Major Crypto Developments for the week
- Bitcoin volatility approaches all-time lows
- Liquidity pools on stablecoin-based decentralized exchange Curve were exploited, drawing concerns to founder’s massive loan against his CRV stake and forcing him to sell off his position at a discount over the counter
- Microstrategy ups Bitcoin holdings to 152,800 and are looking to raise up to $750M through issuing stock, presumably to purchase more Bitcoin
- HEX founder Richard Heart sued by the SEC for securities law violations
- Litecoin undergoes its supply halving, cutting block rewards down to 6.25 LTC
- Volatility Shares, Bitwise, VanEck, Roundhill, ProShares and Grayscale have filed applications with the SEC for Ether ETFs
- PayPal announces the launch of their own stablecoin on Ethereum
Market Structure
As discussed last week, Bitcoin volatility continues to drift lower, now approaching all time lows. This “boring” market can be portrayed by looking at both realized volatility and implied volatility, which is the expectation of volatility priced in by the options market. Below we can see two charts reflecting this. The first looks at annualized realized volatility, while the second shows Bitcoin’s realized volatility relative to Gold’s realized volatility. Bitcoin has been less volatile relative to gold for over two years now, reflecting the maturation of the digital asset; laying to rest any arguments that Bitcoin is “too volatile” to be a legitimate investable asset.
Trading volume for Bitcoin across the largest exchanges continues to decline, reflecting decreasing interest in speculating on the leading digital asset without any clear short term price catalysts.
One of the clearest indications of the excitement around the influx of Bitcoin ETF filings was the US trading hour premium, showing that Bitcoin was being transacted at a premium during US trading hours relative to EU and APAC sessions. With the market sobering from some of the initial excitement around the filings and realization that the approval process may take longer than first anticipated, this week the US trading hour premium has continued to decline.
Curve Debacle
The biggest story for crypto this week was around Curve – a decentralized exchange focused on stablecoins, which has a whopping $2.4 billion in total value locked. Several stablecoin based liquidity pools on Curve using programming language Vyper were exploited on July 30th, leading to losses of over $61 million.
This decline in CRV’s price and liquidity due to the exploit drew concerns to DeFi contagion broadly but more specifically Curve Finance CEO Michael Egorov’s massive loans on DeFi protocols collateralized by 34% of the CRV circulating supply. This in turn led to Egorov conducting multiple over the counter transactions of his CRV stash at a discount to minimize liquidation risk while also having the least amount of price impact possible.
These OTC transactions were conducted from multiple players throughout the DeFi space, including TRON founder Justin Sun and market maker Wintermute. Curve remains one of the largest players in DeFi, currently sitting at #2 in trading volume over the last 7 days behind Uniswap according to data provider Token Terminal.
We hope you enjoyed this week’s crypto market update and look forward to touching base again next week! Thanks for reading.
The material in this blog post was created exclusively for eToro by Reflexivity Research.