Asymmetries
DCG Update
Leverage Unwind Recap
Clearly, the most challenging part of analyzing cryptoassets this year has been the opaque parts – the lending, borrowing, trading, and siphoning of assets that have occurred off-chain.
This year, we have seen a deleveraging event throughout the global crypto market spurred on by the centralized elements of crypto. First, we saw the de-pegging of UST and the incineration of $50 billion in market value with the downfall of LUNA.
Sure, this was technically an on-chain failure, but a significant portion of the capital locked in the Anchor Protocol was from centralized yield providers, which took retail money and either directly or indirectly were harvesting yield from this Anchor application. Further, many funds that locked capital into Anchor were clearly leveraged on their LUNA/UST positions. This is the reason that we witnessed additional fallout from the unwind of 3AC shortly after the LUNA unwind.
Then, in what seemed to be the final shoe to fall, FTX was revealed to have been cosplaying as a solvent exchange and Alameda as an outperforming hedge fund, only to be found to have papered over similarly excessive losses seemingly incurred throughout the previous 12 months. Their downfall (which was, by the way, only discovered due ...Reports you haven't read
BREAKING AWAY While we maintain that macro conditions are still the most critical factor in assessing the medium/long-term trajectory of BTC prices, daily returns of the leading cryptoasset continue to exhibit a lack of defined correlation with any major macro asset. To us, the biggest reason for this sustained lack of correlation is the advent of the spot BTC ETF. A prime example of how ETFs are influencing BTC's performance...
WEATHERING THE STORM Heading into Q1, the key risks identified were: (1) A potential QRA supply shock, as long-term interest rates could surge due to a possible shift in bond issuance towards longer-duration securities, (2) the repricing of interest rate cuts, as the Federal Reserve downplayed expectations regarding the timing and frequency of such cuts, and (3) concerns regarding the dynamics between the expiration of the Reverse Repurchase Agreement (RRP)...
QRA IN LINE WITH MARKET EXPECTATIONS _THE RESULTS_ The Treasury’s quarterly refunding announcement (QRA) was the first of two major macro events to transpire on Wednesday. Leading up to this, on Monday, there was an indication that the net borrowing for the current quarter would be $760 billion, which is $55 billion lower than the initial $815 billion estimate, and the total funding needs for Q2 would be just over...
THE GBTC PROBLEM We have been watching spot BTC ETF flows closely since their launch two weeks ago, and while overall net flows remain decidedly positive, the market seems hung up on GBTC outflows. As a reminder, the outflows we care the most about are those from entities that are not rotating into other spot BTC ETFs. This is comprised of some speculative capital that played the run-up into ETF...
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