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Ethereum futures open interest hits 19-month high, yet ETH price weakness intensifies

Ethereum derivatives metrics show increased activity, indicating higher interest but not necessarily a bullish trend.

Ether (ETH) experienced a 10% correction between July 31 and Aug. 2, retesting the $3,000 support for the first time since July 8. This movement significantly outpaced the broader cryptocurrency market, which declined by 6.8% during the same period. Despite this, Ether futures open interest rose to its highest level in seven months, leading traders to speculate whether a rally to $3,600 is the next probable move.

The increased activity in ETH futures contracts typically indicates institutional investors' interest, as open interest measures the demand for leverage. However, buyers (longs) and sellers (shorts) are always matched, so an increase in open interest does not inherently indicate a positive outlook.

Part of Ether’s decline can be attributed to the lack of net inflows into recently launched Ether exchange-traded funds (ETFs) in the United States. Although there were some inflows, particularly into BlackRock’s iShares Ethereum Trust and the Fidelity Ethereum Fund, these were offset by outflows from the Grayscale Ethereum Trust, which has existed since before the ETF conversion.

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Analyst Michaël van de Poppe Says This Solana Rival Has Lots of Upside Potential, Could Explode by up to 3,765%

SBF’s Alameda minted $38B USDT to profit off arbitrage trading: Coinbase director

Coinbase director Conor Grogan has flagged on chain data that highlights massive USDT mints ordered by Sam Bankman-Fried’s Alameda Research in 2021.

Blockchain data flagged by Coinbase director Conor Grogan indicates that Alameda Research redeemed over $38 billion for Tether (USDT) tokens in 2021 despite not having the equivalent assets under management.

According to Grogan, the total value of USDT creation was higher than Alameda’s total assets on its books at the height of the wider cryptocurrency market bull run in 2021.

Grogan also suggests that FTX ordered USDT redemptions were likely to have been from Alameda’s tokens, totalling 3.9 billion USDT. The majority of this redemption amount was carried out during the collapse of the Terra Luna algorithmic stablecoin.

In Jan. 2021, former Alameda co-CEO Sam Trabucco weighed in on prevailing reports of significant USDT mints carried out by Tether and gave inside insights into how Alameda profited off arbitrage opportunities relating to the value of USDT to various trading pairs across different exchanges.

Trabucco described how the premium in which USDT trades to $1 was typically volatile given that Bitcoin to USDT trades resulted in a slight deficit in basis points when compared to BTC/US dollar trades.

“And note, *these* are the best markets to use to determine where USDT is trading -- the combo of BTC/USDT and BTC/USD markets, e.g., are WAY more liquid than any exchange's USDT/USD market, so the prices from these (even though it's a two-leg trade) matter way more.”

Trabucco went on to explain that other US dollar stablecoins like USD Coin (USDC) had a less volatile premia due to the creation and redemption process involved for USDT. Given that select firms have the ability to create and redeem USDT, most market players acquire and trade USDT from markets themselves and not directly from Tether’s treasury:

“And when USDT gets above $1? A sophisticated firm like Alameda with great setups on all the exchanges and bots to execute more than one leg at a time is gonna want to sell! And we do -- a LOT.”

Trabucco added that Alameda was able to “safely put on big bets” due to its ability to do USDT creations and redemptions when it needed to. The former Alameda CEO described the situation as a “win-win” situation for the trading firm and the stability of USDT's dollar peg:

“Obviously we're making money because we can, e.g., selling above where we create, but we're also bringing the price in line so that when aggro buyers come in, it sticks close to $1.”

As a result, Alameda profited by collecting the premium on arbitrage opportunities through its ability to create USDT tokens. Bankman-Fried himself also chimed in on the debate in 2021, stating that Alameda actively redeemed USDT for US dollars.

Cointelegraph has reached out to Tether to confirm the amount of USDT tokens that had been minted at the request of Alameda.

Magazine: The Truth Behind Cuba’s Bitcoin Revolution: An on-the-ground report

Analyst Michaël van de Poppe Says This Solana Rival Has Lots of Upside Potential, Could Explode by up to 3,765%

Rogue Validator Exploits MEV Bots on Ethereum, Resulting in $25.3M in Crypto Losses

Rogue Validator Exploits MEV Bots on Ethereum, Resulting in .3M in Crypto LossesOn April 3, 2023, at Ethereum block height 16,964,664, a group of MEV (Maximal Extractable Value) bots were exploited for $25.3 million. An analysis of the exploit revealed that a renegade validator switched the MEV bots’ transactions and seized various crypto tokens, such as 7,460 wrapped ether and 64 wrapped bitcoin. While the Mechanisms Behind […]

Analyst Michaël van de Poppe Says This Solana Rival Has Lots of Upside Potential, Could Explode by up to 3,765%

Why did 12K Bitcoin margin longs close at Bitfinex, and why didn’t it impact BTC price?

An unprecedented number of BTC margin longs recently closed at Bitfinex, leaving analysts searching for explanations.

Since May 2022, the Bitcoin (BTC) margin markets on the Bitfinex exchange have been plagued by an unusually high open interest of over $2.7 billion. This information alone should raise a red flag, especially in light of Bitcoin's price decline from $39,000 to less than $25,000 during the same period.

Traders seeking to leverage their cryptocurrency position had borrowed over 105,000 Bitcoin. Currently, the cause of this anomaly is unknown, as well as the number of entities involved in the trade.

Cheap borrowing favors high demand

Bitfinex's sub-0.1% annual rate may be a contributing factor to the size of the Bitcoin lending market. To date, this has been the norm and it creates enormous incentives for borrowing, even if there is no current need. There are few traders who would turn down such a ridiculously inexpensive leverage opportunity.

Margin borrowing can be used to take advantage of arbitrage opportunities, where a trader exploits price discrepancies between different markets. For example, borrowing Bitcoin on margin allows a trader to take a long position in one market and a short in another, profiting from the price difference.

To understand how Bitcoin borrowing can be used to profit on derivatives markets, including those outside of Bitfinex, one must understand the distinction between futures contracts and margin markets. The margin is not a derivative contract, so the trade occurs on the same order book as spot trading. In addition, unlike futures, margin longs and shorts are not always in balance.

For example, after purchasing 10 Bitcoin using margin, the coins can be withdrawn from the exchange. Naturally, the trade, which is typically based on stablecoins, requires some form of collateral or a margin deposit.

If the borrower fails to return the position, the exchange will liquidate the margin in order to repay the lender.

Additionally, the borrower must pay interest on the BTC acquired with a margin. The operational procedures vary between centralized and decentralized exchanges, but the lender typically determines the interest rate and duration of offers.

There was a 12,000 BTC margin decline in a single trade

Historically, Bitfinex margin traders have been known to move large margin positions quickly, indicating the participation of whales and large arbitrage desks. In the most recent instance, on March 25, those investors reduced their long positions by 12,000 BTC in minutes.

Bitfinex BTC margin longs, in BTC contracts. Source: TradingView

Notice how significant the decrease was, despite the fact that it had no effect on the Bitcoin price. This supports the theory that such margin trades are market-neutral because the borrower is not leveraging their positions with the proceeds. Most likely, there is some arbitrage involving derivatives instruments.

Traders should cross-reference the data with other exchanges to confirm that the anomaly affects the entire market, given that each exchange has distinct risks, norms, liquidity and availability.

OKX, for example, provides an indicator for margin lending based on the stablecoin/BTC ratio. Traders can increase their exposure on OKX by borrowing stablecoins to purchase Bitcoin. Bitcoin borrowers, on the other hand, can only wager on the price decline.

OKX stablecoin/BTC margin lending ratio. Source: OKX

The above chart shows that OKX traders' margin lending ratio has been stable for the past week near 30, indicating that professional traders' long-to-short bets have not changed. This data supports the theory that Bitfinex's decline is due to an arbitrage close unrelated to Bitcoin price movement.

Related: US government plans to sell 41K Bitcoin connected to Silk Road

Recent crypto bank closures could have triggered the movement

Another possibility for the sudden decrease in margin demand is the $4 billion in deposits associated with the now defunct Signature Bank and its digital banking business. Crypto clients were told to close their accounts by April, according to a Bloomberg report.

While New York Community Bancorp (NYCB) purchased the majority of Signature Bank's deposits and loans on March 19, the deal with the FDIC did not include crypto-related accounts.

If those whales are forced to close their banking accounts, they will most likely reduce their arbitrage positions, including those in margin markets. For the time being, all assumptions are speculative, but one thing is certain: the 12,000 BTC long margin reduction at Bitfinex had no effect on Bitcoin prices.

The views, thoughts and opinions expressed here are the authors’ alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.

This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.

Analyst Michaël van de Poppe Says This Solana Rival Has Lots of Upside Potential, Could Explode by up to 3,765%

Are stablecoins securities? Well, it’s not so simple, say lawyers

One lawyer said that while stablecoins are meant to be stable, buyers may possibly profit from a range of arbitrage, hedging, and staking opportunities.

Recently reported planned enforcement action against Paxos by the United States Securities and Exchange Commission (SEC) over Binance USD (BUSD) has many in the community questioning how the regulator could see a stablecoin as a security.

Blockchain lawyers told Cointelegraph that while the answer isn't black and white, there exists an argument for it if the stablecoin was issued out in the expectation of profits or are derivatives of securities.

A report from the Wall Street Journal on Feb. 12 revealed that the SEC is planning to sue Paxos Trust Company in relation to its issuance of Binance USD, a stablecoin it created in partnership with Binance in 2019. Within the notice, the SEC reportedly alleges that BUSD is an unregistered security.

Senior Lecturer Dr. Aaron Lane of RMIT’s Blockchain Innovation Hub told Cointelegraph that while the SEC may claim these stablecoins to be securities, that proposition hasn’t been conclusively tested by the U.S. Courts:

“With stablecoins, a particularly contentious issue will be whether the investment in the stablecoin led a person to an expectation of profit (the ‘third arm’ of the Howey test).”

“On a narrow view, the whole idea of the stablecoin is that it is stable. On a broader view, it could be argued that arbitrage, hedging, and staking opportunities provide an expectation of profit,” he said.

Lane also explained that a stablecoin may fall under U.S. securities laws in the event that it is found to be a derivative of a security.

This is something that SEC Chairman Gary Gensler emphasized strongly in July 2021 in a speech to the American Bar Association Derivative and Futures Law Committee:

“Make no mistake: It doesn’t matter whether it’s a stock token, a stable value token backed by securities, or any other virtual product that provides synthetic exposure to underlying securities.”

“These platforms — whether in the decentralized or centralized finance space — are implicated by the securities laws and must work within our securities regime,” he said at the time.

However Lane stressed that ultimately each case “will turn on its own facts,” particularly when adjudicating on an algorithmic stablecoin as opposed to a crypto or fiat-collateralized one.

A recent post by Quinn Emanuel Trial Lawyers has also approached the subject, explaining that in order to “ramp up” stablecoins to a “stable value,” they may sometimes be offered on discounted prior to sufficiently stabilizing.

“These sales may support an argument that initial purchasers, despite formal disclaimers by issuers and purchasers alike, buy with the intent for resale following stabilization at the higher price,” it wrote.

Are Stablecoins Securities? A legal analysis from Quinn Emanuel Trial Lawyers. Source. Quinn Emanuel.

But while stablecoin issuers may resort to the courts to decide the dispute, many believe the SEC’s “regulation by enforcement” approach is simply uncalled for.

Digital assets lawyer and partner Michael Bacina of Piper Alderman told Cointelegraph that the SEC should instead provide “sensible guidance” to help the industry players who are seeking to be legally compliant:

“Regulation by enforcement is an inefficient way of meeting policy outcomes, as SEC Commissioner Peirce has recently observed in her blistering dissent in relation to the Kraken prosecution. When a rapidly growing industry doesn’t fit the existing regulatory framework and has been seeking clear pathways to compliance, then engagement and sensible guidance is a far superior approach than resorting to lawsuits.”

Cinneamhain Ventures partner Adam Cochran gave another view to his 181,000 Twitter followers on Feb. 13, noting that the SEC can sue any company that issues financial assets under the much broader Securities Act of 1933:

The digital asset investor then explained that the SEC isn’t restricted to the Howey Test:

“The fact that these assets hold underlying treasuries, makes them a lot like a money market fund, exposing holders to a security, even if they don't earn from it. Making an argument (not one I agree with, but a reasonable enough one) that they can be a security.”

“Worth fighting tooth and nail, but everyone who is shrugging this off as "lol the SEC got it wrong, this doesn't pass the Howey test" needs to re-eval. The SEC, believe it or not, has knowledgeable securities counsel,” he added.

Related: SEC chair compares stablecoins to casino poker chips

The latest reported planned action from the SEC comes after reports emerged on Feb. 10 that Paxos Trust was being investigated by the New York Department of Financial Services for an unconfirmed reason.

Commenting on the initial reports, a spokesperson for Binance said BUSD is a "Paxos issued and owned product" with Binance licensing its brand to the firm for use with BUSD. It added Paxos is regulated by the New York Department of Financial Services (NYDFS) and that BUSD is a "1 to 1 backed stablecoin."

"Stablecoins are a critical safety net for investors seeking refuge from volatile markets and limiting their access would directly harm millions of people across the globe," the spokesperson added. "We will continue to monitor the situation. Our global users have a wide array of stablecoins available to them.”

Analyst Michaël van de Poppe Says This Solana Rival Has Lots of Upside Potential, Could Explode by up to 3,765%

Wormhole hacker moves another $46M of stolen funds

The Wormhole exploiter appears to be seeking arbitrage opportunities with Ethereum-pegged assets.

The ill-gotten crypto from one of the industry’s largest exploits is on the move again, with on-chain data showing another $46 million of stolen funds has just shifted from the hacker’s wallet.

The Wormhole attack was the third largest crypto hack in 2022 resulting from an exploit of Wormhole’s token bridge in February 2022. Around $321 million of Wrapped ETH (wETH) was stolen.

According to blockchain security firm PeckShield, the hacker’s associated wallet has become active once again, moving d $46 million worth of crypto assets.

This was made up of around 24,400 of Lido Finance-wrapped Ethereum staking token (wstETH), worth approximately $41.4 million and 3,000 Rocket Pool Ethereum staking token (rETH), worth about $5 million, which was moved to MakerDAO.

The hacker appears to be seeking yield or arbitrage opportunities on their stolen loot as the assets were exchanged for 16.6 million DAI, PeckShield reported.

The MakerDAO stablecoin was then used to buy 9,750 ETH priced at around $1,537 and 1,000 stETH. These were then wrapped back into 9,700 wstETH.

On Feb. 10, an on-chain sleuth observed that the hacker was “buying the dip.”

However, the price of Ethereum has since fallen below those levels over the past few hours. At the time of writing, ETH was trading down 2.6% on the day at $1,505 according to CoinGecko.

At the time of the transfers, stETH prices depegged from Ethereum and climbed as high as $1,570. They’re currently trading 2.4% higher than ETH at $1,541. Furthermore, wstETH also has depegged and rose to $1,676, 11.3% higher than the underlying asset.

Related: Crypto exploit losses in January see nearly 93% year-on-year decline

The latest funds movement comes only a few weeks after the hacker moved another $155 million worth of Ethereum to a decentralized exchange on Jan. 24.

95,630 ETH was sent to the OpenOcean DEX and then subsequently converted into ETH-pegged assets including Lido’s stETH and wstETH.

Analyst Michaël van de Poppe Says This Solana Rival Has Lots of Upside Potential, Could Explode by up to 3,765%

Defi Lending Sector Experiences Major Shake-Up: 71% of Total Value Locked Evaporates in 12 Months

Defi Lending Sector Experiences Major Shake-Up: 71% of Total Value Locked Evaporates in 12 MonthsDecentralized finance (defi) has continued to remain deeply ingrained in the cryptocurrency economy as the ecosystem provides users with a non-custodial way to exchange digital assets, lend cryptocurrencies, issue stablecoins, and ways to profit from arbitrage. In the lending sector of defi, a lot has changed during the last 12 months as lending applications like […]

Analyst Michaël van de Poppe Says This Solana Rival Has Lots of Upside Potential, Could Explode by up to 3,765%

El Salvador Chivo Wallet Programmer Opens Up About Alleged ID Fraud, Tech and Money Laundering Issues

El Salvador Chivo Wallet Programmer Opens Up About Alleged ID Fraud, Tech and Money Laundering IssuesA Chivo wallet programmer has opened up about the different problems that the flagship cryptocurrency wallet of El Salvador faced during its initial stages. Shaun Overton, who alleges he was hired to help in the handling of the issues, has talked about ID theft, money laundering problems, and the tech issues he observed while working […]

Analyst Michaël van de Poppe Says This Solana Rival Has Lots of Upside Potential, Could Explode by up to 3,765%

Report Shows Financial Troubles Plagued Bankman-Fried’s Alameda Research as Early as 2018

Report Shows Financial Troubles Plagued Bankman-Fried’s Alameda Research as Early as 2018Before FTX collapsed it was assumed that Alameda Research was one of the top quantitative trading firms and market makers within the industry. However, much of that perception may have been a facade as a recent report details that Alameda suffered from financial troubles as early as 2018. People familiar with the matter said Alameda […]

Analyst Michaël van de Poppe Says This Solana Rival Has Lots of Upside Potential, Could Explode by up to 3,765%

Report: 950 FTX Users in Taiwan Had Digital Funds Worth $150 Million Held on the Exchange When It Collapsed

Report: 950 FTX Users in Taiwan Had Digital Funds Worth 0 Million Held on the Exchange When It CollapsedAt the time of FTX’s collapse, about 950 users in Taiwan had a total of $150 million worth of digital assets stored or held at the crypto exchange, a law firm has reportedly said. FTX users in Taiwan were reportedly investing in interest-bearing digital assets using cheap funds borrowed from local banks. FTX’s Popularity With […]

Analyst Michaël van de Poppe Says This Solana Rival Has Lots of Upside Potential, Could Explode by up to 3,765%