Beware of The Sleeping Lion

Whilst bonds get routed and equities continue to show massive weakness, Bitcoin remains compressed. This feels like a tightly wound coil ready to burst and in today's Morning Note we analyse the impact this can have on the crypto markets.

The information contained here is for general information only. It should not be taken as constituting financial advice. Stormrake is not a financial adviser. You should consider seeking independent financial advice prior to making any personal investments.

Volatility coil

Credit: Reflexivity Research

Will Clemente of Reflexivity Research posted on Twitter recently an apt summary of the current situation in Volatility, " Equity volatility (VIX) relative to Bitcoin volatility (BVOL) is approaching all-time highs. This illustrates just how much volatility compression Bitcoin is currently experiencing". Although the BitVol index has risen 4 points to test 70, relative to other assets its volatility remains quite muted. With US consumer inflation prints set to come out at 11:30pm AEDT, we're anticipating a significant move to occur should it come in hotter than expected. It would be egregious to not prepare for significant inbound volatility .

To break it down further, here is the key takeaways from what we are sharing above:

Big volatility implies big swings (up or down)
VIX is a measurement of volatility of US equities.
BVOL is a measurement of volatility of Bitcoin.
When we compare the VIX and BVOL, wee see a very significant difference.
We anticipate bitcoin is ready to break into high volatility

Protect your downside. Prepare for upside.

DeFi exploit strikes again

Solana based DeFi protocol, Mango was hit with a $100 million USD exploit.

At a high level:

1. This was not a flashloan attack

2. The attacker addresses were funded 5.5M via FTX

3. It appears the attacker manipulated prices across all exchanges, not just Solana oracles

This is clearly not a hack but a sophisticated exploit that used 5 mill USD to create massive imbalances in trading pools, take out under collateralised positions in perpetual markets, then counter-trading themselves to drain the other side of the smart contract.

Following the exploit, the attacker jumped into the Mango Protocol discord channel to initiate a proposal for the stolen funds. The comical series of events was outlined by anonymous Twitter user, Hsaka with the following outline:

>Hacks Mango for $100m

>Submits proposal for Mango to use $70m from treasury to repay bad dept and let him keep 50% of the proceeds.

>Votes yes on proposal with 30m stolen mango tokens

>Refuses to elaborate

This is a developing story but one worth tracking as it will create price dislocations between the spot and perpetual markets.

BTC/USD key levels

After some early weakness in the Bitcoin markets having it retest the $19,000 USD handle, there was a brave defence of that level and it's now travelling back to the key pocket of $19,560. Should there be a softer than anticipated inflation print come out of the US (11:30pm AEDT), expect a sharp move to $20,554 before the first resistance test. This move would be a favourable 7% swing to the upside but expect it to be faded throughout the course of the trading session.

To the downside, if we lose $18,549 we will anticipate a retest of the local lows around $17,647. That handle will be defended aggressively, so we can expect strong support at the local lows and a potential retrace back to the $19,000 handle.

ETH/USD key levels

Ethereum continues to trade sideways and follow Bitcoin's lead. We have drifted slightly lower from the all important $1,333 level but haven't retested a key support level. The support will come in at $1,241 and will likely be on the back of a hotter than expected CPI print. Should we lose this pocket, expect a sharp move down to $1,111. To the upside, a reclaim of $1,333 can have us retest $1,400. If we close above $1,400 then we can anticipate retest of $1,472 before slowing down into overhead resistance.

No Advice Warning

The information in this newsletter is general only. It should not be taken as constituting professional advice from the author - Stormrake PTY LTD.

Stormrake is not a financial adviser and does not provide financial product advice. You should consider seeking independent legal, financial, taxation or other advice to check how the information relates to your unique circumstances. Stormrake is not liable for any loss caused, whether due to negligence or otherwise arising from the use of, or reliance on, the information provided directly or indirectly, by this newsletter.

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