August 8, 2023

Markets Insights

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Next FOMC meeting: Sept 20th 2023.

Probability of a 0bps hike → 87.5%
Probability of a 25bps hike → 12.5%

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The News Room

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CF Private Equity Ventures into Crypto with $100 Million Blockchain-focused Fund

CF Private Equity, previously known as Commonfund Capital, is set to launch its inaugural digital asset-focused private equity venture, signaling the firm's deepening crypto aspirations. Dubbed CF Blockchain Ventures LP, the fund is classified as a private equity fund and aims to raise an initial $100 million, though this figure might only be for the first funding round.

While the institutional crypto fundraising landscape has been inconsistent, CF Private Equity's move signifies a notable transition, considering their historical investments in conventional assets. For this fundraising endeavor, they've engaged their parent company Commonfund Securities, a Japanese bank, and a Chilean bank. CF Private Equity, an offshoot of Commonfund—an asset manager with a history in managing funds for US nonprofits—has overseen around $22 billion in committed capital since its inception and has made over 10 blockchain investments since 2018.

Valkyrie Plans to Launch Bitcoin and Ether Strategy ETF, Aiming for Early Market Entry

In a bid to secure a head start in the emerging ETH futures ETF market, Valkyrie plans to alter its current Bitcoin Strategy ETF to include both Bitcoin and Ethereum futures contracts. Slated for around October 3rd, the fund's title would be updated to the Valkyrie Bitcoin and Ether Strategy ETF, while retaining its existing Nasdaq ticker. This move could potentially expedite its launch, pending approval from the US Securities and Exchange Commission (SEC). Other firms recently submitted applications for ether-related ETFs, but Valkyrie's strategy of modifying an existing fund to fast-track a new product is not unprecedented. Despite this, industry insiders remain uncertain if the SEC will permit Valkyrie's early market entry.

Curve Finance Offers $1.85 Million Bounty in Recovery Effort Following DeFi Protocol Attack

Curve Finance, a DeFi protocol, has set a $1.85 million bounty for help in recovering funds lost to a reentrancy bug on July 30. After the hacker missed the Aug. 6 deadline for voluntary fund return, Curve presented the public with an opportunity to assist in identifying the culprit for potential legal action, but emphasized they'd drop the pursuit if the funds are returned.

This theft was part of a broader attack on DeFi platforms involving a vulnerability in the Vyper smart contract language. While Curve initially proposed a 10% bounty for the funds' return, some assets were given back to victims such as Alchemix by Aug. 5. By Aug. 7, analytics firm Peckshield reported that about 73% of the pilfered funds were reclaimed. Significant recoveries included $22 million from AlchemixFi and $7 million to Metronome and a Curve trading pool.

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Trading Desk Insights

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On Monday evening, Chinese trade figures for July indicated a decline in imports and exports, underscoring a diminishing demand both internationally and domestically.

Meanwhile, in the US, Moody’s adjusted the credit ratings for select small to mid-sized banks downwards and put a number of prominent Wall Street institutions under negative observation. The ratings firm highlighted potential vulnerabilities in banks which hold significant unrealized losses not reflected in their regulatory capital ratios. Such institutions could be at risk in scenarios where there's a rapid loss of market or consumer trust, especially in a heightened interest rate context. Additionally, Moody's anticipates an economic downturn by early 2024.
- Ratings downgrade: M&T Bank, Pinnacle Financial, BOK Financial and Webster Financial
- Changed outlook to negative: Capital One, Citizens Financial and Fifth Third Bancorp
- Potential downgrade ahead: Bank of New York Mellon, U.S. Bancorp, State Street, Truist Financial, Cullen/Frost Bankers and Northern Trust.

The S&P500 pulled back by 0.80% from 4530 to a session low of 4495 following the release of economic data from China overnight. That support level of 4495 that we’ve been watching closely for a while now has remained intact. We technically should witness a rebound from this level, but given the recent negative news from China and the bank downgrades, it’s possible that we break it to the downside to reach lower levels around 4465 and 4413 in extension.

Bitcoin jumped by 2% since the overnight session to reach a session high of 29,675, right below our resistance level of 29,700. Since then, we’ve started to pull back, potentially signaling profit taking from market participants. If prices remain above their 20-day moving average and we keep testing this resistance level, then eventually we will break it to the upside.

Looking back at July data, trading volumes across both spot and derivatives markets experienced another decline of 12%, bringing the total to $2.36tn. This is only second to the trough hit in December 2020 and replicated in December 2022, marking one of the most lackluster performances seen in the centralized exchanges realm since then.

As for the spot trading volumes on these platforms, we saw a 10.5% reduction, tallying to a sum of $515bn. This is the second most shallow volume since March 2019, suggesting a lethargy in the market. July's trading activity on the spot markets also dwindled as key cryptocurrencies, namely Bitcoin and Ethereum, barely oscillated and largely hovered within a tight trading band throughout the month.

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Economic calendar:

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TUESDAY

China CPI at 9:30pm EST

WEDNESDAY

GBP, EUR & US 10-year bond auction

THURSDAY

China new loans + money supply
US CPI
US Federal Budget Balance

FRIDAY‍

US PPI
US consumer sentiment and inflation expectations

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Technical Charts

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Altcoin Watch

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Last week, Litecoin underwent its much-anticipated third halving, a protocol-driven reduction in miners' block rewards. This process serves to curb asset inflation, with a potential to elevate LTC's value if demand rises. Yet, despite market speculation, LTC's valuation dipped 25% since the beginning of August.

Comparing LTC's trajectory with BTC around prior halving events, the trend seems poised to persist. Examining Litecoin's performance post the 2015 and 2019 halvings, it either mirrored the market or lagged. This pattern underscores halvings as potential "buy the rumor, sell the news" events rather than major price drivers.

Turning our gaze to Bitcoin, its fourth halving is on the horizon in April 2024. Historically, BTC sees an uptick post-halving, but its momentum has tapered with the maturing market. While preceding halvings stirred noticeable market volatility, the current landscape shows neither a surge in leverage nor trading volumes, hinting that traders might be treading cautiously ahead of the next halving.

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Disclaimer

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This research is for informational use only. This is not investment advice. Other than disclosures relating to Secure Digital Markets this research is based on current public information that we consider reliable, but we do not represent it is accurate or complete, and it should not be relied on as such. The information, opinions, estimates, and forecasts contained herein are as of the date hereof and are subject to change without prior notification. We seek to update our research as appropriate.

Any forecasts contained herein are for illustrative purposes only and are not to be relied upon as advice or interpreted as a recommendation. The price of crypto assets may rise or fall because of changes in the broad market or changes in a company's financial condition, sometimes rapidly or unpredictably. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain investments. We and our affiliates, officers, directors, and employees, excluding equity and credit analysts, will from time to time have long or short positions in, act as principal in, and buy or sell, the securities or derivatives, if any, referred to in this research.

The information on which the analysis is based has been obtained from sources believed to be reliable such as, for example, the company’s financial statements filed with a regulator, company website, company white paper, pitchbook and any other sources. While Secure Digital Markets has obtained data, statistics, and information from sources it believes to be reliable, it does not perform an audit or seek independent verification of any of the data, statistics, and information it receives.

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Crypto and/or digital currencies involve substantial risk, are speculative in nature and may not perform as expected. Many digital currency platforms are not subject to regulatory supervision, unlike regulated exchanges. Some platforms may commingle customer assets in shared accounts and provide inadequate custody, which may affect whether or how investors can withdraw their currency and/or subject them to money laundering. Digital currencies may be vulnerable to hacks and cyber fraud as well as significant volatility and price swings.

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