BTC

ETH

S&P Futures 500

$61,463.27

$3,374.44

$5,102.50

(+0.20%)

 (-2.14%)

(+0.51%)

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

  • US inflation data reflects Fed's policy challenges; BOJ remains cautious on rate hikes (More in Macro & TradFi)
  • Hong Kong mandates for unlicensed crypto exchanges to cease operations; Blast mainnet launches with $2.3B unlock (More in DeFi & CeFi)
  • BTC holders in a loss at all-time low; BTC unrealized profits of over $670B (More in On-Chain)
  • BTC sees sharp declines in both the 7-day and 30-day IVs as price retraces from the euphoria in the past few days (More in Crypto Derivatives)
  • Both BTC and ETH retraced after reaching their respective resistance zones, pulling back to their previous resistances for immediate support (More in Crypto Technical Analysis)

Macro & TradFi

The latest inflation data from the US highlights a nuanced scenario for the Federal Reserve, underpinning the complexities of adjusting monetary policy amidst ongoing economic expansion and persistent inflationary pressures. January's government data revealed a slight decline in the annual Personal Consumption Expenditures (PCE) price index, the Fed's preferred inflation measure, to 2.4%. However, core inflation, which excludes volatile food and energy prices, experienced a month-over-month increase, signaling an uptick in underlying inflation. Despite a robust economy and low unemployment, the Fed has tempered expectations for imminent rate cuts, with current rates at a 23-year peak. Additionally, initial claims for state unemployment benefits saw a slight increase. For the week ending February 24, initial claims rose by 13,000 to a seasonally adjusted 215,000, slightly above economists' expectations of 210,000, demonstrating US labor resilience.

In other news, Bank of Japan Governor Kazuo Ueda has clarified that the bank's inflation target remains elusive, dampening speculation about an imminent rate hike, potentially the first since 2007. Ueda's comments came after discussions with G20 central bankers and finance chiefs in Sao Paulo, emphasizing the need for a sustainable and stable inflation rate before considering policy adjustments. Despite Japan's recent technical recession, Ueda remains optimistic about the economy's moderate recovery and future prospects. The focus now turns to upcoming wage negotiations, which Ueda identifies as crucial for initiating a virtuous cycle between wages and prices, hinting at positive expectations from these discussions. The outcomes of these negotiations, expected in mid-March, will significantly influence the Bank of Japan's next policy meeting decisions. Ueda's participation in the G20 discussions highlighted global economic risks and the shared anticipation of a soft landing for the global economy, underscoring the interconnectedness of Japan's economic policies with global trends.

US stock markets concluded February on an upbeat note, achieving new heights as a pivotal inflation indicator aligned with forecasts. Notably, the S&P 500, Dow Jones Industrial Average, and Nasdaq experienced gains of 0.52%, 0.12%, and 0.95%, respectively, with the Nasdaq marking its first record close since 2021. The surge was partly driven by significant advances in AI-related semiconductor stocks, notably Nvidia and AMD, which soared to unprecedented levels. Additionally, Salesforce's shares rallied by 3.00% following the introduction of its inaugural quarterly dividend and an enhancement of its buyback scheme, which helped mitigate the impact of its full-year earnings projection not meeting analysts' expectations. Investor focus is shifting towards upcoming economic data from China, specifically the Official PMI and Caixin Manufacturing PMI, set for release, which could provide further insights into global economic conditions and market directions.

CeFi & DeFi

  • Hong Kong mandates all crypto exchanges without applications to close
  • Blast mainnet launches with $2.3B unlocked
  • Starkware unveils “Stwo” rollup
  • Metis integrates CCIP as token bridge
  • Bank of America, Wells Fargo to offer BTC ETF to clients

Following the closure of its license application period on February 29, Hong Kong is mandating all crypto exchanges without applications to cease operations by May 31, 2024. The Securities and Futures Commission (SFC) has already granted licenses to OSL Digital Securities and HashKey Exchange, with 22 platforms applying for licenses. Noncompliant platforms are instructed to prepare for a shutdown, affecting both local operations and investor migrations. This regulatory tightening aims to consolidate Hong Kong's crypto market, ensuring only licensed entities can continue, thereby enhancing investor protection and market integrity​​.

Elsewhere, Blast marked a significant milestone with the launch of its mainnet on February 29 at 9:00 pm UTC, unlocking nearly $2.3 billion in crypto assets that had been staked on the network. This event allowed approximately 180,000 users to initiate withdrawals, with $280 million being moved out of the network. Blast's TVL decreased from its peak of $2.27 billion to just under $2 billion, as users began accessing their previously locked funds. From the outset, decisions such as delaying withdrawals until after the launch and the manner of its marketing have drawn criticism, even from within its investor circle, notably Paradigm. Additionally, the network experienced a setback with the alleged exit scam of the "Risk on Blast" gambling protocol, which absconded with 420 ETH worth approximately $1.25 million. These incidents have sparked debate within the community regarding the best practices for launching and marketing DeFi projects.

On-Chain

The on-chain activity for Bitcoin is showing a significant trend with the supply in loss reaching notably low levels, which typically indicates a bull market phase where most Bitcoin is held at a profit. Historically, similar patterns have been observed where such trends can signal potential market tops or bottoms. As this metric remains in an extreme distribution zone, there's an increased possibility of price corrections, highlighting the importance of risk management for investors in potentially volatile market conditions.

In another analysis on CryptoQuant, Bitcoin's Unrealized Profit and Loss (UNRPL) indicator reveals that investors are currently in a strong profit position with $671 billion in unrealized gains. This uptick in the UNRPL follows a surge in Bitcoin's price, showing considerable profitability yet indicating a heightened risk for the market. As the market approaches previous peak levels of profitability, there will be Bitcoin holders who will begin to sell their holdings, causing more volatility in BTC’s price, and necessitating careful risk management strategies.

Crypto Derivatives

  • Funding rates remain positive for both BTC and ETH.
  • Deribit Implied Volatility Index (DVOL) for BTC and ETH diminished sharply to 65.25 and 67.23 respectively
  • The 30-day 25-delta skew (C-P) for BTC decreased to 3.48% while ETH remained relatively unchanged at 2.59%.
  • The futures market witnessed $341.25M liquidations, with longs representing 63.5%.

Top 3 USDT Perpetual Funding Rate Arbitrage Opportunities

Net Annualized APR

Perp (USDT pair)

Long on

Short On

73.15%

AVAX

OKX

dYdX

63.10%

AVAX

Binance

dYdX

61.46%

AVAX

Bybit

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 ATM Implied Volatility (IV) chart displays a sharp decline in both the 7-day and 30-day maturities, trailing each other now at 64.69 and 62.91 respectively after the euphoria of Bitcoin breaking the $63K mark. Traders are also on the sideline after the US government moved $922M of seized Bitcoin recently, and contemplate the sustainability of the BTC ETF inflows. The longer-term maturities, while also showing a decline, do not exhibit as pronounced a spike as the 7-day maturity.

The term structure continues to show a significant spike in the Mark IV of 1-day contracts, although significantly lower than that of yesterday’s, which then rapidly declines and approaches the Shadow IV as time to maturity increases. This is due to uncertainty about the price of Bitcoin in the immediate short term due to the high volatility that it has experienced in the last few days. The lowering IVs could suggest that the market is currently pricing in lower volatility compared to historical averages, which may reflect a period of relative stability.

BTC 25 Delta skews (C-P) remain highly positive for both the 7-day and 30-day skews, despite both experiencing a noticeable decrease after the euphoria of BTC breaking the $63k mark ended, indicating a diminishing bullish sentiment among traders in the near term.

Lastly, during the US Trading Session, @Paradigm highlighted option flows this week, emphasizing downside coverage with the sale of call positions. Key BTC trades encompassed the sale of 300x 26-Apr-24 65k call, 200x 26-Apr-24 60k call, and a 150x 29-Mar-24 70k call. On the ETH front, significant trades included 15000x 15-Mar-24 3200 put bought, and 3000x 8-Mar-24 3150 put sold.

Crypto Technical Analysis

After several consecutive days of price surges, BTC saw a slight downturn last night, pulling the price back to $61.5K as it encountered resistance once again at the $63K level. The RSI also retreated to the normal range, currently at 67. Moving forward, the $63K to $64K range remains as the immediate resistance, marking the last horizontal resistance zone before the previous all-time high. On the downside, the $58.8K level now acts as support, having previously served as resistance, indicating a potential downside of nearly 4%.

ETH mirrored BTC's retracement, pulling back from its $3.5K peak to hover around the $3.4K level. At this point, ETH finds strong support at the intersection of the horizontal resistance observed in February 2022 and the upper boundary of the previously identified ascending channel. The $3.5K level remains the immediate resistance in case of a rebound from the current level. Conversely, if the price breaks below the current level, the lower range of the channel serves as support, which stands approximately at $3.15K, indicating a potential downside of around 6%. 

Access institutional-grade commentary on TradFi Ă— Crypto markets

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