Introduction
This week we explore the continued deleveraging across crypto markets and take inventory of recent liquidations and developments from various stressed entities. We also discuss some important upcoming events including month/quarter-end portfolio rebalancing, central bank policy decisions, and the regulatory reactions to crypto market stress.
Meanwhile, we hosted a Coinbase Protocol Access Program on Polkadot and its native token DOT, focused on the protocol’s unique architecture and tokenomics. Specifically we explore the network’s focus on interoperability and discuss various risks/opportunities associated with the development of the ecosystem. You can watch the replay here.
Weekly Market Call
View replays of our weekly crypto market analyses from our Americas, APAC and EMEA Coinbase Institutional teams, available here.
Market View
We’re fast approaching the end of 1H22, which may trigger relevant liquidation flows associated with month-end (quarter-end) redemptions and portfolio rebalancing. Following the unraveling of Three Arrows Capital and the associated impacts on the crypto lending market, we expect the next few days to garner a lot of attention as market players continue to assess the extent of the contagion. That said, we think a lot of forced liquidations of leveraged positions have already occurred, and we expect any additional volatility could be more limited going forward.
For reference, we take an inventory of some of these recent developments in the table below:
Firm | Firm description | Relevant stats | Current status |
|---|
Celsius | Crypto lender | ~$11.8B crypto under custody (May 17) | Paused withdrawals (Jun 12) |
Three Arrows Capital (3AC) | Crypto hedge fund | $3B AUM (April 2022), Exposures include investment in LUNA | Have already faced $400M in liquidations |
BlockFi | Crypto lender | ~$15B in AUM | Attained revolving credit line of $250M from Alameda Research |
Genesis | Crypto broker | | Sold or hedged all liquid collateral on hand, losses to be netted against balance sheet (Jun 17) |
Nexo | Crypto lender | Debt obligations total $4.96B | Claims no exposure to 3AC (Jun 15) |
Bitmex | Crypto exchange | $6M exposure to 3AC | |
Finblox | Crypto yield platform | | Withdrawal limit of $500 per day up to $1,500 per month |
Babel Finance | Crypto lender | $3B loan book (end 2021) | Suspended withdrawals, preliminary agreements with counterparties (Jun 20) |
Orthogonal Trading | Crypto hedge fund | Exposure: $10M loan to Babel Finance | |
Maple Finance | Crypto lender | Exposure: Orthogonal USDC pool ($10M) - see above | |
Voyager Digital | Crypto broker | Exposure: $720M loan (BTC and USDC) to 3AC | Daily withdrawal limit reduced to $10,000, attained credit lines from Alameda Research ($500M) through 2024 (5% interest) |
CoinFLEX | Futures crypto exchange | Total trade volume ~$2T. Exposures not related to 3AC or any crypto lenders | Paused withdrawals but aims to resume withdrawals in a week (Jun 23) |
Regulatory reaction to these developments is also starting to emerge, like ECB President Christine Lagarde's comment to the European Parliament this week that crypto lending and staking practices need oversight. However, both Lagarde and Fed Chair Jerome Powell (in a separate testimony in front of the US Congress) said that macroeconomic linkages to traditional finance are still limited. Meanwhile, five US state securities regulators have also started to investigate crypto lender Celsius after it paused withdrawals on June 12. In our view, these responses are unlikely to be a source of additional redemption or selling pressure for digital assets.
On the topic of central bank policy, Powell's testimony didn't reveal much additional information about the Fed's outlook given his more recent hawkish signaling at the June 15 FOMC meeting. He remains committed to combating rising inflation expectations but acknowledged the rising risks of recession. Indeed, both US and European PMI data for June (preliminary) disappointed forecasts, fueling already heightened economic activity concerns. Hawkish board member Patrick Harker also issued a pretty dire warning that the US could have some negative quarters ahead. On the upside, it seems like markets already have the policy path correctly priced for the time being according to Powell.
Coinbase Exchange and CES Insights
Exchange
We have seen average volumes on the exchange this week as it seems a good amount of leverage was cleaned out of the system during the weekend’s volatile session. The majority of the trading was concentrated in the largest and most liquid tokens as correlations were high and traders looked to manage risk. News of troubled counterparties has slowed in recent days suggesting to some that we might be through the worst of it.
Coinbase Execution Services
Clients of the CES desk were better buyers over the past week. Sellers remained disciplined and have not chased the complex lower. We had strong interest in bidding distressed investors for assets as traders looked to capitalize on forced liquidations. Currently the interest we have is heavily skewed to the buy side although at levels slightly below the market. Traders seem hopeful that we have seen a local bottom but they are keeping a close eye on risk and trading positions smaller than typical.
Bitcoin Technicals
On the other hand, the BTC technical chart is in trouble. After the EMA9 / EMA20 cross rejection on June 7 at $30k, BTC has had red candles on the daily 10 times out of 16 and is currently rejecting the EMA9 as we approach Thursday's (June 22) close. The bigger worry now is the weekly and monthly charts. On the weekly, the EMA9 is close to crossing the EMA200 with a Supertrend cross of the EMA70. This setup is very bearish and when completed in the next week should take BTC south of the $17,500 support level. On the monthly chart, the EMA9 is scheduled to cross the EMA20 in a week as well. Unless BTC can successfully retest and close above the EMA20 ($23,599), the bearish thesis above could play out with a test of the $17,500 support followed by $12,490.
View From Around the World
Asia
Singapore has handed out in-principle approvals to three players that deal in digital payment tokens (DPTs), more commonly known as cryptocurrencies, despite plunging prices in that space. With this, 14 licenses and in-principle approvals have been granted over the past two years to DPT service providers that include stablecoin players, crypto exchanges, as well as traditional financial institutions. (Straits Times)
