Crypto markets have regained their footing this week, with bitcoin at $44,400 at time of writing. The main catalyst was the positive nonfarm payroll data on Friday last week, which came in significantly ahead of forecast, along with a positive restatement of last month’s number. While a strong job market would generally imply more inflationary pressure on the Fed to raise interest rates, the market interpreted this in a risk-on mindset, with crypto markets recovering from ~$38000 to $42000 on the day, despite 10 year Treasury yields jumping by ~10bp. There has been relatively little incremental positive newsflow, other than continued dovish comments from Fed governors (today Rafael Bostic), playing down the likelihood of 50bp rate hikes and suggesting that inflation will return to ~3% by year end. According to Coinshares data, institutional fund flows have reversed course from consistent outflows over the last few weeks, to net inflows, around 80% of which related to bitcoin. Bitcoin dominance still remains at ~42% though, close to levels during the recent selloff, suggesting investors remain cautious and are allocating to bitcoin and ether rather than altcoins. On the more negative side, the news relating to a seizure of the $3.6bn of bitcoin stolen in the 2016 Bitfinex hack caused a sell off yesterday. This was due to the likely auction of this bitcoin at some future point, which could provide some technical overhang for the foreseeable future, at least for the bitcoin price.
Looking at on-chain metrics, within bitcoin ~25% of supply was purchased above the current price, implying significant resistance despite the ~30% recovery from recent lows. Notably, open interest across both bitcoin and ether remains little changed. Short side liquidations have picked up of late, but remain relatively limited, with recent daily liquidations only reaching ~$50m at peak, compared to an open interest of ~$15bn. This is somewhat surprising and suggests that short liquidations have not been driving the market recovery, and the persistently high open interest may suggest scope for further short squeezes but it is difficult to know where stop loss levels are. Lastly and more negatively, we have seen a material pickup in dormancy and Coin Days Destroyed around the middle of last week across bitcoin (though not ether), implying older holders taking some profit on the early recovery, although with less activity over the last few days. We have also started to see miners selling bitcoin over the last few days after roughly 3 months of net accumulation.
In the L1 space, the main event was the Wormhole exploit in Solana, where $320m was stolen form the Wormhole bridge. Jump Crypto, Wormhole’s parent company, offered to backstop the funds. There has been relatively little news across other L1 names this week.
In DeFi, there was a governance vote on the Anchor forum to end the leveraged UST-MIM cauldron. While there were more for than against, the vote failed to reach the 10% quorum level. Both TVL in Abracadabra and MIM market cap have stabilized post the Wonderland 0xSifu incident and both MIM and UST have largely been trading at dollar peg of late. TVL in the UST-MIM cauldron has begun to recover, currently at $900m, from a low of $740m last week. However, given rising deposits and decreasing outstanding borrows, along with lower collateral in the platform, deposit interest across Anchor is becoming increasingly unaffordable. The platform has asked the Luna Foundation Guard for $450m to shore up its reserves and is also looking to increase the liquidation level LTV to 80% to increase borrowing levels and therefore interest income. In the stablecoin DEX space, interestingly Uniswap has been taking share from Curve of late and now has ~35% of stablecoin share given its low fee tiers and low slippage pools on v3.
The information (“Information”) provided by Cumberland DRW LLC and its affiliated or related companies (collectively, “Cumberland”), either in this publication or document, or on or through https://cumberland.io/, is for informational purposes only and is provided without charge. Cumberland is not and does not act as a fiduciary or adviser, or in any similar capacity, in providing the Information, and the Information may not be relied upon as investment, financial, legal, tax, regulatory, or any other type of advice. The Information is being distributed as part of Cumberland’s sales and marketing efforts. Cumberland makes no representations or warranties (express or implied) regarding, nor shall it have any responsibility or liability for the accuracy, adequacy, timeliness or completeness of, the Information, and no representation is made or is to be implied that the Information will remain unchanged. Cumberland undertakes no duty to amend, correct, update, or otherwise supplement the Information. In addition, any person wishing to enter into transactions with Cumberland must satisfy Cumberland’s eligibility requirements.
The Information has not been prepared or tailored to address, and may not be suitable or appropriate for the particular financial needs, circumstances or requirements of any person, and it should not be the basis for making any investment or transaction decision. THE INFORMATION IS NOT A RECOMMENDATION TO ENGAGE IN ANY TRANSACTION. The virtual currency industry is subject to a range of risks, including but not limited to: price volatility, limited liquidity, limited and incomplete information regarding certain instruments, products, or cryptoassets, and a still emerging and evolving regulatory environment. The past performance of any instruments, products or cryptoassets addressed in the Information is not a guide to future performance, nor is it a reliable indicator of future results or performance. Investing in virtual currencies involves significant risks and is not appropriate for many investors, including those without significant investment experience and capacity to assume significant risks. Any person seeking to invest in or trade virtual currencies should do so only after engaging in their own research and obtaining their own advice as to whether virtual currencies may be appropriate in the context of their individual circumstances.
Cumberland is a principal trading and market making firm, and Cumberland may be subject to certain conflicts of interest in connection with the provision of the Information. For example, Cumberland may engage in transactions in a manner inconsistent with the views expressed in the Information, and transactions entered into by Cumberland could affect the relevant markets in ways that are adverse to a counterparty of Cumberland. If any person elects to enter into transactions with Cumberland, whether as a result of the Information or otherwise, Cumberland will be acting solely in its own best interests, which may be adverse to the interests of such persons.