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BEQUANT Crypto&Coffee

The markets are known for their tendency to swing into extremes, whether that’s extreme risk on or risk off tone. This applies to both traditional assets, as much as it does for digital assets. Market’s perception of what is ultimately “good” is also not always accurate nor consistent, take the previous US elections as an example. Very few remember Trump's dismal polling in 2016, when the NYT declared Hillary's chances of victory at 92% just days before the election. Everyone is of course well aware of what happened on Nov 8, 2016 and how the market reacted, for months to come. Now, the narrative across both media and markets is such that the latest polling data is again pointing to the "guaranteed" victory of Joe Biden over Donald Trump.

The move by the CFTC to charge BitMEX with illegally operating a derivatives trading platform, while also indicting Arthur Hayes and colleagues on criminal charges for Bank Secrecy Act violations was initially met with broad based sell-off. DeFi assets took a particular beating as market participants were seen booking profits, while others feared the lack of clear KYC/AML approach by DeFi based offering will ultimately lead to their demise. The onus however is on the centralised venues to ensure that initial checks are done accordingly, as well as subsequent fiat transactions upon profit taking or otherwise. In fact, the latest regulatory pressure on Bitmex may ultimately prove net positive for DeFi, as market participants move their Bitcoin holdings into other centralised exchange or looking for an alternative, higher yielding digital asset market place. 

As per data from Glassnode, over 45,000 BTC have been pulled from the exchange and Bitcoin balance on BitMEX has dropped to 120,000 BTC – a decrease of 27%. Looking at the price action by large, mid-cap and small-cap assets in the wake of the aforementioned developments, small and mid-caps traded in tandem and fell close to 8%. However, the mid-cap (MVIS mid-cap index) has since recovered ground and is only down 2.5%, while large cap index is down 1.95%. The small-cap index is down 4.6% at the time of writing. The amount locked across the DeFi ecosystem remained largely unfazed by the news and liquidity on Uniswap hit a new record high.

In addition to that, The Defiant reported citing Jake Chervinsky, Compound Finance’s general counsel, that the CFTC's complaint against BitMEX highlights some of the key elements of regulated futures commission merchants that generally don't apply in DeFi, adding that most governance token holders don't ‘operate’ a protocol in the way that owners of a centralized exchange company ‘operate’ a trading platform. DeFi protocols are autonomous, self-executing code, also exchange operators hold customers’ funds, which is also not the case in DeFi.

Another narrative that has been at the top of market’s agenda is the unprecedented levels of volatility that market participants will be subjected to in the coming weeks ahead of the eagerly awaited elections in the US. However, as per CoinDesk article this weekend, Bitcoin’s 180-day volatility dropped to its lowest mark since November 2018, reaching a 23-month low of 0.028 on Sunday, as the market was mostly unfazed by a week of unsettling news. Implied vol remains well contained and even the skew profile, for both Bitcoin and Ethereum, is show signs of stabilization. The market is very crowded and it is difficult to see how this will change, especially as the entire liquidity provision is dependent on cheap liquidity (Bitcoin) and yield offerings by DeFi platforms (with Ethereum as the backbone).

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