A series of attacks on the decentralized exchange, Curve Finance, on Sunday resulted in the theft of almost $70 million in various digital assets. BTC price dropped more than 1% from its $29,350 level after the news spread across social media platforms.
The Curve DAO token (CRV) dropped from $0.74 to $0.48, the lowest in 24 hours after the hack. Aave V2, a borrowing/lending protocol, approved an urgent proposal to disable CRV borrowing on Ethereum following the attack on Curve Finance.
Uniswap (UNI), the biggest DeFi swap protocol by volume, dipped 2% right after the Curve Finance hack news as a result of the border market movement. Then it soared over 4% as investors allocated their investments to a more secure protocol.
Last week, Optimism (OP) saw a 9.8% increase. A recent spike in daily transactions on Optimism may be related to the highly anticipated Worldcoin (WLD) token, co-founded by OpenAI CEO Sam Altman, which has been operational on the Optimism mainnet since July 24. Worldcoin, launched on 24 July 2023, is a biometric cryptocurrency-based project co-founded by OpenAI CEO Sam Altman.
Overall Market
Bitcoin has been hopping around the $29,000 level in the past ten days. After the Curve Protocol hacks, BTC price dropped to the $29,100 level and gained support. BTC gradually traded up to the $29,500 level after.
On Tuesday, BTC dipped to the $28,600 level during the US market session as Tether (USDT), the US stablecoin, depegged from par. USDT was trading at a 9 basis point discount to USD, and the border crypto market dropped after. However, the drop did not follow through, and the market rebounded aggressively. BTC once again soared to the $30,000 strong resistance level in the Asia morning session, then fell back to the $29,000 key support level.
The BTC upward trend is still intact when we zoom out and look at the longer timeframe. Starting at the beginning of 2023, the BTC price experienced hits from the SVB bank run, which led to the US bank crisis in March, and the SEC cases against Binance and Coinbase. Yet, the BTC upward trend continues to hold. The $27,300 to $27,500 range on the trend line should act as the next significant support level if the BTC price breaks through the $29k key support level.
Options Market
As discussed last week, our OTC desk observed that the implied volatility on BTC options continues to decline. The BTC implied volatility is trading at a record low. ETH implied volatility is also in a similar pattern. Selling options for yields has become less attractive due to the low IVs. Recently, we saw some big block call trades on ETH with out-of-the-money strikes. Our OTC desk observed that 137,000 ETH contract OTM calls were bought with an expiration date at the end of 2023. Given such a low IV environment on ETH options, it seems this activity is targeted at building up a position at a cheap price.
Although the market has been expectedly quiet and slow during the summer, the skewness on BTC and ETH options is showing bullish sentiment. As the table shows, the 25D skew on BTC options with different expiries are all above 0, indicating that call premiums are more expensive than put premiums with 25 delta. Options traders are willing to pay more to buy calls for the upside, which usually shows bullish sentiment. It also shows a mild bullish sentiment on ETH as well. An additional point worth noting is that the bullish sentiment is much stronger with 180-day expiries on both BTC and ETH options.
Macro at a glance
Last Thursday (2023-07-27)
ECB hiked its interest rate by 25bps to 4.25%, as expected. It is not surprising that the ECB followed the Fed’s 25 bps rate hike on Wednesday, even though we see much higher CPI readings in the Eurozone than the numbers in the US. The market is expecting the ECB to continue its monetary tightening at a moderate pace to tackle high inflation.
The US reported its Q2 GDP growth rate at 2.4% quarter-over-quarter, suggesting that the US is on the path to a soft landing instead of a recession.
The US also released the Initial Jobless Claims at 221k in the week ending 22 July, lower than the estimated 235k and the previous week’s 228k. It has been declining in the past two months, suggesting that the US labour market continues to be tight.
On Friday (2023-07-28)
The Bank of Japan (BOJ) decided to maintain the interest rate at -0.1% as expected but surprised the market by tweaking its yield curve control policy to allow 10-year yields to rise up to 1%. After the announcement, the Japanese Yen rose to 138.64 per US dollar, then gave up all the gains and fell to 141.07. It could be a sign that BOJ is starting to consider monetary tightening.
The US reported the PCE Price Index before the US markets opened. PCE Price Index is closely monitored by the Federal Reserve for its monetary policy decisions. The PCE Price Index was reported at 3.0% year-over-year, improving from last month’s 3.8%. The core PCE Price Index was reported at 4.1% year-over-year, improving from the previous month’s 4.6%.
Germany also reported its CPI reading in July at 6.2% year-over-year, as estimated and improved from last month’s 6.4%. The inflation rate in Germany is still far from the ECB’s target rate of 2%, and such a high inflation rate is common among countries in the Eurozone.
On Monday (2023-07-31)
The eurozone reported its CPI reading at 5.3%, as estimated and slightly improved from last month’s 5.5%. The core CPI reading was reported at 5.5%, higher than the estimated 5.4% and the same as last month’s 5.5%.
The Reserve Bank of Australia surprised the market by maintaining its interest rate at 4.10% instead of a 25bps rate hike.
On Tuesday (2023-08-01)
Fitch downgraded the US credit rating from AAA to AA+, citing deteriorating fiscal conditions and last-minute debt ceiling negotiations. The downgrade might cause a bond sale on US government bonds and push the yield higher.
On Wednesday (2023-08-02)
The US reported ADP Nonfarm Employment Change at 324k, much higher than the estimated 189k but declining from last month’s 455k.
Convert Portal Volume Breakdown
The above table is the volume breakdown of our Convert Portal. After the Curve Finance hacks, our desk saw a market drawback with a crash on Curve DAO token (CRV).
As a result, the crypto-to-stablecoin trading volume was up 2.7% from last week.
A sudden depeg of Tether (USDT) on Tuesday also caused a market panic. BTC price dropped below the $29k key level while USDT was trading at a 9 basis point discount to USD.
The USDT depeg also drove up our stablecoin swap trading volume by 3.3% to 10.92%.
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