Market Summary

Bitcoin Price: US$ 16,888.30 (+1.70%)
Ethereum Price: US$ 1,253.23 (+0.80%) 

ETH Supply Turns Net Deflationary Since the Merge

• Total ETH supply has turned net deflationary since the Merge occurred on Sep. 15. Since then, total ETH supply has reduced from 120.521M to 120.515M, after reaching an all-time high of 120.533M on Oct. 8.
• Median gas prices on Ethereum have remained at elevated levels after spiking to reach 35 Gwei on Oct. 10. This was the highest level reached since the beginning of July.
• Significant market events such as the popularity of the XEN token mint, Vitalik’s tweets that spurred multiple meme tokens, and the collapse of FTX have led to increased on-chain activity and gas prices.
• This has led to more ETH being burned than minted. Over the last 30 days, the total ETH supply has reduced at an annualized rate of -0.14%. Prior to the Merge, the annual inflation rate was approximately 4.1%.
• While recent market events have spurred significant on-chain activity, they do not compare with the exuberance typically experienced during a bull market. During 2021, gas prices were frequently over 100 Gwei.
• Many have pointed to the deflation caused by recent market events as evidence that a sustained increase in on-chain activity during the next bull market can lead to massive deflation in ETH.

Monthly Chartbook – Inflation Cooperates, But Is It Enough?

• At the FOMC meeting on Nov. 1st-2nd, the Fed remained hawkish. Powell reaffirmed his stance once again, stating the committee’s desire to curb inflation at seemingly all cost. At the press conference, Powell received many tough questions around the future trajectory of interest rate hikes. Powell was non-committal, while acknowledging that the pace of hikes will have to come down at some point, although when is still to be determined. Markets have since repriced the December FOMC meeting, placing an ~80% probability of a 50bps rate hike with ~20% probability of 75bps. This is in stark contrast to the probabilities noted just a few weeks prior.
• The DXY has finally had a sizable pullback, on the back of November’s CPI print which came in slightly better than expected. It is important to note that while this did not occur in October, during the purview of this Chartbook, it is relevant nonetheless.
• In the wake of the most recent FOMC meeting and CPI reports, Fed Fund futures have reacted to the market repricing as we head into the last FOMC meeting of the year. Equities and most risk assets have rallied off of their lows as companies benefited from a stronger-than-expected earnings season and the CPI print coming in lower than expected.
• If we revisit a Chartbook mainstay, we have seen the first real sign of divergences. In the wake of FTX’s collapse, crypto markets have been devastated while other risk-asset markets have been unaffected. BTC has broken down to new lows along with many other coins. ETH is holding on for dear life, as well.
• Continue on Delphi… 

Morpho Finance: A Pareto-Efficient Lending Optimizer

• Morpho is built on top of existing lending protocols like Aave and Compound. It enables zero-spread loans by automatically matching lenders to borrowers wherever possible. Morpho also preserves the same liquidity and liquidation guarantees as the underlying lending market. Debt and lending positions move automatically between the underlying P2Pool markets and a P2P credit line as counterparties are found or lost.
• Instead of just P2Pool matching, as with Aave and Compound, Morpho uses a hybrid model. It combines P2P matching with the underlying P2Pool market as a fallback. Right now, the two fallback markets Morpho leans on are Aave and Compound, paving the way for “Morpho-Aave” and “Morpho-Compound.”
• Continue on Delphi… 

Circle Reveals FTX Exposure, Says USDC Conversions on Binance Have Hurt Projections

• The collapse of FTX and automatic conversions of USD Coin on Binance will cause Circle’s performance to be “materially lower” than the projections it made in February, the company said in a new regulatory filing. 
• In it, Circle disclosed that the “tiny” FTX equity that Circle CEO Jeremy Allaire alluded to on Twitter last week is a $10.6 million investment the company made in the FTX Group, according to new regulatory filings.
• Relatively speaking, the $10.6 million probably is small for Circle. 

DeFi Protocols Are Winning Users as Centralized Crypto Exchanges Suffer Ether Outflows

• Decentralized finance (DeFi) protocols are surging in popularity – just as signs pile up that big centralized crypto exchanges are going in reverse.
• According to data analytics platform Nansen, most DeFi protocols have experienced double-digit percentage growth in users and transactions in the past seven days, a sign of vitality following the collapse of FTX.
• For example, dYdX, a decentralized crypto exchange on the Cosmos blockchain ecosystem, has seen users increase by 99% and transactions climb by 136%.
• The growth is reflected in digital-asset markets: Despite 88% of digital assets in the DeFi sector declining in the week through Tuesday, amid the fallout from FTX’s collapse, the price of the dYdX token (DYDX) is up 77%.
• Within the CoinDesk Digital Asset Classification Standard (DACS), the DYDX token is categorized as a member of the CLOB (central order limit book) industry – the only one among 36 industries with a positive week-over-week return, according to CoinDesk Indices.

Market Wrap: Bitcoin Rises on Encouraging Inflation News

• The latest inflation data on Tuesday suggested that the U.S. central bank was winning its campaign against inflation, and crypto investors relished the news.
• Bitcoin was recently trading above $16,700, up more than 2% over the past 24 hours. The largest cryptocurrency has been inching up since Monday even as fallout from crypto exchange FTX’s liquidity crisis and filing for Chapter 11 bankruptcy protection widens. The Wall Street Journal reported that crypto lender BlockFi is preparing a potential bankruptcy filing because of its “significant exposure” to FTX.
• “Bitcoin is showing resilience here but it is hard to imagine investors are ready to test the waters until we learn more of the full contagion risk associated with FTX,” Edward Moya, senior market analyst for foreign exchange market maker Oanda wrote, although he warned that “if more exchanges or crypto companies pause withdrawals or limit activity, that will likely bring back the pressure on cryptos.”

Australia suspends FTX’s financial services license

• The Australian Securities and Investments Commission has suspended FTX Australia’s financial services license in the country until May 15, 2023.
• “Until [December 19] 2022, FTX Australia can continue to provide limited financial services that relate to the termination of existing derivatives with clients,” the securities regulator said in a statement.
• “Prior to the suspension, FTX Australia’s license permitted it to deal in, make a market for and provide general advice relating to derivatives and foreign exchange contracts to retail and wholesale clients,” the regulator said.

On-Chain Data Shows Investors Waiting, Changing Custody Behavior

• Glassnode data shows that bitcoin withdrawals from exchanges have sharply increased, with BTC balances on these platforms falling by 72.9K BTC ($1.2B) in just seven days.
• The metric looks to capture the movement of coins from exchanges and on to self-custody wallets. It’s a measure of movement, not liquidation. Investors are essentially saying, “I trust the asset, but no longer trust you.”
• The same is evident for ether (ETH), as investors withdrew 1.01 million ETH from exchanges over the past seven days.
• The FTX collapse marks a new starting point in how investors use exchange balances of BTC and ETH. Often, increases in the exchange balances for BTC and ETH implies bearish sentiment, as coins are sent to exchanges to ready them for sale.
• But a comparison of current levels to levels prior to November 2022 may give investors a distorted view.
• Now, the outflows might be signaling something very different: that users don’t want their coins sitting on the exchange – as a precaution against the risk of another deposit run similar to what just happened at FTX.

Ethereum Co-Founder Vitalik Buterin Weighs in on Sam Bankman-Fried’s FTX ‘Fraud’

• As a co-founder of Ethereum, Vitalik Buterin is one of the most prominent voices in crypto. He took to Twitter early Tuesday morning to urge his audience not to write off everything FTX’s departing CEO Sam Bankman-Fried did as a part of “the fraud.”
• “Automatically downgrading every single thing SBF believed in is an error,” Buterin said. “It’s important to actually think and figure out which things contributed to the fraud and which things didn’t.”

Crypto lender Salt halts withdrawals citing FTX impact

• Crypto lending platform Salt paused withdrawals and deposits, according to a company email sent to customers.
• The firm said in a message attributed to CEO Shawn Owen that “the collapse of FTX has impacted our business.” However, the full extent of the exposure was not disclosed in the message. 
• “Until we are able to determine the extent of this impact with specific details that we feel confident are factually accurate, we have paused deposits and withdrawals on the SALT platform effective immediately,” Owen wrote.

Senate Banking chair warns crypto could ‘crash our financial system’ following FTX collapse

• Senate Banking Committee Chair Sherrod Brown, D-Ohio, is sounding the alarm on crypto following FTX’s collapse. 
• “This year we’ve seen cryptocurrency values collapse by $2 trillion. 2,000 billion dollars,” Brown said at the opening of a hearing with top U.S. banking regulators. “The parallels to past financial crises throughout our history are troubling.”
• “We’ve seen them used for speculation and fraud, scams, sanctions evasion, outright theft – there doesn’t seem to be anything beneficial or useful that hundreds of speculative cryptocurrencies can be used for,” Brown continued, noting the partisan split on the industry’s reception. “Many on my side of the aisle have raised warning flags about this. The last thing we need is for risky new financial products to crash our financial system. Thank you those of you on the panel for your skepticism about cryptocurrencies.”

Crypto Cold Wallets in Ledger, Trezor Sales Moon After FTX Collapse

• Decentralized exchanges (DEXs) are not the only businesses doing well after the seismic collapse of crypto exchange FTX last week. 
• Hardware wallet manufacturers Ledger and Trezor both reported a huge spike in sales last week as consumers rushed to self-custody solutions to safeguard their digital assets. 
• Hardware crypto wallets keep users’ private keys stored securely offline. Unlike software wallets, they’re mostly immune to online attacks, though they’re not entirely impenetrable and have been targeted by phishing attacks before. 

FTX Accounts Drainer Swaps Millions in Stolen Crypto, Becomes 35th-Largest Ether Holder

• Whoever was behind last week’s $600 million exploit of crypto exchange FTX started moving millions of dollars in stolen funds during European morning hours on Tuesday.
• The funds were siphoned from FTX’s crypto wallets late Friday. Soon after, the exchange said on its official Telegram channel that it had been compromised, instructing users not to install any new upgrades and to delete all FTX apps.
• Multiple addresses connected to the accounts drainer on Tuesday transferred more than 21,555 ether (ETH), or over $27 million, to a single address. The tokens were later converted to stablecoin DAI on the swapping service CowSwap, blockchain data shows.
• The addresses, over several transactions, amassed over $48 million of DAI and swapped it all into 37,000 ether. The address now holds more than 288,000 ether and is the 35th-largest owner of the cryptocurrency, blockchain data pointed out by security firm PeckShield shows.

Solana DeFi Sees Almost $700M in Value Wiped Out on FTX Fallout

• At their peak last November, decentralized finance (DeFi) applications stored more than $10 billion on the Solana network, its popularity being led by high-flying proponents including Sam Bankman-Fried, the founder of the FTX crypto exchange, Multicoin Capital, Sino Global Capital and other venture funds.
• A year later, the total value locked (TVL) has dropped to just over $300 million with FTX filing Chapter 11 bankruptcy proceedings and facing prosecution, Multicoin and Sino Global reporting multimillion-dollar losses and the Solana Foundation itself losing “tens of millions.”
• Lending and borrowing platform Solend took the biggest hit both in percentage and value terms. It held over $280 million on Nov. 2 and now holds under $30 million. Data show a vast amount of stablecoins, wrapped bitcoin tokens and Solana-based tokens have left the protocol.
• Data from DeFiLlama show Solana-based decentralized exchanges (DEXs) Raydium and Orca are now the largest decentralized applications (dApps) on the network, locking up over $51 million and $46 million respectively. Both have seen over 40% in liquidity exit the platform in the past week. And both held over $150 million just a few weeks ago.

Glassnode  The Fall of FTX – Youtube

• The fallout of the #FTX collapse appears to be a dramatic shift towards self-custody, especially for $BTC and $ETH.
• In our latest video report, we explore the net inflow of stablecoins to exchanges, and historical outflows of #Bitcoin and #Ethereum