July 31, 2023

Markets Insights

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Next FOMC meeting: Sept 20th 2023.

Probability of a 0bps hike → 80%
Probability of a 25bps hike → 20%

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The News Room

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Curve Finance Drained of $50M While CRV Token Sinks 12%

More than $100 million worth of cryptocurrency is currently in jeopardy due to a critical "re-entrancy" bug detected in Vyper, a programming language utilized in certain components of the Curve system. The vulnerability has resulted in hackers exploiting several stablecoin pools on the platform, which play crucial roles in establishing pricing and liquidity for numerous DeFi services. This type of bug, known as reentrancy, enables attackers to deceive a smart contract by executing repeated calls to a protocol, leading to the unauthorized withdrawal of assets. These calls essentially grant permission for the smart contract address to interact with a user's wallet address. Aave, a lending and borrowing protocol, took the decision to deactivate its CRV borrowing function due to prevailing panic. A substantial debt of $100 million in CRV, owed by Curve founder Michael Egorov on the Aave platform, is now approaching a critical liquidation point. In the event that CRV prices were to persistently increase and reach the liquidation threshold, the protocols would be compelled to liquidate the CRV positions.

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SEC Told Coinbase to Stop Trading in All Cryptos Except Bitcoin Before Suing

Armstrong expressed that the SEC recommendation compelled them to pursue legal action. It is notable that SEC Chair Gary Gensler, the four SEC commissioners, and the SEC staff hold diverse opinions on various matters, which may not always represent the official stance of the institution unless explicitly stated. On June 6, the SEC filed charges against Coinbase, accusing the company of violating federal securities law by functioning as a broker, exchange, and clearinghouse for unregistered securities, specifically 13 cryptocurrencies excluding bitcoin. In response, Coinbase contested the SEC's actions, asserting that they infringe upon due process and constitute an abuse of discretion.

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Trading Desk Insights

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On Monday, a marginal increase was observed in stock futures as Wall Street aimed to conclude an impressive July, whilst preparing for a hectic week of corporate earnings. The stock market has shown considerable growth this month, with the S&P 500 index increasing by 3%, thereby maintaining a positive trend for the fifth consecutive month - a feat not seen since its seven-month winning streak ended in August 2021. The Nasdaq, dominated by technology stocks, has seen a rise of 3.8% within the month, equally matching the S&P 500's five-month streak of gains.

Bitcoin continues to trend within a tight range between $28,900 and $29,700 with no clear direction in sight. BTCUSDT has switched from bullish to neutral territory two weeks ago on the breakdown of the 20-day moving average. Now that prices are hovering near the 50-day moving average, we expect a rebound from this area. If we do eventually break below this zone then we would most likely trade lower towards $28,500 and possibly 27,250.

In other financial news, it has been reported that the Securities and Exchange Commission (SEC) recently proposed that Coinbase should exclude all cryptocurrencies from its listings, with the exception of Bitcoin. Brian Armstrong, the CEO of Coinbase, shared with the Financial Times that this suggestion was made by the SEC prior to them initiating a lawsuit against the Nasdaq-listed firm last month, on grounds of failure to register as a broker.

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Economic Calendar:

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TUESDAY

ISM manufacturing PMI
JOLTS job openings
Earnings → AMD & MicroStrategy

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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Altcoin Watch

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After the launch of Worldcoin, Optimism registered a total of 944,000 transactions in a day, surpassing Arbitrum's daily count of 660,000. This marks the first time since January 2023 that Optimism has taken the lead in the number of daily transactions.

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The layer-2 blockchain Optimism unlocked $36 million worth of tokens recently and yet the coin is still trading +3% this morning. $19 million was allocated to core contributors and $17 million to investors. The previous token unlock on June 30 resulted in a 10.7% sell-off across all OP trading pairs, although the token rebounded by more than 15% over the following 24 hours.

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Looking at both OP and ARB, you can tell right away that OP has outperformed ARB in the recent past.
OP has surged by over 20% since the start of July while ARB is relatively flat in the same time period. OPUSDT keeps posting higher highs and higher lows while ARB has been trending lower.

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There is much more price history with OP which makes it easier to analyze. As long as prices remain above 1.50 and especially 1.41, we expect further upside towards 1.8 and possibly 2.08. As long as ARB is trading above 1.12, we expect further advance towards 1.25.

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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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