At the time of writing, Bitcoin is trading at $27,280 USD and Ethereum at $1,854 USD. Crypto markets pulled back last week after several Federal Reserve speakers sounded the hawkish tone in their respective remarks and interviews, which led traders to believe that the rate hiking cycle may not be over. This revelation caused crypto prices to weaken throughout the week, until last Friday when Fed Chairman Powell mentioned in an interview that US rates may not have to rise as much as anticipated to curb inflation. While Powell’s slightly dovish comments did not send crypto prices flying, they nevertheless managed to keep prices from falling further.
According to on-chain analytics, BTC’s 60-day annualized volatility has fallen below 40% again. This is the 8th time it has fallen to such a level in the past 5 years. Historically, whenever BTC’s volatility drops below this level and bounces back, its price has gained around 45% in the subsequent 6 months. Furthermore, on-chain data is showing that the conviction of existing Bitcoin holders remains remarkably high, despite the extreme volatility and immense deleveraging over the last 2yrs.
Last week, Tether announced that it would, with immediate effect, invest up to 15% of its profits in BTC as it diversifies its reserves towards crypto and away from US government debt. Tether had recently reported a net profit of $1.5 billion in 1Q 2023, and 15% of it would provide an additional $225 million towards buying BTC. While the amount is not large, the move from Tether could encourage other firms to follow suit, especially when confidence in the traditional banking sector has been eroded in recent months due to the closure of several US banks.
Over the last week or so, most macro news and headlines were centered around the US debt ceiling crisis. The debt ceiling is the total amount of money that the federal government is authorized to borrow to meet its existing legal obligations (which include things like Social Security and Medicare benefits, military salaries and tax refunds). Defaulting on that limit would mean the federal government runs out of money and can no longer pay out those debts. So anyone receiving any sort of payment from the federal government — Social Security payments, military and veterans benefits, food stamp payments, etc. — would not get those payments. With a majority vote in both the House and Senate, Congress can choose to raise the debt ceiling and avoid defaulting — but it’s not a decision taken lightly, particularly among Republicans who ran on platforms of cutting costs to lower the national debt. Congress has to make a decision on the debt ceiling by early June. If a deal is reached, risky assets could rally higher, while a delay could see assets pull-back.
This Wednesday we will see the release of the minutes of the last Federal Reserve meeting, while the preliminary US GDP reading and unemployment claims will be out on Thursday. The week will close off with the release of the Fed’s favorite inflation gauge, the PCE price index. A lower than expected reading would likely reduce bets of another 25-bps rate hike in June’s Fed meeting, which traders have priced in at a 40% possibility at the moment.
There is some more evidence of the slowdown in global trade, with the Financial Times reporting that shipping container production has slumped, and stocks of unused shipping containers are clogging some ports. Consumers’ priorities have changed from two years ago. Real trade seems likely to fall relative to GDP.
Equities, Fixed Income, FX and Commodities
In the traditional markets, the second postponement of the debt-ceiling negotiations between US legislators mired a positive week which saw notable gains from tech stocks. However, traders remained hopeful that a deal would be struck this soon, hence, despite some losses last Friday, the major US averages still closed higher for the week as a risk-on sentiment enveloped the markets. By the end of the week, the Nasdaq had risen by 3.04%, the S&P 500 gained 1.65% and the Dow added 0.38%.
Fixed Income, FX & Commodities
The US dollar was up 0.5% over the week as the flight to the dollar was still evident, especially seen from the viewpoint of Gold, which fell 1.6% for the week. Silver too suffered losses, but not as much as Gold, losing only 0.6%. Most of the dollar gains were against the yen, as the interest rate differentials in the pair continued to entice traders to short the yen against the dollar. USD/JPY was up 1.6% for the week.
Oil prices were higher after surprising news out of China. Chinese refiners reportedly dipped into crude oil inventories in April for the first time in 18 months, showing that demand for oil from China could be stronger than what analysts were expecting. By the week’s close, the WTI edged up 2.6%, while Brent Crude rose 2.3%.
News we’ve been reading
- Gemini said Digital Currency Group (DCG) missed the USD 630M debt repayment it owed its bankrupt subsidiary, Genesis Global Capital, LLC. Gemini, representing a group of unsecured creditors which includes users of its Earn program, said it is considering whether it should provide DCG with forbearance to mitigate a default. On Friday, Genesis filed with its bankruptcy court to extend a period of exclusivity so it could propose a plan or reorganization without DCG or Gemini’s involvement. – link – @Gemini
- Binance and Bitstamp both informed users they will no longer offer services in Canada. Binance said ‘new guidance related to stablecoins and investor limits provided to crypto exchanges makes the Canada market no longer tenable.’ The exchange also added it hopes to someday return ‘when Canadian users once again have the freedom to access a broader suite of digital assets.’ – link – @Binance
- Quadriga CX, the Canadian crypto platform that went bankrupt in 2019, will pay out CAD 39.5M to creditors, out of CAD 305M worth of claims filed. The bankruptcy estate is also set to pay the Canadian Revenue Agency CAD 11.7M in back taxes because the company had not reported income from 2016-2018. – link – @CoinDesk
- Ripple has acquired Metaco, a Swiss crypto custody firm, for USD 250M. Metaco develops software for financial institutions looking to custody digital assets. The firm’s clients include Citi, BNP Paribas and SocGen’s asset management business. – link – @Reuters
The fine print
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