Binance sees $1 Billion outflows after CEO, CZ pleads guilty

How did this impact Binance’s BNB token?
Team Halogen
November 27, 2023

Market Movements 

Global Macro Highlights 

📉 Treasury yields fall Monday after strong 20-year notes auction
❌ FOMC shifts into cautious policy mode, no indication of rate cut
📊 Microsoft on pace to hit all-time high after hiring OpenAI’s Sam Altman
📈 Nvidia earnings crush forecasts, outlook tops estimates, amid surging AI demand

Source: Bloomberg

It was a relatively dull week in tradfi markets, with everything in a bit of a holiday slump ahead of Thanksgiving in the US. Tier 1 data was missing this week, and FOMC minutes Tuesday night did little to change the outlook that the Fed would be on hold for the coming few meetings.In the news, notable headlines were that a 4 day ceasefire would be starting Friday in Gaza, conditional on the release of 50 hostages held by Hamas. 

In the last 2 quarters, Nvidia’s earnings were sufficient to move markets on its own. This week, NVDA beat analyst estimates, but forward guidance was subdued on an uncertain Chinese data centre outlook. While NVDA took a slight hit though, market breadth seems to have caught up slightly as the major US indices barely budged. Or, perhaps Microsoft helped buffer the hit with its initial ‘acquisition’ early in the week of Sam Altman and Greg Brockman, who were ousted from OpenAI in some serious boardroom comedy. MSFT shares gapped higher in the pre-market session following the news. That said, SAMA’s potential return to OpenAI since is still a question mark, but MSFT seems to be weathering price action well.

The Dollar was mixed this week - gaining heavily vs. JPY but weakening against everyone else. The Chinese Yuan led regional currencies higher vs. the Greenback, starting the week strong but then moderating in the 7.13/7.15 CNY region. Yen weakness continues to confound currency traders, and volatility in the USDJPY pair has beaten momentum traders on both sides of the trade. 

Malaysia Market Highlights

📉 Stats Dept: Malaysia’s inflation moderates to 1.8pc in October
🇲🇾 Anwar’s popularity dives before anniversary as Malaysia’s economy weighs
📈 Business confidence improves in 4Q

Source: Department of Statistics, Malaysia

Local markets have been taking signals from the global space, but after the previous week’s stellar start, the Ringgit has lagged behind peers this week. Despite usual correlation with the Yuan and regional pairs, Ringgit failed to keep its gains from the start of the week. The SGDMYR pair continued to inch higher, and now sits just under the RM 3.50 level.

With local CPI print missing analyst expectations and printing a benign 1.8% YoY, expectations for the status quo to be cemented continue. Friday’s price action saw two way flows in the local currency, though volumes were purportedly light and foreign interest leaned towards buying Dollars.

The CPI release was too late in the week to have an impact on local bond markets, as Malaysian Government Securities continue to track movements in US Treasuries and ending the week with a small loss as indicated by the FTSE BPAM Government All Bond index. 

However, the lack of large price movements in the government bond space drove investors to corporate bonds to seek yield with more exciting price movements there:

This also benefited the Halogen Shariah Ringgit Income Fund to a smaller degree because of the short duration position of the Fund.

The above notwithstanding, the Malaysian government yield curve saw mixed movements during the week:

Crypto Market Highlights

⚖️ Binance Founder Changpeng Zhao steps down, pleads guilty
✍️ Grayscale met with SEC to discuss spot Bitcoin ETF details
💸 Binance saw $1 billion in net outflows over the last 24 hours

Source: Bloomberg

While tradfi markets were relatively quiet, the same could not be said for crypto. On Monday, it was reported that the US Department of Justice would be seeking a settlement with Binance to the tune of $4 billion, purportedly one of the largest corporate fines in US history. Binance supporters scoffed at the amount, most saying that the company could easily afford it. The BNB token strengthened handily over the news, and the broad crypto market cheered as well.

However, the initial headline wasn’t complete. In addition to the above, Tuesday’s official release by the DOJ also announced that Binance CEO Zhao Changpeng (widely known as CZ) had admitted guilty to money laundering and breaches in US securities laws; he would be serving up to 10 years in prison as well as a hefty personal fine. This wasn’t a settlement agreement, it was a deferred prosecution agreement - a lesser sentence for admission of guilt on some charges, plus an ongoing audit of the company to ensure compliance going forward. CZ also stepped down as the Binance Global CEO, and Richard Teng (formerly head of Regional Markets) has been named as his replacement.

The initial sentiment abruptly reversed and the market was sold hard. The BNB token, which had initially traded as high as $270, quickly fell back nearly 20% from there, notching a low of $224. Major tokens were also sold down across the board. However, once the knee jerk reaction was over, cooler heads prevailed. Players started to view this event as closure on the whole Binance vs. DOJ saga, and once it was deemed that the current world’s largest exchange would not go down, sentiment started to turn for the better again. Crypto ended the week on a strong note, with both Bitcoin once again making a new year-to-date high.

What we are monitoring for the week ahead

What does all of this mean? Our thoughts 

The US treasury curve continued to trade tight over the week, although the curve inverted slightly deeper. The market continues to fade the Fed’s higher for longer messaging, and it’s being expressed by bear flattening - long end treasuries being bought as a sign of poorer economic expectations to come. With the revisions lower in employment data seeming to gather more momentum of late, perhaps the market is right in calling the Fed’s bluff. 

Deflationary-like quarters (of which Q4 2023 should end up being one) has generally resulted in classic risk-off type of price action, where treasuries are bought, commodities fall, stocks underperform, and the Dollar shines. We’ve seen the first two playing out, but the latter two have yet to show up. But of course, context matters. This environment is also positive for the tech sector, which now makes up the heaviest weightage in US equity barometers. The rate of change in US policy is also a factor here, especially in FX markets where participants typically lead by 3-6 months.

Post OpEx event in US markets, a dip in index prices due to the rolling of expiring options positions would have resulted in a higher conviction for a healthier rally. Instead though, dips continued to be shallow in this period. The only ‘dip’ came on the back of Nvidia’s earnings call, and even that hasn’t had much impact. All of that points to a higher likelihood of a Santa rally for December.

With scant domestic drivers for the rest of the year, Malaysian capital markets are likely to continue following the tune of US markets. Malaysian bonds lay on the pricier side (a.k.a. lower yield) just behind Thailand and Singapore and therefore is likely at the mercy of any sharp reversal in risk appetite. One idea for Malaysian bond investors who are sitting on pretty gains (over +6% by our estimations as of time of writing looking at the corporate bond index) is to take profit and take risk off the table as we head into a December featuring some potential binary risks e.g. Fed’s December policy meeting. A great way to express that view is our Halogen Shariah Ringgit Income Fund featuring a duration position of less than a year.

Despite the initial hit to sentiment, the Binance-DOJ news has actually been net positive for the crypto market. Such is also the narrative that other crypto news portals like Coindesk have gone for, and even JPMorgan analysts agree. Without the risk of an implosion from Binance facing a run on its exchange, crypto traders can continue trading with less trepidation.

In the majors, we continue to see attempts for Bitcoin and Ether to trade higher being rejected at recent resistance levels. $38,000 in Bitcoin and $2,135 in Ether are shaping up to be strong levels to watch. From a price perspective, Bitcoin’s upside is likely limited until a fresh catalyst hits the market. Ether on the other hand does have scope to break above current levels, given its relative position in the ETF narrative cycle. 

The options space does not anticipate any fireworks in the near future on that front. Front end implied volatility has sunk (though not to the level we saw prior to the DTCC headline blow up), and the spread between end November and end December options is steep (Dec expiry is at an 11 volatility point premium). The difference between end Dec and end Jan 24 only stands at 6% though, indicating that the options market does not rule out a decision coming early.

Bitcoin network activity has picked up significantly in the last week. Network fees have soared as a result of the increased network congestion, making it more expensive to transact Bitcoin via onchain measures. Some point to an increase in Ordinal inscription activity (Ordinals are Bitcoin’s version of NFTs), though we have yet to hear of any one collection that has enough hype to do so. One unlucky person also accidentally paid 83 Bitcoin in fees this week just to send BTC over the network. 

Such are the perils of self-custody and navigating the blockchain world. If you are not prepared for the rigours of that, but still want to participate in Bitcoin, do consider vehicles like our Halogen Shariah Bitcoin Fund.

Thank you for reading and we’ll see you next week!

Team Halogen

Disclaimer: The information, analysis, and viewpoints presented here are intended solely for general informational purposes and should not be construed as personalised advice or recommendations for any specific individual or entity. For personalised investment decisions, individual investors are advised to consult their licensed financial professional advisor. The opinions expressed by the Manager are based on certain assumptions or prevailing market conditions, and they are subject to change without prior notice. This material is being distributed for informational purposes only and should not be regarded as investment advice or an endorsement of any particular security, strategy, or investment product. While the information provided herein may include data or opinions from sources believed to be reliable, its accuracy and completeness are not guaranteed. Reproduction of any part of this material in any form or reference to it in other publications is strictly prohibited without the express written permission from Halogen Capital Sdn Bhd. Halogen Capital Sdn Bhd and its employees assume no liability regarding the use of this material or its contents.

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November 29, 2023
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