CryptoBits: UNI Reprices on Proposal to Change Fee Structure; ETH Plays catch up

Written by
Freddie Flinn & Adam Farthing


February 26, 2024

Monthly Roundup

February has been a positive month for ETFs and the wider crypto market with just one day of net negative ETF flow on 21st February due to a weaker than usual IBIT showing ($97m vs $197m/ day average). Average daily flow is $432m for the combined 9 new ETFs vs -$248m for GBTC. This dynamic has propelled BTC +20% month to date.

Over $4bn in new capital has entered spot ETFs during February with $3bn+ in IBIT alone. Unsurprisingly, BlackRock’s offering has emerged as the clear winner but there are now 4 spot ETFs (BlackRock, Fidelity, Bitwise and Ark) with over $1bn in AUM, an impressive feat for any new ETF launch.

Daily net BTC ETF flow - source: BitMEX Research

A majority of BTC price action has occurred outside of US market hours, making it harder for ETF traders to capitalise on volatility and ETF vs spot crypto exchange arbitrage. As we suggested in this DL News article, data on ETF flow is being published around the London open which could be driving narrative and causing speculative trading to occur around that time.

Revisiting one of our horizon scanning headlines from a couple of weeks ago, Coinbase beat street expectations for its Q4 and Full Year 2023 results convincingly, posting $273m of net income in Q4 alone.

Shares were up 22% on the week as the market digested that these earnings did not include any of the ETF related volume increase which kicked off on January 11th. Additionally, new crypto accounting rules from FASB, the body behind GAAP, will allow companies that hold crypto on their balance sheet to record gains (as opposed to just losses), with this new standard expected to come into play for Q1 2024 earnings.

Key News

Horizon Scanning

  • As explored below, the market is keenly watching for a legal/ regulatory update to hit the tape after Uniswap announced a reward mechanism proposal for token holders.
  • Sentencing of convicted Sam Bankman-Fried to take place on 28th March 2024.​​​​
  • Ethereum’s Dencun upgrade is scheduled for 13th March 2024. Combined with ETH ETF hopes, this is driving a bullish narrative for ETH which lagged during much of the 2023 end of year rally.

UNI Reprices on Proposal to Change Fee Structure; ETH Plays Catch Up

By: Adam Farthing

Key Takeaways

  • BTC consolidates at cycle highs, oscillates within 50.5/53.0k range
  • ETH up 24% in 2 weeks, broke $3000 Sunday after multiple attempts
  • UNI repriced from $7 range to $11 after key governance change proposal
  • UNI proposal raises questions on SEC treatment of revenue sharing tokens
  • AAVE, MATIC, BNB strong; recent darlings SOL, AVAX underperformed
  • Futures basis remains bid; altcoin swap funding pumped
    ​​ ​

Flow Analysis

Looking Back

BTC has consolidated, while ETH and some alts have played catch up. The most notable price move was UNI which rallied 60% on Friday, upon the announcement of a proposed change to Uniswap’s governance proposal, which would mean that fees may flow to token holders. This decision is at odds with the accepted consensus that revenue sharing agreements for US based tokens would open up the issuer to legal challenge from the SEC. The market is closely watching for news regarding the regulatory stance on revenue sharing and classification of tokens as securities.

Ethena, a yield bearing stablecoin which uses a protocol to collateralize with crypto but avoids having to over-collateralize, thereby increasing yields, recently came onto the radar of the wider crypto market. The stablecoin should be able to hold its peg as long as ETH perp funding remains generally positive, but periods of negative funding can be covered by staking yields.
In the event that neither is true for an extended period, without additional external capital, the value of the coin will start to slowly erode below $1 and yields will become negative. The expectation would be that users will redeem at lower prices to avoid the negative funding, meaning that funding hedges will be lifted, allowing funding rates themselves to rise. The theory is that as this stablecoin uses an external funding rate, its supply and demand should be anti-reflexive, making it a much more solid design concept than some previous crypto-collateralized stablecoins which have historically existed. Athena was estimated to be 5% of the open interests in ETH perp swaps late last week.

Our client flows over the past week have shown a preference for ETH (57.0% buyer) over BTC (54.1% buyer), while we also had strong buy flow in XRP (69.5%), LINK (68.8%), AAVE (70.5%, and MATIC (73.0%).  We saw decent selling in SOL (61.5%) and DOGE (59.5%).

Futures basis remains well bid, with the market as a whole prepared to pay for short term USD borrows in the mid-high teens.  Perp funding was very elevated on Deribit in the early part of last week, but in the last few days the highest perp funding rates have moved to Asian exchanges. Altcoin swap funding has also picked up considerably over the past week.  

Implied vols remain elevated, with market participants comfortable paying a healthy risk premium to own volatility and call skew. However, the 2 main surfaces tell very different stories. Over the past 2 weeks, BTC vols are up but only slightly: March up 3 vols to 54% and June up 4 vols to 62%; while March ETH ATM vol is up 11 vols to 61% over the 2 weeks, while June is up 10 vols to 67%. ​

Looking Ahead

Macro data is all about inflation this week. On Thursday we will see the Fed’s preferred measure of inflation, the core PCE deflator, which is expected to have dropped slightly to 2.8% YoY in January. On Friday we’ll see Eurozone core HICP for February, expected to drop below 3.0% for the first time in a couple of years.  

In crypto-land, we’ll be watching the ETF flows, watching for more news about the potential for ETH ETF’s, and also watching for any reaction and analysis about the proposed UNI governance change.

Dive Into the Data

Retail brokers provided our strongest buy flow, while we saw some selling from OTC brokers.
While all regions were biased to the buy side, Asia-based clients were the strongest buyers at 62.4%.

All data sourced from our real time systems supporting global 24/7 liquidity provision

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