The Curve Finance Exploit Runs a $100 Million DeFi Risk, and Bitcoin Joins the Stock Market Plunge

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The probable spread of the CRV (Curve Finance) bad debt situation has prompted Bitcoin(BTC) and the DeFi community to take a hit following another week of deathly low volatility. Furthermore, over the course of the week, US Dollar Index(DXY) and US bond yields have increased. This might be a result of the BoJ’s tightening of their monetary policy, which included raising their YCC band by 50 bps and shifting their YCC hard objective to a softer range. Additionally, the bond market appears to be moving towards a higher-for-longer consensus, which helps explain why rates are rising.

Fundamental Updates

Let’s delve into the significant developments shaping the crypto market landscape:

  • Bitcoin Is Less Volatile Than the S&P 500, Tech Stocks, and Gold: Over the summer of 2023, we experienced a real market drought. Astonishingly little trading occurs. BTC’s 30-day volatility is currently around five-year lows, having only been at these levels eight days since January 2019, and derivatives activity is similar to the slow period following the cataclysmic FTX days.
Bitcoin volatility

Nasdaq, Gold, the S&P 500, and the DXY had higher 5-day volatility than BTC. This remarkable observation has practically reproduced over the past week, with slightly reduced DXY volatility. The market is clearly in an unprecedented stable stage, which has usually worked as a big pressure valve for volatility whenever it re-ignites. Thus, long-vol strategies in options are an excellent way to express a contrarian volatility stance as IVs return to all-time lows.

  • Times of Confidence in DeFi: Curve Finance(CRV) Exploit: Over $70 million in digital assets were hacked in Curve Finance protocol attacks. JPEG’s pETH-ETH liquidity pool was exploited for almost $11 million at 9:30 am ET, possibly by an MEV searcher. Four more attacks, possibly by different perpetrators, drained Alchemix’s alETH-ETH pool, the CRV/ETH pool twice, Pendle’s pETH-ETH pool, and Metronome’s msETH-ETH pool for over $70 million, according to security expert analysis. Some of the intrusions were carried out by white hat hackers, bringing the total loss closer to $50 million. 
  • The Evolution of Zero-Knowledge Proof (ZKP): Zero-knowledge is what Vitalik refers to as the end goal, and venture capitalists are aware of its potential. ZKP might be the industry leader in the hotly debated area of privacy. In essence, ZK works by employing a prover, a verifier, and a mathematical procedure to prove something without disclosing underlying information (thus the name zero knowledge). It scales considerably better than, say, an optimistic roll-up since it is lightweight. Paul Veradittakitul from Pantera believes ZK’s application to TradFi systems like credit ratings and taxes will have a significant positive impact.

Key Data Points

BTC price analysis
  • Total market capitalization: The total market capitalization of the crypto market is currently around $1.19 trillion. This is down by 20 billion from last week.
  • Bitcoin dominance: Bitcoin dominance, which tracks the percentage of the total market capitalization that is held by Bitcoin, is currently at around 46.8%. This is 2.9% down from last week.
  • ETH dominance: ETH dominance, which tracks the percentage of the total market capitalization that is held by Ethereum, is currently at around 18.2%. This is 4.5% down from last week.

Bitcoin Price Analysis:

On August 1, Bitcoin became more volatile. The bears pushed the price below the immediate support at $28,650, but the long tail on the candlestick shows that people are buying aggressively at lower levels. The bulls pushed the price above the symbolic level of $29,000, but they are having trouble getting over the barrier at $30,000. This shows that bears don’t want to give up and are selling when prices go up.  The high end of the range could be $30,250, and the low end could be $28,500.

Bitcoin price chart

BTC Technical Indicator:

BTC technical indicator

Macro Updates:

  • The 25bps FED rate increase on Wednesday had little to no effect on volatility because BTC steadfastly traded in a fairly small range throughout the press conference. Since there are currently almost no correlations between Bitcoin and conventional assets, macro headlines have less significance for Bitcoin and subsequent coins.
  • On August 1, the rating agency Fitch lowered the United States’ long-term credit rating from AAA to AA+, which weakened the risk-on attitude. On August 2, the U.S. stock markets saw profit-taking, and the recovery of the cryptocurrency market came to a grinding halt.
  • DXY and US bond yields rose last week. This may be due to the BoJ tightening monetary policy by raising their YCC band by 50 bps and lowering their hard target. Higher yields are also due to a bond market consensus of higher for longer.

Bitcoin returns were -0.54% for this week. The Alpha Blue Chip Focused Strategy returns were -1.08% during the same period (28 July – 02 August). The Top Cap Digital Assets Strategy and Arbitrage Opportunities & Balanced Strategy returns were -1.34% and -0.61%, respectively.

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