Weekly Market Update - Friday, August 4, 2023 - Ether Futures ETF Applications Filed, US Credit Rating Downgraded, and Curve Struggles After Exploit

Takeaways

• Ether futures ETF applications filed: Six ether futures ETF applications were filed with the US Securities and Exchange Commission (SEC) over the past week. The asset managers filing the applications include Grayscale, VanEck, Bitwise, Volatility Shares, ProShares, and Round Hill Capital.
• US credit rating downgraded: Fitch Ratings downgraded the US government's credit rating from AAA to AA+. Fitch cited fiscal deterioration and repeated down-to-the-wire debt ceiling negotiations creating political instability as some of the reasons for the downgrade.
• US added 187,000 nonfarm jobs in July: While these numbers came in below expectations of 200,000, the unemployment rate dropped to 3.5% in July, compared to 3.6% in June. Wages increased 0.4% from June as year-over-year wage growth held steady at 4.4%.
• Curve exploit leads to over $70 million USD in losses: Curve Finance faced an exploit resulting from a vulnerability with the programming language Vyper. Total Value Locked (TVL) on Curve plummeted from ~$3.25 billion USD to a low of ~$1.69 billion USD.
• Memecoin BALD spikes and crashes in less than a week: The previously-unheard-of memecoin, BALD, saw its market cap spike to ~$85 million USD before dropping to $6.5 million USD in a matter of a few days. Suggestions arose that BALD’s developer was connected to Alameda Research, the trading and research firm linked to FTX and founded by Sam Bankman-Fried.

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Bitcoin Remains Range-Bound Between $29k-30k USD

After dipping below its $30k USD support last week, bitcoin (BTC) has largely traded in the $29k USD to $30k USD range. BTC briefly dipped below the $29k USD level as a Curve exploit developed and potential contagion across some of the largest DeFi protocols became a larger concern.

BTC prices briefly bounced back Tuesday, rallying to $30k USD as five ether (ETH) futures exchange-traded funds (ETF) applications were filed within 24 hours. Ether (ETH) traded in a similar pattern, winning back nearly all of its weekly losses to $1,878 USD before faltering again. The push higher was not sustained, however, as BTC and ETH retraced, driven by weakness across equity markets following the US government's credit rating downgrade on Wednesday.

Ether Futures ETFs Filed With SEC

Over the past week, six ether futures ETF applications were filed with the US Securities and Exchange Commission (SEC), with five of them filed within 24 hours on Tuesday. The filings come on the heels of the spot bitcoin ETF filings earlier this summer, which are currently under consideration.

A range of asset managers filed the ether ETF applications, including Grayscale, VanEck, Bitwise, Volatility Shares, ProShares, and Round Hill Capital, many of which have bitcoin ETF applications currently on file with the SEC.

ETH prices remained largely within the $1,800 USD to $1,900 USD range following the news.

US Credit Rating Downgraded by Fitch

US equities plunged lower on Wednesday after Fitch Ratings downgraded the US government's credit rating from AAA to AA+, surprising investors and eliciting a rebuke from the White House, which called the move “bizarre and baseless.”

Fitch cited fiscal deterioration and repeated down-to-the-wire debt ceiling negotiations creating political instability as some of the reasons for the downgrade. On Wednesday, the Nasdaq posted its worst day since February as it closed -2.21% lower, while the S&P 500 shed -1.38%, the largest drop since May.

US Job Market Grew at Moderate Pace in July

The US Department of Labor announced Friday that 187,000 nonfarm jobs were added in July, falling below expectations of 200,000. The unemployment rate continued to trend downward, decreasing to 3.5%, compared to 3.6% in June.

Wage growth remained strong, gaining 0.4% from June, and keeping year-over-year wage growth at 4.4%. The market reaction was muted after the jobs report as treasury yields fell following this week's rally and investors digested mixed quarterly earnings reports.

Curve Exploit Led to $70 Million USD in Losses as TLV Plummets

Curve Finance, one of the largest decentralized exchanges (DEXs), faced an exploit on Sunday resulting from a vulnerability with the programming language Vyper. The exploit impacted a number of liquidity pools on Curve that use Vyper and led to a loss of over $70 million USD.

Following the attack, Total Value Locked (TVL) on Curve plummeted from ~$3.25 billion USD to a low of ~$1.69 billion USD on Tuesday as users fled the protocol. CRV, Curve’s native token, saw its price drop ~30% as a result, from ~$0.75 USD before the exploit to a low of ~$0.50 USD. CRV has since rebounded slightly to around $0.60 USD.

CRV saw further sell-side pressure after it was reported that Curve founder Michael Egorov had over $100 million USD in outstanding loans across various lending protocols backed by 427.5 million CRV tokens. The Block reported that Ergorov has sold 106 million CRV tokens via OTC transactions, possibly to reduce his outstanding loans on DeFi platforms to avoid liquidation risk.

Other DeFi protocols underperformed this week following the exploit. Synthetix (SNX), Compound (COMP), and Aave (AAVE) have all experienced double digits declines over the past seven days. Still, the contagion has been relatively contained as several prominent traders in crypto have coordinated to save Curve Finance by purchasing CRV.

Alleged BALD Rug Pull May Be Connected to FTX-Related Alameda

Memecoin mania saw a resurgence earlier this week on Coinbase’s Ethereum Layer-2 network Base as BALD, a previously-unheard-of memecoin, gained traction on X (previously Twitter). BALD’s market cap spiked to ~$85 million USD, with trading volume well over $100 million USD, as rumors spread that the coin was run by someone within Coinbase.

On Monday, BALD prices dropped dramatically as a mystery developer pulled liquidity, the hallmark of a rug pull. The following day, Wintermute Head of Research Igor Igamberdiev suggested that BALD’s developer was connected to Alameda Research, the trading and research firm founded by indicted FTX founder Sam Bankman-Fried. BALD’s market cap sat at $7.7 million USD as of Friday.

Litecoin Halving Event Muted as Mining Rewards Cut to 6.25 LTC

The Litecoin (LTC) halving event came and went without much fanfare. Similar Bitcoin halving events, the latest LTC halving will cut the network's mining rewards from 12.5 LTC to 6.25 LTC. The price of LTC shed more than 10% since Sunday, dropping from ~$96 USD to ~$83 USD by Friday.

-From the Gemini Trading Desk