Skip to main content

Weekly Report: 7th November 2022


Fund Flows 

Mixed sentiment following the FOMC announcement last week 


TD; LR:

1. Digital asset investment products saw minor outflows totaling US$15.6m last week and a bad start to the month with outflows totaling US$19m.

2. Bitcoin saw outflows totaling US$13m for the week. This follows a 7-week run of inflows and comes after FOMC raised interest rates by a further 75 basis points.

3. Short-Bitcoin investment products also saw outflows for the 3rd consecutive week totaling US$7.1m, bringing total outflows to US$28m.

4. XRP saw inflows for the 3rd week totaling US$1.1m implying improving investor confidence as the SEC case against Ripple looks increasingly fragile. 

Digital asset investment products saw minor outflows totaling US$15.6m last week and a bad start to the month with outflows totaling US$19m. However, the flow activity remains very low relative to history, with this doldrum period lasting 8 weeks now.

Regionally, the negative activity focussed on the Americas, with the US, Canada, and Brazil seeing outflows of US$21m, US$2.1m, and US$1.8m respectively. This was offset by inflows from Germany at US$4m and Switzerland at US$6.8m.

Most of the negative sentiment was directed towards Bitcoin, with outflows totaling US$13m for the week. This follows a 7-week run of inflows and comes after the FOMC raised interest rates by a further 75 basis points while suggesting they were going to continue raising rates for longer than was previously stated.

Opinion about the FOMC messaging was mixed though, as short-Bitcoin investment products also saw outflows for the 3rd consecutive week totaling US$7.1m, bringing total outflows to US$28m (22% of total assets under management), being the largest run of outflows on record.

After a 4-week run of outflows, Ethereum saw minor inflows totaling US$2.7m. XRP saw inflows for 3rd week totaling US$1.1m implying improving investor confidence as the SEC case against XRP looks increasingly fragile.

News

  • JPMorgan executes its first on-chain DeFi trade, using Polygon's public blockchain.
  • Following NFT displaying, Meta currently testing NFT minting and trading on Instagram - announces integration with blockchain-storage platform Arweave.
  • Eu's MiCA bill section warns of crypto influencers: social media crypto comments without legal disclosure and profiting from such will be considered market manipulation.
  • 38% of US voters to consider candidates' crypto opinions in midterms.
  • A week after Twitter's takeover, Elon Musk begins firing employees - several filed lawsuits.
  • Solana unveils Google partnership, their Saga smartphones, open-sourced Web3 stores, and more at the "Solana Breakpoint" yearly conference.
  • Singapore-based bank DBS uses DeFi to trade FX and state securities.
  • Bank of International Settlements (BIS) will test DeFi implementation for CBDCs/FX.
  • NY's FED offers first results of wholesale CBDC trial; FX spot settlement in 10 seconds.
  • MakerDAO co-founder passes away in Puerto Rico at 29 years old.
  • Bank of England raises interest rates to 3%, the largest hike in 33 years - warns of the longest recession since the 1930s.
  • Despite market optimism, FED hikes rates to another 75 bps - Chair Jerome Powell states Reserve won't be pausing hikes, as JOLTS Job Openings rise.

Macro Environment

Mixed market sentiment continued to divide markets last week. Traders who were going to look for a slight relief in the pace of the FED rate hikes were disappointed on Wednesday, which saw the US FED raise the target funds rate by 75 basis points - marking the 4th consecutive 75bps rate hike this year. The Bank of England joined the US FED by raising rates by 75bps on Thursday - marking the single largest rate hike since 1989. The S&p 500 was down over -2.4% on Wednesday's close along with the NASDAQ 100 similarly down almost -3.5%, 10 Year US Treasury yields higher at 4.096%. The FED Open Market committee's statement released post-hike reiterated its ultimate goal of full employment and commitment to a 2% rate of inflation. The statement however left some wiggle room on future hikes, posting softer-slightly dovish language. The FED further announced that the effects of "cumulative tightening", and monetary policy time lags on economic activity and inflation will now be weighed into future rate increases. Upcoming US midterm elections and positive market sentiment have seen futures pricing in a 50bps rate hike in December's FOMC meeting. 

Tuesday saw the Reserve Bank of Australia raise the cash rate by 25 bps to 2.85% - a nine-year high for borrowing costs. Analysts were divided on increase, some calling for a larger increase to tame inflation, having surged to 7.3% in Q3 2022 - a level not seen since Q2 1990. Phillip Lowe's statement released after the meeting justified the hike, the RBA now with the view that inflation will peak at around 8% later this year, and then decline next year. This likely move is attributed to improving global supply-side problems, recent decreases in some commodity prices, and slower growth in demand. Lowe touched upon the stronger labor market. and corresponding wage growth - rising +2.6% in June YoY. The RBA continues to monitor movements in wages, and firm price-setting behavior in order to prevent a potential wage-price spiral. 

Stronger than expected US NON-Farm Payroll numbers were released on Friday, seeing 261,000 new jobs created in October vs the predicted 200,000. Despite surprising to the upside, the print signaled a slowing labor market when viewed in conjunction with October's unemployment numbers - rising +0.2% to 3.7%, also above market expectations of 3.6%. The dollar was sold off as a result, with the DXY falling from its weekly high of 113.148 on Thursday to 110.719 on Friday. Treasuries finished the week strong, 2 years up at 4.66%, along with 10 years at 4.16% - the 2&10 year yield curve inversion sitting at 50bps. The Euro looked to be closing in on parity once again up at $0.99578 on Friday, the pound was steady at $1.137, and AUD stronger at $0.647.

DeFi

  • Global financial giant, JP Morgan, completed its first DeFi transaction on a public blockchain in partnership with the Monetary Authority of Singapore's Project Guardian. The DeFi trade was executed on the Polygon blockchain using a modified Aava smart contract. As well as JP Morgan, Singapore's largest bank, DBS, and SBI Digital Holdings took part in the pilot project. Subsequent to this proof of concept, the relevant parties will be focusing on enabling conglomerates to tokenize and trade real-world assets on public blockchains.
  • Popular crypto derivatives exchange, Deribit, faced a hot wallet attack, resulting in hackers exploiting US$28m in stolen funds. As a result, Deribit halted withdraws whilst simultaneously emphasizing on Twitter that stolen funds will be covered by the exchange's reserves. This was the first time that Deribit experienced a DeFi-esque exploit, fundamentally highlighting that vent centralized companies are vulnerable to wallet attacks. 

Ahead of the Curve 

  • Crypto is facing a downside as tensions are growing between FTX and Binance, leading to a growing fear in the market. As we await two potentially market-moving events, crypto markets are rigged to be shaken up by external forces this week. U.S. mid-terms may trigger volatility, whereas the Thursday CPI release will likely shake up markets in a highly correlated manner.
  • Crypto is predominantly flat. This is not trivial. While stress is fuming amidst a hectic battle between two exchange behemoths, BTC sits firm within its trading range. Volatility stays low, and derivatives remain idle. Escalating tensions between Binance and FTX or surprising CPI numbers may awaken the market. However, with the exceptions of FTT and various altcoins, the crypto market remains well within its extended trading range.
  • Friction between the two most influential crypto exchanges has escalated throughout 2022. It has reached hostile levels in the last couple of days following the release of a Coindesk article related to Alameda Research’s (FTX subsidiary) assets and liabilities. The key takeaway from the entire ordeal is that FTX is facing an ongoing bank run caused by Binance and its CEO, Changpeng Zhao (CZ), actively selling FTT and racing concerns related to the financial health of FTX. FTT has fallen from $26 to lows of $15 over the last seven days, experiencing an initial push south following a Coindesk article. FTT has since experienced massive news-driven volatility. Speculative interest in FTT has exploded amid the drama. Open interest relative to market cap sits at 7.65% compared to 2.8% last week. The growing open interest has been accompanied by massively negative funding rates at Binance and Bybit, suggesting a substantial demand for shorting FTT. This could be a potent environment for a squeeze.
  • Bitcoin's correlation to US equities, gold, and the US dollar is visibly higher during US market hours than during non-US market hours. 
Sources: Coinshare, Zerocap, Arcane

Labels:

Comments

Post a Comment

Popular posts from this blog

Uniswap: How to calculate Impermanent Loss?

Impermanent Loss is a popular concept when it comes to automated market makers and decentralized exchanges like Uniswap. This term is often defined as the percentage loss a liquidity provider would experience for a given price movement. This means that, as an LP, your position may fall in value due to volatility, causing a loss compared to holding these assets outside of the pool.  This article will spell out the concept in mathematical logic and explain all the assumptions involved.  We consider a market with liquidity L and amounts x and y of assets X and Y respectively. We also have P as the price of X in terms of Y, and a price movement P1 = P.d where d >0 According to the definition of IL touched upon, we establish a generic formula for IL: where: V1 is the value of your position in the pool at the price P1 (x,y move with price) Vh is the value of your assets at the price P1 if you keep them outside of the pool  We also consider V0 as the initial value of your hol...
Post a Comment
Read more

DeFi Summary Q3 2022

DeFi protocols have begun to shift in their business life cycle, with some dApps even showing periods of profitability  Regulatory Actions Q3 has been an active period for regulators. The US SEC claimed that it has jurisdiction over Ethereum transactions because nodes are clustered more densely in the US than in any other country. According to Ehernode's data, roughly 45% of Ethereum validator nodes operate from the US, with Germany in a distant second at 12% and Singapore at 4%. Below it shows the estimated geographic distribution of Ethereum nodes worldwide.  In August, the US Treasury sanctioned the cryptocurrency mixer, Tornado Cash. This is seemingly the first time the Treasury sanctioned a piece of code (as opposed to an individual or entity) but likely not the last. The CFTC has also been active, issuing a settlement order finding that Ooki DAO and its founders violated the Commodity Exchange Act and applying a $250k fine. The Commission defines the Ooki DAO unincorpora...
Post a Comment
Read more

Uniswap V3: Understanding the Real Reserves Curve

Uniswap is currently the leading decentralized exchange in the blockchain world. In this article, I am going to explain the Curve of Real Reserve on Uniswap V3 in mathematical logic. This paper assumes you are familiar with automated market makers between two assets X and Y defined as a trading function, meaning a relationship between its reserves x and y. First, we consider a market with liquidity L and amounts x and y of assets X and Y respectively. And, we also have P as the price of X in terms of Y. It follows immediately that: In the earlier version, Uniswap V2, liquidity was distributed across the entire price range (0,∞), leading to inefficient liquidity utilization since much of the assets in the pool are never touched. The graph looks like this: Now, on version V3, liquidity providers are capable of providing liquidity in a fixed price range, saying [Pa, Pb] for example. This feature is called concentrated liquidity.  If the price does not fall outside of the range, you ca...
Post a Comment
Read more