August 2, 2023

Markets Insights

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Next FOMC meeting: Sept 20th 2023.

Probability of a 0bps hike → 82.5%
Probability of a 25bps hike → 17.5%

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The News Room

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MicroStrategy Continues to Expand Bitcoin Holdings and Returns to Profitability in Q2; Files to Sell Stock for More BTC

MicroStrategy, the software firm known for its significant Bitcoin investments, purchased an additional 467 Bitcoin in July, bringing its total holdings to 152,800 BTC, worth approximately $4.5 billion. In addition to growing its Bitcoin holdings, MicroStrategy also returned to profitability in Q2 with a net income of $22.2 million, a marked turnaround from the nearly $1.1 billion loss in the same quarter of the previous year. The company attributes this success to decreasing digital impairment losses and the continued accumulation of Bitcoin, driven by institutional interest, accounting transparency, and regulatory clarity in the crypto space.

Despite a slight revenue miss, analysts have raised their price target for MicroStrategy, and the company's shares have tripled over the past year. Furthermore, the company has submitted a filing with the Securities and Exchange Commission (SEC) to sell up to $750 million in stock with the intent of using the capital to purchase more BTC.

Six Firms Seek SEC Approval for Ethereum Futures-Based ETFs Amid Rising Crypto ETF Interest

Six firms - Volatility Shares, Bitwise, VanEck, Roundhill, ProShares, and Grayscale - have submitted applications to the U.S. Securities and Exchange Commission (SEC) to launch Ethereum futures-based exchange-traded funds (ETFs). This follows the surge of interest in Bitcoin spot ETFs earlier this year. If the SEC does not deny the applications, the Ethereum ETFs could begin launching 75 days from their filing dates, starting with Volatility Shares on October 12. Historically, the SEC has never approved ETF applications tracking Ethereum futures contracts, despite numerous filings. The trend towards crypto-related ETFs has been driven by a wave of applications for spot-Bitcoin ETFs, beginning with BlackRock's filing in June.

Curve Founder Egorov Engages Notable Counterparties in OTC Deals to Stabilize DeFi Positions Amid CRV Token's 30% Plunge

The Curve Finance decentralized exchange experienced a series of exploits, causing the Curve (CRV) token's value to plunge by 30%. The plummeting value posed a significant risk to DeFi positions backed by CRV as collateral, including those of Curve founder Michael Egorov, who held ~$100 million in loans across several DeFi protocols.

Fearing a cascade of liquidations that could lead to further market declines and bad debt, on Tuesday, August 1st, Egorov undertook a series of over-the-counter (OTC) transactions with various buyers, including controversial figures in the crypto space, such as Tron founder Justin Sun and tech entrepreneur Jeffrey Huang. Egorov sold 54.5 million CRV tokens at below-market price to amass stablecoins, which he used to pay off more than $17 million of his loans, stabilizing his positions for the time being.

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Trading Desk Insights

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This morning, US stock futures have experienced a decline following Fitch Ratings' decision to lower the United States' long-term foreign currency issuer default rating from AAA to AA+. Fitch cited concerns about the expected fiscal deterioration over the next three years and highlighted the increase in the general government deficit, projected to reach 6.3% of gross domestic product in 2023, up from 3.7% in 2022. Despite these concerns, prominent economists remain optimistic, with Treasury Secretary Janet Yellen dismissing the downgrade as "outdated."

The housing market in the US is facing challenges as mortgage rates have remained elevated for several weeks. This situation is adversely impacting affordability, leading to struggles for homebuyers. According to the MBA's seasonally adjusted index, mortgage applications for home purchases decreased by 3% last week compared to the previous week, and they were 26% lower than the same week one year ago.

Bitcoin rallied by almost 3% yesterday afternoon as MicroStrategy announced on their earnings call that they plan to purchase $750 million worth of BTC funded by new share issuance. In July, the tech firm purchased 467 BTC for $14.4 million for a total of 152,800 BTC worth around $4.5 billion.

Recent trade volume has seen a decline, which is closely connected to long-term volatility. Both BTC and ETH are experiencing 180D volatility at multi-year lows, measuring at 46% and 49%, respectively. BTC's performance this year has been characterized by slow and hard-earned gains, unlike previous bull markets when it experienced rapid surges. Interestingly, ETH, which historically exhibited higher volatility, is currently displaying similar sluggishness to BTC.

Looking at the recent price action on an intraday 4H chart, we can see that prices weren’t able to close above our resistance of 29,700. The rally was shorted, as expected, especially as the stock market was feeling some pressure. Until a new bullish catalyst surfaces, we expect the pull back to continue towards $29,000, especially if US indices break below their 20-day moving average which can happen at any moment now.

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Economic Calendar:

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WEDNESDAY

ADP non-farm employment
Earnings → PayPal & Robinhood

‍THURSDAY

BOE decision
US unemployment + ISM services PMI
Earnings → Amazon, Apple, Block & Coinbase

‍FRIDAY

US Non-farm payrolls + unemployment

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Technical Charts

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Altcoins

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Uniswap is facing stiff competition.

DeFi dominance has taken a step back recently as it has come down from 4.6% in March to 4% today while trading volume fell from $115 billion to $48 billion in the same time period.

Unfortunately for Uniswap, its share of DEX volume decreased from 63.6% in March to 60.3% in July.

Following a multi-million dollar breach targeting the decentralized exchange (DEX) Curve Finance, traders are now shifting their attention towards the competitor Uniswap's UNI token. In the aftermath of the exploit, funding rates in perpetual futures linked to UNI have seen a significant surge, reaching an annualized rate of 19%.

Looking at a daily chart, UNI has surged by over 80% since June 10th. Right now, prices are trading in a price range of high volume between $5 and $7 and are pulling back from the top-end of a rising trend channel formed in June.

As long as prices remain within this bullish pattern then we expect further upside towards $7.4 and potentially $7.8. A breakdown of this pattern as well as the support of $5.7 would trigger bearish implications dragging prices lower towards $4.9.

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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.

Unless otherwise provided in a separate agreement, Secure Digital Markets does not represent that the report contents meet all of the presentation and/or disclosure standards applicable in the jurisdiction the recipient is located. Secure Digital Markets and their officers, directors and employees shall not be responsible or liable for any trading decisions, damages or other losses resulting from, or related to, the information, data, analyses, or opinions within the report.

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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