Spain's Inflation Decline and South Korea's Economic Challenges Impact Traditional Finance; Ordinals Market Introduces BRC-721E Standard

BTC	ETH	S&P Futures 500
$27,759.00	$1,905.50	$4,215.50
(+0.61%)	(+0.14%)	(-0.20%)
Note: All percentages shown above are referenced to the previous business work day's 09:00 (GMT+8)

GM Treehouser 🌳

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Our Daily View

What We Are Covering Today

• Spain inflation drops to the lowest level in almost 2 years; South Korea’s economy faces more headwinds (more in Macro & TradFi)
• LayerZero integrates with LSD-focused Layer-1 Tenet; BRC-721E standard allows bridging of ERC-721 NFTs from ETH to BTC network (more in DeFi & CeFi)
• Increasing Bitcoin RHODL Ratio and profitable inflows signals a market transition (more in On-Chain)
• Traders bet on muted price action for BTC and ETH (more in Crypto Derivatives)
• BTC weekly approaching key crossover point; ETH and BTC continue to trade sideways in a tight range (more in Crypto Technical Analysis)

Macro & TradFi

Inflation in Spain has reached its lowest level in nearly two years, dropping to 2.9 percent, raising hopes of easing price pressures across the eurozone. Economists believe that the larger-than-expected fall in Spanish inflation is positive for the European Central Bank (ECB) and may indicate a rapid deceleration in inflation across the region. However, Spain already had relatively low inflation rates, and it might take longer for similar cooling of price pressures to occur elsewhere in the eurozone. The decline in inflation was attributed to lower fuel prices, while slower growth in food and non-alcoholic drink prices also played a role. Eurozone bond markets initially rallied and the euro fell against the dollar in response to the news, but later reversed as economists noted that the pace of cooling in Spanish price pressures may not be replicated in the rest of Europe. Eurozone inflation is expected to fall from 7 percent in April to 6.3 percent in May, while core prices, excluding energy and food, are projected to decrease slightly to 5.5 percent, according to a Reuters poll of economists.

South Korea's economy continues to face challenges as factory production and retail sales dropped in April, indicating a tough quarter after narrowly avoiding a recession in Q1. Factory production fell 1.2% from March and experienced an 8.9% decline compared to the same period last year, marking the biggest annual loss in three months. The all-industry output index, including the services sector, saw a significant 1.4% decline in April, the largest drop in 14 months. On the consumption side, retail sales dropped 2.3% from the previous month, the first monthly fall since January and the biggest in five months. The finance ministry acknowledged that the economy went through a "moderate correction" from the recovery in Q1 and highlighted both positive and negative factors that could impact future trends, such as spill-over effects from China's reopening and high inventory levels in the semiconductor industry.

Overnight in the U.S., Nvidia briefly crossed $1tn in market cap while all three major indexes ended mixed: the Dow Jones Industrial Average lost 0.15%, the S&P 500 rose slightly by 0.02%, and the Nasdaq Composite index gained 0.32%. Asia-Pacific markets showed mixed performance as investors monitored the potential passing of a U.S. debt ceiling deal. The Nikkei 225 in Japan retreated from its 33-year high, dropping 1.03%, while Australia's S&P/ASX 200 declined 0.35% ahead of its inflation data. In contrast, South Korea's Kospi gained 0.16% and the Kosdaq advanced 0.13%. Hong Kong's Hang Seng index is expected to extend losses despite a late rally, with futures at 18,260 pointing to a decrease from the previous session's close.

DeFi & CeFi

• Omnichain interoperability protocol LayerZero integrates with Layer-1 Tenet
• DEX aggregator AVNU goes live on Starknet mainnet
• CoinEx launches BitHK, a crypto exchange for Hong Kong users
• Bitcoin NFT marketplace Ordinals Market launches BRC-721E standard, bridging ERC-721 NFTs from Ethereum to the Bitcoin network
• Bybit exits Canada due to recent regulatory developments
• The SEC settles insider trading case against Ex-Coinbase product manager Ishan Wahi and his brother
• DEX PancakeSwap launches GameFi game with BNB GameFi protocol, Mobox

Omnichain interoperability protocol LayerZero continues to expand its ecosystem, integrating with Cosmos-based Layer-1 blockchain, Tenet, which aims to push forth the growth of liquid staking derivatives (LSDs) in the wider DeFi ecosystem across various blockchains. This collaboration will enable developers to easily deploy and build on both LayerZero and Tenet. Tenet’s native stablecoin, LSDC, is backed by a basket of LSDs across various blockchains, each bearing interest. About one week ago, Tenet also closed deals with Conflux and Qtum to increase liquid staking exposure in China.

Meanwhile, the Bitcoin NFT marketplace Ordinals launches a new token standard BRC-721E, which will allow users to bridge their ERC-721 NFTs from Ethereum to the Bitcoin network. This token standard was established in collaboration with NFT project Bitcoin Miladys and Bitcoin wallet Xverse which involves the burning of the ERC-721 NFT through an irreversible on-chain inscription request. Next, BRC-721E will encode the data directly into the burn transaction. Once the inscription is confirmed, the BRC-721E NFT will be sent to users’ Bitcoin addresses, while appearing automatically on the Ordinals marketplace.

On-Chain

Moving on to on-chain, the Bitcoin Realized HODL (RHODL) Ratio is on the rise, suggesting an ongoing transfer of wealth from seasoned investors to those who are newer to the market. The RHODL Ratio compares the amount of Bitcoin held by long-term investors to that held by short-term traders. When the ratio rises, it indicates that long-term investors are selling their Bitcoin, often to newer market participants. If the RHODL Ratio is rising, it might signal that we're at a pivotal moment in the market cycle. Long-term holders may have a deeper understanding of the market and might be selling because they believe we're nearing a market peak.

In the @Glassnode analysis of the distribution of exchange inflows, categorized by Profit/Loss, a transient resurgence of profitable inflows is evident in the wake of the recent upward adjustment in market prices. It is noteworthy that the net inflows in profit outpace the inflows in loss; the volume of Exchange Inflows in Profit stands at 8,225 BTC, while Exchange Inflows in Loss are at 7,590 BTC. This trend indicates a healthy market outlook, possibly attracting more investors driving prices higher.

Crypto Derivatives

• BTC and ETH funding rates remain positive
• 30-day BTC ATM IV for BTC and ETH declined to 39.35% and 38.54% respectively
• Deribit Implied Volatility Index (DVOL) for BTC and ETH declined slightly to 44.66% and 43.57% respectively
• 30-day 25-delta ETH and BTC is skewed to the put side

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

Net Annualized APR	Perp (USDT pair)	Long on	Short On
15.06%	XRP	OKX	Binance
14.94%	BTC	OKX	dYdX
11.89%	ETH	OKX	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

The futures market saw $52.08M in liquidations yesterday with a 54% coming from longs at $28.07M.

The options term structure for BTC and ETH has experienced a significant decline across different tenors, with BTC displaying a particularly pronounced drop. Despite progress of the debt ceiling bill, the response from the crypto market was relatively subdued, with price movements exhibiting less volatility than previously anticipated.

The 7-day 25-delta skew spread for BTC and ETH options has shown a notable increase in put skew, indicating that put options are priced at a premium against call options. Earlier in the week, traders exhibited a preference for call options, anticipating a renewed bullish market sentiment following the agreement in principle between the White House and House Republicans to raise the debt ceiling. However, the expected positive price pump did not materialize, leading to a cooling down of this preference.

The near-term IV for BTC and ETH options has witnessed a substantial decrease, especially evident in the 7-day, 25-delta options. Notably, there has been persistent selling of volatility observed in the front end of the curve for BTC and ETH, primarily through straddles and outright positions. The top traded structures for BTC were 208x 9 Jun 23 $28K Straddle sold, and 124x 9 Jun 23 $27.5K Straddle sold, as noted by @tradeparadigm. Short volatility strategies indicate that market participants are anticipating a smooth resolution of the uncertainty surrounding the debt ceiling debate by early June 2023.

Analyzing the open interest of BTC options expiring on 9 Jun 2023, a majority of the open interest is concentrated in call options, particularly at the $28K strike price. This suggests the prevailing bullish sentiment in the market in the short-term. However, with the increasing interest in short volatility strategies, market movements may be muted. The maximum pain point is at $27K.

The top traded ETH structures on Paradigm yesterday involved the selling of call and put options, reflecting short volatility strategies in the near term. Notable structures are 1500x 9 Jun 23 $1.9K Call sold, 1250x 30 Jun 23 $1.7k Put sold, and 1000x 30 Jun 23 $1.6K Put sold. This indicates a market belief in relatively subdued market movements. Examining the open interest of ETH options expiring on 9 Jun 2023, the majority of the open interest is in call options, primarily concentrated at the $1.9K strike price. However, similar to BTC, the presence of significant trading in short volatility strategies and the maximum pain point at $1.85K imply a level where option holders would experience maximum losses.

Lastly, the VIX fell to 17.46.

Crypto Technical Analysis

Turning our attention to technical analysis, BTC is currently trading sideways with no clear directional movements. In addition, BTC appears to have established a range between its quarterly-open and the support level at $27.5K. A breakout from this range has the potential to drive BTC's price significantly, either upwards towards the $29.8K level or downwards towards the $26K level. Meanwhile, on the weekly chart, we observe that the MACD indicator for BTC is approaching a crossover point which could result in a prolonged downtrend in BTC's price in the coming months.

In contrast, ETH maintains a strong position above its quarterly open and an ascending trendline. Currently, ETH is trading within a significant liquidity zone that has witnessed multiple price convergences over the past two months. A bullish outcome would involve ETH surpassing this liquidity zone and testing the resistance level at $2K once again. Alternatively, if ETH fails to break above this zone, we may observe ETH continuing to trade within the range of $1.9K and $1.8K, which has been its predominant range for several months.

To find confluence for a bullish scenario in ETH, we can observe that ETH/BTC has consistently maintained a strong position above the resistance level at 0.6789. If ETH continues to outperform, the next significant level to monitor would be the resistance level at 0.70.

Daily Readings

TradFi

• Top shipper of Russian oil secures Indian cover as Western certifiers exit

• Nvidia CEO Jensen Huang: Leather-jacketed boss of trillion-dollar chip firm

• S.Korea April factory output falls, retail sales drop most in 5 months

• Ukraine says it's working with BAE to set up weapons production facility

• HP misses revenue estimates as inflation saps PC demand

• Top US Republican McCarthy urges support for debt ceiling deal ahead of key vote

• Rating agency KBRA remains confident in US government top rating

• Goldman head of sovereign business Powell McCormick moves to merchant bank

• High inflation fails to boost most UK companies' profits

• Euro zone lending takes another hit from higher rates

• US monthly home prices increase in March, surveys show

• India's RBI to hold rates through year-end, cut in early 2024 - Reuters poll

• China's disappointing rebound could bring in more stimulus, economists say.

• Japan’s largest brewer sets its sights on China — again.

• Goldman Sachs is cutting jobs again amid Wall Street deals slump.

Crypto

• Texas Bill That Would Limit Miners' Participation in Cost-Saving Grid Programs Stopped in House Committee.

• Former Coinbase Employee, U.S. SEC Settle Insider Trading Charges.

• Bitcoin Trades at a 20% Discount on Binance Australia Following Banking Issues in the Country.

• Crypto Exchange Bybit Exits Canada Citing Recent Regulatory Development.

• BRC-721E Token Standard Converts Ethereum NFTs to Bitcoin NFTs.

• Nansen Slashes 30% of Headcount in Bid to Cut Costs.

• Mercedes Benz Web3 Arm To Release NFT Collection With Digital Art Community Fingerprints DAO.

• FTX Examiner Appointment Referred to Court of Appeals by District Judge.

• Stablecoin Issuer Tether Invests in Sustainable Bitcoin Mining in Uruguay.

• India's RBI Intends to Push G-20 to Focus on Crypto's Macro Risks.

• Crypto Storage Firm Qredo's Revamped Self-Custody Wallet Goes Live.

• Yield farming app accumulates $12M TVL 2 weeks after launch.

• Researchers propose new scheme to help courts test deanonymized blockchain data.

• Binance considers allowing traders to secure collateral at banks: Report.

• Japan’s largest airline launches NFT marketplace.

• Decentralized exchange PancakeSwap moves into GameFi.

• LSD for DeFi: Tenet, LayerZero partner to drive cross-chain liquid staking adoption.

Deal Flow

• Web3 Payments Firm Transak Raises $20M.

• Chainalysis acquires real-time crypto data company Transpose

Yours sincerely,
Treehouse Research 🌳