At the time of writing, Bitcoin is trading at $28,900 USD and Ethereum at $1,885 USD. Crypto prices started the week on a strong uptrend after yet another US commercial bank – the First Republic Bank – was rumored to be facing an existential crisis. This pushed the price of BTC back to $30,000 again before a sudden and quick selloff. This time around, however, there was at least a notable reason for the selloff. A whale movement tracker notified several of its hedge fund subscribers that the wallets of the US Government which held around 205,514 BTC and the custodian account of the Mt Gox Creditors which contained around 137,890 BTC had shown movements. This quickly caused trepidation in the markets signalling large players to take the other side and open up net new short positions causing further sell pressure. This caused a downward spiral with the price of BTC falling ~10% within minutes back down to $27,200. However, about an hour later, it was revealed that the whale alert was an error caused by a system bug and that those two whale wallets did not have any movement – meaning they did not sell any BTC. This revelation managed to stop the price of BTC from declining further.
According to on-chain analytics, even with the decline in price last week, some whale purchase activity has returned to BTC. A group of whales who sold BTC on 11 April when the price was above $30,000 are back quietly accumulating BTC again. Addresses holding between 100 to 10,000 BTC have collectively added almost 30,000 BTC to their positions last week, entering the market to buy when BTC dipped to below $28,000 on 26 April. This group of whales have added 64,094 BTC back over the past 16 days since reducing their positions on 11 April.
Yesterday, the Federal Reserve raised rates by 25 bps. Federal Reserve Chairman Powell signalled that the US is near the end of its hiking cycle. Powell suggested wages were not the primary driver of inflation. Weaker than expected Q1 GDP (+1.1%) and signs the labor market is finally cooling off signalling the Fed may be done. However, higher inflation remains sticky, and the most recent ISM manufacturing survey shows the price paid component rose more than expected (from 49.2 to 53.2). Inflation and inflation surveys lead some economists to believe the Fed may not be done yet. If the Fed can look beyond inflation, they must consider the regional banking crisis, the lagged effect of previous hikes, and a barrage of coming Treasury issuance.
Today, the European Central Bank (ECB) raised rates by 25 bps. Reportedly ECB members reached a deal on a smaller 25 bps rate increase today in exchange for guidance on additional hikes ahead. The majority of members believe that the ECB’s rate hike cycle is almost over similar to the Federal Reserve.
This has been a peculiar policy cycle as consumers have been less rate sensitive because of unusually high savings and low debt at the outset. Monetary policy has likely not been effective against the transitory or oil price inflation episodes. The burden of rate hikes seems to have fallen harder on lower-income groups. As monetary conditions tighten, investors will likely see more pressure on earnings and profits in the quarters ahead. Notably, oil is already pricing in an economic slowdown.
Equities, Fixed Income, FX and Commodities
Last week, The Dow finished April 2.5% higher, the S&P 500 logged a 1.5% monthly gain, while the Nasdaq only ended the month a tad higher. On a weekly basis however, the Nasdaq saw the largest gain of 1.3%, in what was considered Big Tech’s marquee earnings week. The Dow and S&P 500 each finished the week about 0.9% higher as most earnings released over the week beat expectations. Contagion in the US regional banks continued to spread following the latest PacWest and Western Alliance Bancorp headlines.
Fixed Income, FX & Commodities
Treasury yields have moved lower, exacerbating the negative spreads to fed funds and in turn pressure on bank balance sheets. Gold prices looked poised to break out above $2050/oz what appears to be risk off trade. Oil prices were stable after the European Central Bank (ECB) decided on Thursday to slow interest rate hikes, but were unable to claw back much of this week’s more than 9% decline as demand concerns in major consuming countries weighed. Brent futures were up 9 cents, or 0.12%, to $72.42 a barrel at 1338 GMT. U.S. West Texas Intermediate (WTI) crude fell 13 cents, or 0.19%, to $68.47.
News we’ve been reading
- The White House published a report on the ‘Digital Asset Mining Energy excise tax, earlier this week. The ‘Dame Tax,’ included in the Budget for Fiscal Year 2024 released last month, will require crypto mining firms to pay a 30% tax on the cost of electricity used in mining after a ‘phase-in period.’ – link – @TheWhiteHouse
- US Congressman Patrick McHenry said the US House Financial Services Committee will assemble legislation to oversee the crypto industry in the coming months. Speaking at CoinDesk’s Consensus conference last week, McHenry added that the committee will begin holding joint public hearings in May, which aim to address commodities and securities regulations for the industry. – link – @CoinDesk
- U.S. SEC Changes Its Mind on Officially Labeling Digital Assets. The Securities and Exchange Commission was about to define “digital asset” but deleted it in the final version of a rule, reversing a move that might have started formalizing crypto’s role. –link – @CoinDesk
- The ongoing legal dispute between blockchain firm Ripple (XRP) and the Securities Exchange Commission (SEC) continues to drive uncertainty in the crypto community. Ripple has recently commented on the potential summary judgment date in its Q1 2023 quarterly report. While Ripple anticipates that the matter will be resolved sometime this year, the company recognized that it ultimately remains up to the court to make that decision. –link -@Ripple
The fine print
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