Market Color, FTX Claims Update, BTC Sparking Change
Executive Summary
- Market trading color: BTC / NDX correlation, options outlook
- Theme of the week – FTX Claims and BIP-420 aims to reintroduce OP_CAT to enhance Bitcoin's functionality
- Sector commentary: Bitcoin pulls back to $66K, triggering liquidations, while Ethereum and Solana face price challenges. DeFi and Web3 developments continue
Market Trading Color (Nolan Aibel)
It has been a roller coaster week since our last update. Quiet weekend trading volumes have been a theme of late. On that note, notional volumes hit a yearly low of 27,800 BTC traded this past weekend. Daily exchange volume (7DMA) is in the high $30B range, down from 12-month highs of over $100B seen in March. Following the weekend, the first three days this week were anything but boring. $BTC sank to a 20-day low of $66,137, liquidating over $775M in longs in the process. A 48 hour, 10% decline prior to FOMC had been a theme on the past four occasions. Each time, the market rallied back the day of FOMC. This time around was a bit different as the Fed relayed slightly hawkish sentiment alongside signaling only one rate cut on the ‘24 dot plot. Futures open interest is still near yearly highs, up around $37B. Despite the high OI, funding rates remain neutral. ETF flows took a reversal to start this week after 19 straight days of inflows as there were outflows totaling $265M Monday and Tuesday. Despite this, the ETFs have seen net inflows of $184M since last update. While sentiment on crypto twitter seems to be skewed to the negative side, zooming out, $BTC is trading near previous ATHs, while funding rates remain neutral, with supply on exchange at seven-year lows.
One aspect that is tough to ignore is $BTC and the crypto market continues to be highly reactive to macro data. Friday’s NFP spooked the market, causing the initial cascade in $BTC price. Cooler than expected CPI data initiated the rally back while a hawkish FOMC halted hopes of a continued rally. Given this, $BTC’s 30-day correlation to $NDX is at a one and a half year high of 0.67.
Source: Bloomberg
BTC implied vol remains muted since the beginning of May. 1-month implied fell below 50 for the first time since February. Upside calls dominate OI. Investors are positioned with strong OI in BTC 100k calls. ETH the same story with the $5000 level holding a significant amount of notional OI. Still no notable kinks in ETH term structure as S-1 approval is pending.
Source: TheTie
FTX Claims Update
We continue to collaborate with our Fixed Income Special Situations Team as we traded more FTX claims last week from our client base into theirs. Clean claims are trading in the 110-115 range depending on size. The recent surge in pricing may have removed some of the preference risk so if you have a non-clean claim now may be time to monetize it.
The nine-person Special Situations Team is backed by decades of experience in distressed situations and specialize in facilitating the sale of trade claims. Our close partnership with their team uniquely positions us to assist you in monetizing your FTX claim.
It's understood that navigating the complexities of the bankruptcy claims process and assessing the potential recovery can be overwhelming. That’s why our end-buyers specialize in precisely these challenges, making them the natural choice for successfully trading the claims. Backed by an extensive network of buyers, including some of the largest claim holders, the Special Situations Team is dedicated to maximizing the sale price for our Digital Asset clients like yourself.
Please let us know if you’re involved in FTX or any other Crypto Bankruptcies; or feel free to reach out directly to our Special Situations Team, and they can provide color around trading levels and process:
George Brickfield - Managing Director and Head of Loans/Distressed
George.brickfield@stonex.com
Douglas Gervolino – Trader
doug.gervolino@stonex.com
BTC Focus: The High Expectations of BIP-420
Bitcoin Improvement Proposal (BIP) 420, seeks to reintroduce an old opcode called OP_CAT, originally crafted by Bitcoin's pseudonymous creator Satoshi Nakamoto. The proposal, spearheaded by developers from Botanix Labs and BastionZero, aims to expand Bitcoin’s functionality by adding new capabilities for developers. OP_CAT was available in early versions of Bitcoin but was removed in 2010 due to security concerns about potential denial of service (DoS) attacks. However, with advancements such as the Taproot upgrade in 2021, which nullified these historic concerns, there is renewed interest in reintroducing this opcode.
OP_CAT: Enhancing Bitcoin's Toolbox
The primary function of OP_CAT is to concatenate two data points within a transaction’s code structure. This ability to join data points can enable the creation of covenants, which specify conditions under which Bitcoin can be spent in the future. Covenants can facilitate automated payments, reversible transactions, and other advanced functionalities that are currently difficult or impossible to implement on Bitcoin.
Use Cases for OP_CAT
- Vaults and Covenants: These are spending conditions that restrict how and where Bitcoin can be spent. They enhance security and custody solutions by ensuring that certain conditions are met before Bitcoin can be spent.
- Non-equivocation Contracts: These contracts prevent double-spending attempts in payment channels, such as those used in the Lightning Network.
- Tree Signatures: OP_CAT enables more efficient multisignature scripts that support complex spend conditions with many public keys, improving scalability and security.
The Broader Context: Ordinals and Runes
BIP-420 is part of a broader trend of enhancing Bitcoin's functionality beyond its traditional use as a monetary transaction network. Other developments such as Ordinals and Runes are also pushing the boundaries of what Bitcoin can do. Please reach out for the weekly we wrote on Ordinals and Runes back in April emphasizing the interest we were receiving before the last move up.
Source: Dune Analytics @dgtl_assets
Ordinals: NFTs on Bitcoin
Bitcoin’s leading non-fungible token protocol, Ordinals, was released in January 2023. Ordinals allow the creation of non-fungible tokens (NFTs) on Bitcoin by inscribing data directly onto the blockchain. This method ensures the permanence and security of the data, making Ordinals akin to digital artifacts rather than conventional NFTs. The Ordinals ecosystem has seen significant growth, with collections like NodeMonkes and Bitcoin Puppets achieving substantial market caps and trading volumes.
Runes: Optimizing Bitcoin Transactions
Bitcoin’s leading fungible token protocols, BRC20s and Runes, were launched in March 2023 and April 2024, respectively. Runes were developed to address inefficiencies caused by the widespread adoption of BRC-20 tokens, which led to an increase in unspent transaction outputs (UTXOs) and blockchain bloat. By identifying and reusing dormant UTXOs, Runes optimize transactions on the Bitcoin network, enhancing efficiency and scalability. These types of innovations open new possibilities for decentralized applications and increased revenue streams for miners on the network.
Source: Dune Analytics @runes_is
Community and Development Activity
The Bitcoin developer community remains active and vibrant, continuously exploring new ways to enhance the network. The introduction of BIP-420, alongside the growing interest in Ordinals and Runes, highlights a significant shift towards expanding Bitcoin’s capabilities. According to CoinGecko, the market cap of top Bitcoin-based NFTs has surged to over $1 billion, with increasing user adoption and trading volumes.
In terms of developer activity, 40% of Bitcoin open-source developers were focused on Bitcoin L2s and scaling solutions in 2023, according to Business Insider. This would imply nearly 400 developers, comparable to the total number of developers for many of the top 50 digital assets by market cap. In the first quarter of 2024, the Bitcoin ecosystem’s TVL grew over three times, from $328 million to over $1 billion. Additionally, since their inception in March 2023, close to 67 million BRC-20 inscriptions have been made.
Source: Electric Capital Developer Report
Active Development and Adoption
- NodeMonkes: With a market cap of $150 million and a total volume of 4.4k BTC.
- Bitcoin Puppets: Holding a market cap of $96 million and a total volume of 2.4k BTC.
- Runestone: With a market cap of $87.85 million, a total volume of 3.4k BTC, and the largest number of unique holders among popular projects.
Future Directions and Challenges
While Bitcoin’s DeFi ecosystem is still in its early stages, strong indicators of future growth include the increasing developer activity and the substantial rise in TVL. Innovations like OP_CAT, Ordinals, and Runes represent critical steps in this evolution, enhancing Bitcoin’s programmability and efficiency. Additional functionalities are being introduced through BIPs and technological developments such as BitVM, pegs, and bridges, further enriching Bitcoin’s ecosystem without requiring upgrades to the core software.
Source: CrowdFund Insider, Decrypt, X @udiWertheimer, Luxor Technology, Dune Analytics @dgtl_assets
Sector Commentary
- Layer One / Altcoins
- Bitcoin ($BTC): Bitcoin Pullback to $66K Triggers $250M in Crypto Liquidations as Traders Brace for 'Wild Wednesday' of FOMC, CPI Report (link)
- Bitcoin ($BTC): Bitcoin's Value Is ‘Many Multiples’ Above Its Current Price: Billionaire Investor Bill Miller (link)
- Bitcoin ($BTC): Bitcoin Sees Profit-Taking Around $70K Amid ‘Stubbornly Bullish’ Sentiment (link)
- Bitcoin ($BTC): Bitcoin vs. Buffett: BTC holders’ 104% CAGR dwarfs ‘steady growth’ portfolio (link)
- Bitcoin ($BTC): How low can the Bitcoin price go? (link)
- Bitcoin ($BTC); Ethereum ($ETH): Bitcoin Bags $2B Inflows, Ether Sees Highest Institutional Buying Since March (link)
- Ethereum ($ETH): 3 metrics suggest that Ethereum (ETH) price downside is not over (link)
- Ethereum ($ETH): Is $4,000 Ethereum a distant dream? Futures premium plunge to 3-week low (link)
- Solana ($SOL): Can SOL reclaim $170? Two indicators scream 'buy' (link)
- Binance ($BNB): Op-Ed: BNB bounces back to all-time highs, continues to re-establish itself after rough 2023 (link)
- Polygon ($MATIC): Polygon community treasury announces grants program for builders, initially distributing 35 million MATIC (link)
- Cardano ($ADA): Cardano Is on Track for Voltaire Upgrade This Month, Co-Founder Hoskinson Says (link)
- Altcoins: AI-Linked Crypto Tokens Underperform as Apple's Event Fails to Impress Traders (link)
- Altcoins: Meme Sector Sees Sharp Sell-off as GameStop Losses Extend to 60% (link)
- DeFi
- Ripple Labs closes Standard Custody acquisition deal (link)
- ZKsync’s ZK Airdrop Is Coming ‘Next Week,’ Here's What to Expect (link)
- Lido Introduces 'Restaking Vaults' in Collaboration with Symbiotic, Mellow Finance (link)
- Uniswap Labs hires ex-Coinbase executive as chief legal officer (link)
- DeFi Technologies launches Core chain validator, stakes 1,498 Bitcoin (link)
- Web3 / AI / NFTs
- Protocol Village: Wormhole Opens W Staking (link)
- AI Alliance Merger Delayed for a Month As Token Prices Fall (link)
- Tether Expects to Invest Over $1B in Deals in the Next Year: Bloomberg (link)
- TipLink Aims for Crypto Newcomers With Google-Powered Solana Wallet (link)
- Binance Labs invests in Ethereum Layer 2 network developer Zircuit (link)
- RWA / Tokenization / Metaverse / Gaming
- Digital Infrastructure: Capital Markets / Exchanges / DAOs / Mining
- Financial advisors in the US are finally warming up to Bitcoin (link)
- Offshore crypto traders remain 'heavily exposed' amid institutional risk-off sentiment, analysts say (link)
- Trillion Dollar Asset Manager Franklin Templeton Explores New Crypto Fund (link)
- Franklin Templeton’s Jenny Johnson & Aptos’ Mo Shaikh: How Web3 is transforming global regulatory frameworks (link)
- Bitcoin ETFs See $65M Net Outflows on Monday, Breaking 19-Day Record Streak (link)
- Spot Ethereum ETF issuers still waiting on SEC for first round of S-1 comments: Sources (link)
- Bitwise’s Matthew Hougan: Why Investors Bet on Ethereum ETFs? (link)
- SEC considers spot Ether ETF application from ProShares (link)
- Hive Digital, Hut 8 lead bitcoin miner stock selloff while Iris Energy rallies (link)
- Bitfarms adopts shareholder rights plan as Riot attempts takeover (link)
- Indiana vows outage-free energy for crypto miners, data centers (link)
- Crypto Exchange Crypto.com Secures Spot on Ireland's Virtual Assets Service Provider Register (link)
- Metaplanet Discloses $1.6M BTC Purchase; Shares Jump 10% (link)
- Crypto Mixers, Privacy Coins, Layer 2s Complicate Tracing for Law Enforcement, EU Innovation Hub Says (link)
- The US crypto industry is bouncing back after rough regulatory year (link)
- Op-Ed: Yes, now is the right time to teach Wall Street about decentralized oracles (link)
- Mark Cuban says Trump could beat Biden because of crypto (link)
