The crypto market continues to show plenty of resilience to the recent Tether/Bitfinex news, so much so that even with Tether premium trading at over 6%, Bitcoin is yet to fall below the key $5,000 level. Still, it is worth keeping an eye on the derivatives market; that tends to be less forgiving and things can turn ugly very quickly from here. Metrics to watch - futures open interest, implied volatility, Tether premium and of course basis, and the shape of the curve.

Over the course of 2018, the growing participation by hedge funds and prop shops run by seasoned investment professionals has certainly helped in making the cryptocurrency market more efficient, both in terms of pricing (cross exchange arb) but also how the market reacts to news releases. However, this particular news was released at around 5:20 pm ET by the WSJ and while moderate selling pressure took place shortly after, it took the crypto market 40 minutes before an aggressive sell-off materialized. It is very rare for more traditional assets to react with such a lag to the news, especially when released by such a prominent outlet as the WSJ. As the market continues to await further development, the combination of credit and counterparty risk means that there is a growing price gap between fiat and the Tether derived BTC price (as well as cross exchange arb). Also, following publication of the news, nearly $185 million in Bitcoin and Ether was withdrawn from Bitfinex’s cold wallets (in total, about 20% of Bitfinex's holdings of ETH and BTC was withdrawn).

In other news, stablecoin issuer Paxos will partner with Ontology to issue up to 100 million of its PAX tokens pegged 1:1 to the U.S. dollar. The launch of PAX token will make it easier for individuals and businesses using Ontology’s ONT token to transact with fiat-pegged tokens (as a reminder, Paxos Standard (PAX) is a regulated US dollar-backed stablecoin and was launched last September).

Elsewhere, while MakerDAO may be struggling to inspire confidence in DAI, its stability fee is now at 16.5%, which is above that of DIPOR (Decentralized Inter-Protocol Offered Rate) which at last check stands at 14.64%. As such, DAI supply is expected to decline further as CDP holders refinance via Compound and Dharma. As a result, the total amount of ETH locked in the credit ecosystem has now fallen to below 2% and stands at 1.9228%. At its peak, this value stood at around 2.10%. On that note, San Francisco-based startup Dharma is now emerging as one of the industry leaders by facilitating more than $6.4 million worth of crypto loans since its launch in early April.

Thank you for reading,
The BeQuant’s Analytics team

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