BTC

ETH

S&P Futures 500

$54,600.02

$3,171.21

$5,077.75

(+5.68%)

 (+1.80%)

(-0.24%)

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

  • President Joe Biden optimistic about Israel-Hamas ceasefire; US corporate bond sales hit record. (More in Macro & TradFi)
  • Ethena's innovative stablecoin protocol gains traction; BitForex halts withdrawals amid operational challenges (More in DeFi & CeFi)
  • KyberSwap exploit traced down; DWF Labs seems to be taking profits (More in On-Chain)
  • Over $200M of shorts liquidated; Short-term IV increases across the board (More in Crypto Derivatives)
  • BTC shatters key resistance levels as ETH rides the wave (More in Crypto Technical Analysis)

Macro & TradFi

US President Joe Biden expressed optimism for a potential ceasefire between Israel and Hamas to commence as early as the following Monday, amid intense diplomatic efforts to rejuvenate stalled peace negotiations. This hopeful outlook was shared during Biden's visit to New York, amidst growing political pressure to address the Middle East conflict. The progress in talks, particularly concerning hostage releases by Hamas, signifies a pivotal moment in diplomatic engagements, as outlined by Biden and his National Security Adviser, Jake Sullivan. Amidst these developments, Israel is reportedly planning a new offensive in Rafah, prompting concerns over civilian safety in the densely populated region. Biden faces domestic pressure to end the conflict, with significant attention on the impact of the war's unpopularity among the Democratic base, particularly in states with significant Arab American populations. The situation underscores the complex interplay of international diplomacy, domestic politics, and the urgent need for humanitarian considerations in conflict resolution.

In other news, US blue-chip companies set a new record by selling $172 billion in bonds, surpassing the previous February record of $150.9 billion set in 2023. This surge in bond sales, driven by falling yields and cheaper borrowing costs, marks a significant uptick in corporate finance activity, particularly for funding mergers and acquisitions. The total bond issuance for the year has already exceeded $361 billion, indicating a robust start. Despite this record-setting pace, the month did not surpass the highest monthly sales record of $285 billion from April 2020. The decrease in average investment-grade bond yields to 5.37% and the narrowing of spreads have made the market particularly attractive for issuers. Notably, acquisitions and spinoffs fueled a substantial portion of February's issuance, with significant contributions from companies like AbbVie, Bristol Myers Squibb, and Cisco Systems. However, some market observers, like Scott Kimball of Loop Capital Asset Management, anticipate a slowdown in issuance, suggesting that the market could face exhaustion after the recent surge. Despite these predictions, syndicate desks are expecting around $35 billion in US investment-grade sales for the week, hinting at the potential for continued robust activity in the short term.

On Monday, Wall Street stocks experienced a downturn as investors awaited new inflation data that could impact US monetary policy decisions. The S&P 500 saw a decrease of 0.38%, the Dow Jones Industrial Average fell by 0.16%, and the Nasdaq declined slightly by 0.13%. Among the notable movements, Alphabet, the parent company of Google, suffered a 4.5% drop. This decline was attributed to concerns surrounding its Gemini artificial intelligence program. Google had to restrict users from generating images of people using this AI tool after it inaccurately portrayed Nazi-era soldiers as people from various ethnic backgrounds, sparking controversy and raising questions about the program's content moderation capabilities.

CeFi & DeFi

  • New Stablecoin Protocol Ethena Captured over 5% of Global $ETH Perpetual Futures Open Interest
  • Crypto exchange BitForex halts withdrawals, stops responding to users
  • MicroStrategy’s X account hacked, shilling Ethereum token phishing scam
  • Michael Saylor's MicroStrategy Purchased an Additional 3K BTC, Now Holds $10B Worth
  • ​​Blast announces that the Blast mainnet will be launched on February 29

Ethena, a pioneering stablecoin protocol, has made a significant mark by capturing over 5% of the global Ethereum perpetual futures open interest, as reported by The Block. This protocol, which powers the USDe token—a high-yield, dollar-tied asset avoiding the stablecoin label in favor of "synthetic dollar" — has attracted approximately $420 million in USDe minting through its innovative approach of generating yield by leveraging cash and carry arbitrage in crypto markets, including shorting ether futures and staking ether. Despite initial controversy over yield payouts, which saw a swift policy reversal to distribute the entire 24% yield generated, Ethena's founder, Guy Young, remains optimistic about the protocol's scalability and self-correcting yield mechanisms, albeit cautious about the potential challenges posed by a larger market share, which could introduce capacity constraints and impact yield attractiveness.

In other news, Hong Kong-based crypto exchange BitForex has abruptly suspended withdrawals, ceasing to process transactions and becoming unresponsive to user inquiries. This unexpected halt follows a significant withdrawal of approximately $56 million in cryptocurrencies from the exchange's hot wallets, as reported by on-chain analyst ZachXBT. Despite the lack of updates from BitForex's official social media channels since May 2023, users have encountered issues ranging from being unable to access their accounts to missing assets on their dashboards, with many reporting being blocked from the site. Although the BitForex website largely remains inaccessible, a notice about CEO Jason Luo's departure in January remains visible. This incident adds to a challenging year for BitForex, which faced accusations from Japan's Financial Services Agency (FSA) for operating without proper registration and has seen its prominence wane from being one of the leading exchanges in terms of capitalization. This situation mirrors troubles faced by another Hong Kong exchange, AAX, highlighting ongoing regulatory and operational challenges within the crypto exchange landscape.

On-Chain

On-chain analysis conducted by PeckShield has uncovered the financial trail of the KyberSwap exploiter, showcasing the transfer of stolen assets between blockchains. Specifically, the hacker moved 798.8 Ether, worth approximately $2.5 million, from the Arbitrum network to Ethereum. Additionally, the exploiter transferred about $826,500 in the stablecoin Dai to another wallet. These movements highlight the exploiter’s attempts to circumvent tracking and possibly liquidate assets on different platforms, a common tactic observed in the aftermath of crypto heists. The KyberSwap exploit, originally estimated at $46 million, was later adjusted to $49 million in losses, with on-chain analysis playing a pivotal role in determining the extent of the damage. This analysis also captured the hacker's bold on-chain communications, including a demand for control over KyberSwap’s operations and governance. The incident shows the importance of on-chain analysis in post-attack forensics.

In other news, DWF Labs has recently deposited a significant amount of $SPELL tokens into the Binance exchange as the asset experienced a notable price jump. During the market rally last week, DWF Labs strategically offloaded approximately $8.64 million across four digital assets, timing these transactions to capitalize on favorable pricing. This move indicates a pattern of profit-taking during market highs, a common strategy among investment firms to maximize returns.

Crypto Derivatives

  • Funding rates remain positive for both BTC and ETH.
  • Deribit Implied Volatility Index (DVOL) for BTC and ETH remained relatively stable at 56.8% and 61.47%, respectively.
  • The 30-day 25-delta skew (C-P) for BTC dropped to 1.50% while ETH dropped to 1.72%.
  • The futures market witnessed $275.23M worth of liquidations, with shorts representing 73.8%.

Top 3 USDT Perpetual Funding Rate Arbitrage Opportunities

Net Annualized APR

Perp (USDT pair)

Long on

Short On

36.72%

ETH

Bybit

dYdX

30.35%

AVAX

Bybit

dYdX

29.88%

AVAX

OKX

dYdX

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.

BTC’s 7-day and 30-day ATM IV have been moving in tandem throughout the month, suggesting similar expectations between short-term and medium-term markets. The recent spike in 7-day volatility can be attributed to the news of BTC breaking the $54K resistance. The market's response to this price level, as indicated by the spike in the graph, suggests that the breakthrough was a surprise to many investors, leading to a sudden increase in options trading activity. It's also notable that after the initial spike, the implied volatility appears to be stabilizing, albeit at a higher level than before the price surge. Given that BTC halving is on the horizon, traders might be cautiously optimistic and pricing that in.

The term structure maintains its contango shape despite a significant discrepancy in the initial immediate stages. The IV remains flat for longer-dated tenors, suggesting that option investors do not perceive a higher volatility in the price of the underlying asset in the long term.

From today's chart, we continue to notice constant fluctuations reflecting the changing market sentiments. The most recent spikes on the 7-day line, which shows the most pronounced peaks and troughs, suggest that short-term market sentiment is particularly volatile and that traders are frequently adjusting their expectations possibly due to BTC’s recent surge in price. This could be interpreted as a sign that traders are anticipating or reacting to an event they believe will have a short-term impact on Bitcoin prices, potentially causing a sharper drop or increase in the near term as compared to their longer-term expectations.

Lastly, during the US Trading Session, @Paradigm highlighted option flows today. For BTC, this includes 500 29-Mar-24 51000 puts bought, 400 29-Mar-24 60000 calls bought and 300 26-Apr-24 62000 calls bought. For ETH, notable ones include 6000 29-Mar-24 3200/3500 put spreads sold and 3000 1-Mar-24 4400/15-Mar-24 3500 calendar calls sold.

Crypto Technical Analysis

On the 4-hour chart, BTC has made continuous breakouts above the previous range it was confined to for over a week, and the trendline formed by local higher highs since December. The RSI has surged to 84, indicating that the market is highly overbought and suggesting a potential retracement in price. Consequently, the trendline now serves as the immediate support at $54.5K before the price may challenge the previous channel's upper boundary in case of a pullback from the current level. Conversely, if the bullish momentum persists, the next significant resistance is around the $58K level, last observed in December 2021, presenting a potential further upside of approximately 3.6%.

Following BTC's surge, ETH has similarly experienced a significant pump, albeit with a slightly smaller magnitude. While briefly broken, ETH has encountered some resistance near the $3.22K level, where the upper boundary of the previously identified ascending channel intersects with the resistance range between $3.22K to $3.32K, last tested in February 2022. However, RSI has also entered the overbought territory, currently at 77 on the 4-hour chart, suggesting a potential retracement before further upward movement in price. In the event of such a retracement, the channel's lower boundary would serve as the immediate support zone, approximately between the range of $3K to $3.05K, indicating a potential downside of around 7%. 

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Treehouse Research 🌳