a custom 250x +1.00 call 23-Feb-24 49k, -2.00 call 23-Feb-24 56k strategy sold, and a 125x 23-Feb-24 47k put bought. Noteworthy ETH strategies included the sale of a 10865x 23-Feb-24 2700 Call and a 2700x 23-Feb-24 2700 Call.

Crypto Technical Analysis

On the daily chart, BTC has recently made contact with the upper trendline resistance near the psychologically significant $50K level but has since experienced a minor retracement. The price action around this key level indicates a test of resolve among market participants. Should the $50K level be decisively breached, the next notable resistance could be expected at 52K, an upside of 6.32%.  Conversely, should the retracement deepen, market observers would likely look towards the next support level at 45K, which presents a downside of 7.62%. The Relative Strength Index (RSI) is currently positioned at 75.42 a point that suggests a heated momentum market. The index's trend, whether overbought or oversold, can offer insights into potential exhaustion or strength in the current price trend, requiring careful monitoring for signs of divergence or continuation patterns.

ETH is currently in a slight retracement phase following its encounter with the resistance level at approximately $2.68K. The price action shows a pullback from this resistance zone, indicating a temporary easing of the bullish momentum that led up to this point. Should the market push past this resistance, the next significant level could be the round figure of $3K, which would represent an approximate 12% increase from the current price levels. On the downside, solid support is established near the $2.5K mark, marking a drop of roughly 11% from where the price currently stands. The RSI is presently at 68.46, edging closer to overbought territory, which suggests that buying pressure has been more pronounced recently, although it has not reached a point that typically signals overextension. The current RSI trajectory favors the bulls, yet traders often remain vigilant for any signs of reversal when the index approaches higher levels.

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