1. Summary of Industry Dynamics
The crypto market did not fluctuate much last week, continuing the previous trend of shrinking volume and volatility. The overall trend was similar to that of the U.S. stock market, but the performance during the week lagged behind that of the U.S. stock market. As of writing, Bitcoin closed at 28,373, up 1.45% during the week; Ethereum closed at 1,817, up 2.51% during the week. Slightly different from the market last week, the total market value of cryptocurrencies rose by 1.23% during the week, with Ethereum outperforming BTC by about 1.05% during the week, and small currencies also slightly made up for the rise while BTC was sideways.
The market transaction volume continued to be sluggish, and the transaction volume of the entire market declined. Taking Binance as an example, the transaction volume of BTCUSDT spot trading pairs during the week was only 13.2 billion, a sharp drop from 95.3 billion and 40.1 billion in the previous two weeks. In addition to the impact of Binance's cancellation of BTCUSDT spot trading on the fee-free policy, the withdrawal of market makers is also a major reason, mainly due to the previous bank bankruptcy incident, and market makers are subject to restrictions on US dollar exchange channels.
According to Kaiko, an institutional data service provider, BTC's market depth has fallen to a 10-month low. The impact of the decline in market depth is that a small amount of funds can trigger a sharp rise and fall in market prices, which is reflected in the increase in volatility. Kaiko data shows that the current BTC 30-day volatility has risen to the level of FTX's collapse, and investors should pay attention to the current market risks.
On the other hand, the three major indexes of the US stock market rose sharply last week, with three consecutive positive weekly lines, including the Dow Jones Industrial Average up 3.22%, the S&P 500 up 3.48%, and the Nasdaq up 3.37%. The market rose well, mainly due to the unexpected decline in the US core PCE price index in February released on Friday, with the month-on-month growth rate falling from 0.6% in January to 0.3% in February (expected 0.4%), and the annual rate falling from 4.7% to 4.6% (expected 4.7%). The unexpectedly positive data further eased the expectation of interest rate hikes. The probability of a 25bp rate hike in May and no rate hike has dropped from 8:2 to nearly 5:5. The market is betting that there will be no rate hike at the May FOMC meeting.
In addition, the Federal Reserve's balance sheet narrowed again last week, which may indicate that the bank failure crisis has come to a temporary end and the Federal Reserve does not need to provide additional funds to rescue banks.
Stimulated by the dual positive factors of falling inflation and easing risks, U.S. stocks have risen significantly. The weekly rise of the Nasdaq is expected to continue, and a bottom reversal has already occurred.
Important data will be released this week. The "small non-farm" data will be released at 20:15 Beijing time on Wednesday, April 5, and the U.S. unemployment rate and non-farm employment data for March will be released at 20:30 on Friday, April 7. This data may have a significant impact on the FOMC results in May. The market fluctuates violently before and after the key data points, and we need to pay attention to risks.
Industry data
1) Stablecoins
According to glassnode data, as of April 1, 2023, the total supply of the top five stablecoins (USDT, USDC, BUSD, DAI, TUSD) was approximately 127.114 billion, a decrease of approximately 1.364 billion (-1.06%) from last week, and the currency market funds once again saw a large outflow of funds.
Among the fiat stablecoins, the supply of USDT continues to rise, but it has slowed down. USDT only increased by about 618 million (0.78%) this week. After reaching a market share of 60%, the growth rate of USDT slowed down, and most of the USDC funds may have been replaced.
USDC supply has dropped again this week by about 1.4 billion (-4.11%). Since the Silicon Valley Bank incident, USDC supply has fallen sharply for four consecutive weeks, and its market share has fallen to 25%. As we expected, although USDC prices have recovered, the damaged market confidence and sentiment seem to need more time to repair.
The supply of BUSD continued to decline this week, decreasing by about 468 million (-5.83%). As Paxos has been banned from minting BUSD, it is expected that the supply of BUSD will continue to decline, and BUSD may exit the stage of history. As an alternative, TUSD's supply did not change much this week, with a slight increase of 23 million (1.12%). After a significant increase of doubling in one month, TUSD's growth slowed down.
Overall, the net outflow of funds in the currency market has shown signs of acceleration again, which to some extent explains the current shrinking and volatile market. With limited incremental funds, the market needs to accumulate more liquidity to pull up, and under the game of existing funds, the structural market will be the main one.
2) BTC Miner Balance
The BTC miner address balance shows the total BTC holding balance marked as miner addresses on the chain, including Foundry USA, F2Pool, AntPool, Poolin, Binance and other addresses.
This data is usually used to judge miners' interest in the current BTC price. When the miner's balance increases, it usually means that the chips are in a state of accumulation; when the miner's balance decreases, it indicates that miners are selling or pledging their BTC.
According to OKLink data, as of April 2, the miner balance has hardly changed compared to last week. The market has encountered resistance and started to fall back sideways, but miners have not shipped out. The miner balance has not changed significantly since the stockpiling during the correction in early March. It is expected that the BTC price will most likely continue to rise.
The current sideways fluctuations may be more due to the accumulation of chips and liquidity. After the market accumulates strength, it will attempt another round of upward attack.
3) ETH deflation data
As of April 2, according to data from ultrasound.money, the supply of ETH this week has decreased by about 6,521 compared to last week. Since the completion of The Merge, the supply of ETH has decreased by 74,000 in total. Based on the data of the past week, the annualized inflation rate is -0.28%, a slight increase from last week, and remains stable overall.
Last week, the market fluctuated at a high level, BTC prices and market share began to move sideways at a high level, and the ETH/BTC exchange rate showed signs of compensatory growth, which is expected to continue. In the past two years, the ETH/BTC exchange rate has always maintained a wide range of fluctuations of about 0.05~0.08. During the period when BTC is moving sideways at a high level, ETH may usher in a compensatory rise.
Compared with ETH under the POW mechanism, the supply under the POS mechanism has been reduced by about 2.23 million coins. In terms of current US dollars, this part of the selling pressure is nearly US$4 billion.
2. Macro and Technical Analysis
After the market broke through 28,000, it fluctuated sideways. As we expected, ETH's overall breakthrough was better than BTC.
Two-year US Treasury bonds are trading sideways, and the overall trend is that interest rates will start to be cut at the end of this year
Nasdaq continues to rebound and is now expected to break through the previous high
arh999：0.77
The number of addresses holding coins is basically flat
After the number of addresses holding coins jumped, it continued to retreat this week
III. Summary of Investment and Financing
Investment and Financing Review
From March 27 to April 2, 2023, the crypto VC market disclosed 18 investment and financing events, with a cumulative financing amount of more than US$249.9 million;
During the reporting period, there were 4 events with financing amounts exceeding USD 10 million:
Organization News
4. Dynamic tracking of non-performing assets
Global market debt dynamics:
Global corporate debt situation deteriorates rapidly
In the past two weeks, the global corporate debt situation has deteriorated rapidly, with three US regional banks going bankrupt and Credit Suisse being urgently merged with UBS by Swiss regulators. According to Bloomberg data, there are currently $624 billion in corporate debt in distress worldwide.
That number has risen by about $69 billion since Silicon Valley Bank’s collapse, a sign that investors are increasingly concerned about whether lower-quality corporate debtors can repay or refinance their debts. The increase occurred mainly in the U.S. and Europe, and would have been billions higher if Credit Suisse hadn’t been rescued.
Currently, the spread between the return on corporate bonds and loans and government debt is used to measure whether a company is in debt distress. Under this spread, it is difficult for companies to obtain new financing in traditional debt markets, and they face the risk of being cut off from their financing sources. There are currently 642 such companies in the market, much more than the 590 before SVB's bankruptcy.
There are no signs of a credit crunch. In 2020, for example, the total amount of distressed debt in the United States alone was close to $1 trillion. Containing the banking crisis is essential to keep credit flowing. Robert Del Genio, senior managing director of FTI Consulting, said: "When the market environment becomes more deteriorating, distressed investors will focus on choosing higher-quality assets, which may put more companies in debt distress.
2. Review of UBS’s acquisition of Credit Suisse
Recently, the hottest topic in the market is UBS's acquisition of Credit Suisse. We also looked at the most authoritative document "UBS acquisition of Credit Suisse" officially released by UBS to review the details of this merger and acquisition case. We selected 4 pages of useful information from this document to review and analyze this event. First of all, this document involves 4 participants. The first is the acquirer UBS, then the acquired party Credit Suisse CS, the third participant is the Swiss National Bank (SNB), and the fourth participant is UBS's shareholders. The nature of this transaction is that after Credit Suisse collapsed, the Swiss National Bank was forced to intervene and required UBS to acquire Credit Suisse. Therefore, this transaction itself was not what UBS wanted to do, but was forced to do by the central bank. In addition, because of the intervention of the government, the transaction did not require the approval of the shareholders' meeting, but such a large acquisition case still needs to be communicated with shareholders. The purpose of this document in "investor relations" is also to communicate effectively with UBS's shareholders, but it is already a done deal.
Let's take a look at the first page of the Executive Summary, which has a total of 5 sentences. The first sentence explains that the acquisition transaction is backed by the Swiss National Bank and the risk is controllable. The second sentence explains that the acquisition will not cause shareholders to lose their assets and thus change UBS's development plans in the United States and Asia Pacific, in order to reassure shareholders. The third sentence means that asset management has always been the most profitable department of UBS, so UBS's traditional profitable department will become larger and more scaled because of this transaction. If the price/tangible book value ratio remains unchanged while the book value increases, the company's equity value will increase, which means that the transaction will benefit shareholders. The fourth point is that their acquisition target is the good part of Credit Suisse's investment banking department, that is, the strategic banking businesses mentioned above. This part will be completely retained, and the bad and money-losing part will be sold together with the NCU and SPG units. We guess that it is likely to be sold to Distressed Assets companies such as Apollo. The last point is easy to understand, which is to reassure shareholders that UBS will definitely be able to implement the above plan.
The second page is relatively more important, which is the terms of the transaction. The first line points out an all-share merger, which is what Credit Suisse shareholders can get after the acquisition. It is mentioned that it is not cash, but UBS shares. The second line clearly states how the shares are converted. The transaction amount is 3 billion Swiss francs, which is equivalent to giving Credit Suisse 0.76 Swiss francs per share. This price is definitely lower than Credit Suisse's Tangible book value/share. The exchange ratio on the next line is 22.48, which means that for Credit Suisse shareholders, every 22.48 Credit Suisse shares can be exchanged for 1 share of UBS stock, which means that Credit Suisse has been sold off in a big way. However, with so many bad assets, such a sale would be impossible to implement without the SNB's guarantee. The next line is approvals. Although it does not require shareholder approval, it does require approval from local regulatory authorities. The last line of governance says that after the two companies merged, Credit Suisse's management was fired, and UBS's management became the management of the newly merged company.
The third page, "downside protection for UBS shareholders", mainly talks about the issue of the Swiss National Bank's guarantee. The first line says the amount of the guarantee is 25bn Swiss francs, and there are two numbers 15.8 and 9 below. The relationship between the three numbers is that 15.8 plus 9 is approximately equal to 25. Therefore, the 25 billion subsidy from the central bank is mainly divided into 15.8 billion AT1 bonds, but the entire amount has been erased. AT1 can be simply understood as a debt with the lowest priority. When the market is good, the return is very high. Otherwise, it will be affected first (if CET1 is lower than 7%, AT1 will be written down to zero). In this transaction, AT1 debt investors will not get a penny. The advantage is that UBS, as the acquirer, does not need to consider these AT1 investors anymore. The second subsidy is 9 billion Swiss francs for a guarantee against potential losses of non-core assets. However, if this part of the assets incurs losses, UBS will have to bear the first 5 billion, and the Swiss government will bear up to 9 billion for the part exceeding 5 billion. If there is another loss, both parties will bear it jointly. At the bottom, regarding the liquidity issue, in addition to the costs associated with this transaction, if UBS does not have enough, the Swiss government can ask the Swiss National Bank for a loan.
The last page I selected lists six expected financial indicators after the merger. The first and most important number is TBVPS, Tangible book value per share, which rose 74% after the acquisition. Because for the valuation of the banking industry, the most important thing is to look at the value of the Tangible book value, and this value/total number of shares is TBVPS. After this increase, if we assume that the valuation multiple of Price/Tangible book value remains unchanged, then the market value will rise, so using this logic UBS proves that this merger is feasible. The second forecast of Target EPS is relatively far-fetched, because UBS predicts that the bank's EPS will become accretive by 2027, so the transaction at this node is definitely dilutive, that is, the income will decrease, so from this perspective It is not a good acquisition target, but this information must be disclosed. The third item is cost synergies, that is, the cost synergies, that is, the unnecessary department and overhead costs can be cut after the merger. This synergy is expected to reduce costs by 8bn per year by 2027. The fourth item is Return on CET, Common Equity Tier 1, which is actually the ROE rate, and the formula is net income over CET1. Because UBS is profitable on the net profit side and Credit Suisse is loss-making, UBS also disclosed that ROE will be affected in the short and medium term, and the percentage of ROE will also decline. However, despite this, the fifth item, CET1 ratio, will still reach UBS's target, because after divesting NCA non-core assets and AT1, Credit Suisse's ratio is 14.1%, UBS is 14.2%, and after the merger and acquisition, it remains at around 14%, so this rate is higher than UBS's own target of 13% (CET1/RWA). The last line is capital return policy, after the merger and acquisition, cash dividend means that dividends will continue to be paid, but the share repurchase plan will be suspended, so the good news for shareholders is that dividends will continue to be paid, and the bad news is that the company will not repurchase shares from the market, because the company's repurchase of shares is good news for other shareholders, because there is a high probability that the stock price will rise, so the good news for shareholders will slow down due to mergers and acquisitions. The above is a brief review of the four acquisitions.
3. The sharp drop in Deutsche Bank's shares triggered a broad sell-off in global stock markets
The sell-off in DB shares may have been caused by a transaction involving the bank's credit default swaps (CDS). Regulators are investigating a $5.4 million credit default swap transaction related to Deutsche Bank's subordinated bonds. (Credit-default swaps are a form of insurance against debt defaults. The premium paid by the buyer to a bank or insurance company is proportional to the interest rate of the CDS. In 2008, some investors, including Michael Burry of Scion Capital, successfully used this trading tool to bet on the real estate market. When debt payments are not fulfilled, the protective payment of the CDS will be triggered. The rise in CDS prices directly reflects the market's panic about DB's risk exposure and the risk of default).
Deutsche Bank's credit default swaps nearly tripled last week, causing the stock to plunge nearly 10%, wiping out more than $3 billion in market value. The volatility, coupled with UBS's emergency rescue of Credit Suisse, has raised concerns among investors that DB could find itself in the same situation as Silicon Valley Bank.
Moody's rating agency also mentioned in its latest global credit report: Looking ahead, the longer financial markets remain tense, the greater the risk that stress will spread beyond the banking industry, and the greater the expected financial and economic losses.
4. Latest developments in FTX’s digital non-performing asset claims market:
Last week, the FTX Creditors Committee UCC stated that FTX's claims agent Kroll has sent account asset information to creditors. If you believe that your account balance on the FTX exchange is a positive net balance but have not yet received a unique customer code from FTX's claims agent Kroll, please send an email to FTXInfo@ra.kroll.com.
Last week, the average price of bonds in the OTC market continued to show an upward trend, remaining in the range of 18-20%.
In addition, OKX announced last Thursday that it would return approximately $157 million in frozen assets related to FTX and Alameda to FTX creditors. After the collapse of FTX in November 2022, OKX, at the request of law enforcement agencies, launched an investigation to determine whether there were any transactions related to FTX on the platform. When assets and accounts related to FTX and Alameda Research were discovered, OKX responded quickly and took action to freeze the relevant accounts and protect the assets. OKX stated that it will continue to cooperate with FTX creditors and law enforcement officers in the future, hoping that these assets will eventually be returned to FTX users through bankruptcy proceedings.
5. Crypto Ecosystem Tracking
Data collation of each sector
NFT
Blue Chip Index: The Blue Chip Index is basically the same as last week. After hitting the bottom at the beginning of the week, it rebounded in two stages and then hit the bottom again. This week will continue to verify the strength of the trading support level.
Market capitalization & trading volume: The market capitalization has bottomed out and rebounded. On April 2, we can see that the trading volume has increased, which corresponds to the short-term peak of the blue chip index and the beginning of a new round of decline.
Top collection: Cryptopunks, BAYC, and Monkeyland ranked in the top three. Sandbox and Artblocks also slowed down their market value rankings that had been gradually rising in the past few weeks, and followed the blue-chip index to start a rebound.
Gamefi Chain Games
Overall review
Overall, the Gamefi industry's coin price has rebounded slightly this week, but the interaction volume of the top chain games has declined.
From the perspective of token prices, 90% of the top 10 blockchain game tokens by market value rose slightly. Among them, Gala Games led the rise with 5.05% this week, which may be mainly due to the fact that Gala Games recently announced a series of cooperation progress including Huobi, and tested the new game "The Walking Dead: Empires".
https://degame.com/zh/ranking/game/ALL_GAME
Judging from the on-chain contract interaction volume, among the top ten active blockchain games, the interaction activity has declined by 80% in the past week.
Data source: https://dappradar.com/rankings/category/games
DeFi & L2 Track Data
As of writing, DeFi TVL is 50.24B, up more than 1B from last week. The top five protocols by TVL are: Lido, MakerDao, AAVE, Curve, Uniswap. Lido and Curve rose 4.23% and 0.34% this week, respectively.
https://defillama.com/
As of writing, Layer2 TVL is 8.99B, up 2.83% from last week.
Among them, Arbitrum One, Op, zkSync Era, and Starknet TVL ranked first, second, seventh, and tenth respectively. zkSync Era and Starknet TVL increased by 284.85% and 25.25% respectively in the past week.
https://l2beat.com/scaling/tvl
This week's key events & projects
Orbiter Finance
Recommended reason: L2 cross-chain leader, airdrop interaction must do
Orbiter Finance is an L2 cross-chain bridge for transferring Ethereum native assets. It provides low-cost and almost instant transfers, and the gas fee is cheaper than most cross-chain bridges on the market. Currently supports ETH, Arbitrum, Optimism, zkSync, Starknet, Polygon, Arbitrum Nova, Immutable X, BNB Chain, Loopring, ZKSpace, dYdX, Metis and Boba. It is expected to issue tokens by the end of 2023 or early 2024.
Highlights
(1) Security: Based on secure aggregation technology, Orbiter is not as risky as other cross-L1 bridges.
(2) Cheap and instant: Transfers are made between the “sender” and “maker” EOAs (externally owned addresses) on the “source” and “destination” networks. The “sender” does not interact with the contract address.
(3) For Ethereum native assets: There is no need to mint assets, so liquidity can be fully supported in a decentralized manner. Liquidity is fully supported in a decentralized manner, and there is no need to mint assets.
Financing:
The last round (November 29, 2022) was valued at 40 million US dollars and raised 3.2 million US dollars; the second round of financing was closed ahead of schedule on March 31, 2023, with a valuation of 200 million US dollars. Investors currently include: Tiger Global *, Matrixport Ventures *, A&T Capital, StarkWare, Mirana Ventures, Lemniscap, Dialectic, Loopring, Amber Group, Cobo Ventures, imToken Ventures, Mask Network, Zonff Partners, y2z Ventures, CatcherVC, GGV Capital, Formless Capital, DWeb3 Capital, Redpoint Ventures, OKX, etc. In addition, Vitalik also donated 16 ETH to it.
about Us
JZL Capital is a professional institution registered overseas, focusing on blockchain ecosystem research and investment. The founder has extensive work experience and has served as CEO and executive director of many overseas listed companies, and has led and participated in eToro's global investment. Team members come from top universities such as the University of Chicago, Columbia University, University of Washington, Carnegie Mellon University, University of Illinois at Urbana-Champaign, and Nanyang Technological University, and have served internationally renowned companies such as Morgan Stanley, Barclays Bank, Ernst & Young, KPMG, HNA Group, and Bank of America.
【Disclaimer】The market is risky, so be cautious when investing. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions in this article are suitable for their specific circumstances. Investing based on this information is at your own risk.
