The market continues to trade in a relatively lacklustre fashion, as the post-China FOMO effect subsides and the volatility reverses course south. Interestingly, the futures curve for Bitcoin and Ethereum continues to undergo steepening, with the contango delta widening above 1% vs the Dec’19 contract. It will be very interesting to see how the market prices in May’20 contract when that launches, since it is the month that Bitcoin is due to undergo block reward halving. The market, at least the retail and the mining community is of strong opinion that the event will lead to higher prices and the surpassing of the $20,000 mark. However, given the more sophisticated crypto derivatives market, together with much wider participation from professional money management community, it remains to be seen whether the aforementioned expectations will materialize.
On the subject of volatility, in absolute terms the options smile is negative (calls > puts), with implied volumes at relatively suppressed levels. All this can quickly change and flip upside depending on the outcome of the upcoming deadline for Ifinex to present its case for the lawsuit to be dismissed. As a reminder, last week, the president of CryptoCapital, the alleged "shadow bank" at the center of a fraud investigation against crypto exchange Bitfinex and stablecoin issuer Tether, was arrested by Polish authorities. This is important because Ifinex (the parent company of stablecoin issuer Tether and cryptocurrency exchange Bitfinex) has until November 4 to present a case for the lawsuit by the NYAG to be dismissed or else the company may be required to continue to comply with the investigation. If the case by NYAG is allowed to proceed, actual arguments won’t likely begin until 2020.
Looking elsewhere, there's more to it than meets the eye is very applicable to crypto secondary market trading at the moment. While secondary market activity may have relapsed back to pre-China pump levels, there is plenty going on in the crypto lending and borrowing market. The arb plays are back in fashion courtesy of the latest move by MakerDAO to cut its stability fee (equivalent to an interest rate) to 5.5% from 9.5% (this was as high as 20.5% in July). This is in the mix with Dai borrowing rates of 11.6% on Compound Finance and 7.8% on dYdX. It’s also cheaper to borrow Dai on Maker than to borrow USDC, which has borrowing rates of 10% on Compound and 6.9% on dYdX.
In other news, China’s central bank, the People’s Bank of China, will certify 11 types of financial technology hardware and software that are widely used for digital payment and blockchain services with its new verification system called the Certification of Fintech Products. With 11 fintech products currently on the central bank’s list, the certification system covers all products that could be involved in digital payment technologies, including point-of-sale mobile terminals, embedded application software, user front-end software and security carriers and chips.
Finally, China-based mining titan Bitmain Technologies has discreetly filed an application for an Initial Public Offering (IPO) with the United States Securities and Exchange Commission (SEC). According to an Oct. 30 report from Tencent News citing anonymous “informed sources,” Deutsche Bank is sponsoring the application. The amount the firm hopes to raise by the offering has not been specified.
Thank you for reading,
The BeQuant’s Analytics team