In Markets

Despite Bitcoin’s 30 days volatility hitting historic lows, a wave of volatility overnight saw around A$438M (US$290 million) in liquidations across the market. The US Fed took a hawkish tone and kept interest rates on hold at 5.5%, so the combined effects of inflation, high interest rates and Bitcoin miners capitulating, has been weighing on prices. Bitcoin finishes the week down 4% to trade at A$100,940 (US$66.6K) while Ethereum also lost 4% and is trading around A$5332 (US$3520). Solana was down 9.8%, but XRP actually gained 2.1% after its nemesis, SEC crypto unit boss David Hirsch resigned (no, he didn’t join, that was a gag.) Dogecoin lost 10%, Cardano fell 8.1% and Shiba Inu was down 7%. The Crypto Fear and Greed Index is at 71 or Greed.


From the IR OTC Desk

Risk asset allocations have favoured listed cryptocurrency companies again this week (the BTC miners).  On a relative asset chart, this looks to have been the case since the beginning of March.  In general, the divergence is a function of capital growth expectation, revenue stream forecasting, and changes in the political landscape.  These micro analytics are also affected by monetary policy changes, which use a higher cost of funding to slow inflationary pressures.

For cryptocurrencies, asset allocation continues to be driven by the political landscape, which has driven listed bitcoin miners to materially outperformed the underlying BTC token. The (relatively undefined) cryptocurrency political landscape remains highly topical for both the major US political parties as we approach the 5th November election. We continue to monitor updates closely and expect headlines to drive asset pricing. 

BTC Volatility     

With the listed BTC miners absorbing institutional capital (for now), the underlying BTC token market has continued to receive volatility. This process of turning volatility into a running yield is particularly favourable in times of limited capital upside expectation. In general, receivers of volatility are encouraged to narrow trading ranges – helping to explain the broader pricing landscape.

In the economic calendar, the June Federal Open Market Committee (FOMC) meeting maintained its current target range for the federal funds rate between 5.25-5.50%. In addition, the Committee provided an update of economic projections, as well as the all important FOMC ‘dot plot’ projections, which indicated only one 25bp interest rate cut is likely this year. Timing of which, would likely favour the September meeting.

In Australia, today we heard from the Reserve Bank of Australia (RBA), who opined on domestic monetary policy conditions for June. Holding the cash rate unchanged at 4.35%, the RBA has continued to highlight that the “Board is not ruling anything in or out.”

Economic releases this week are particularly light, and include:

In Australia (AEST)

  • Tuesday 2:30pm RBA Board Meeting (June)
  • Tuesday 3:30pm RBA Press Conference (June)

 In the US (AEST)

  • Tuesday 10:30pm US Retail Sales (May)

 In New Zealand (AEST)

  • Thursday 08:45am NZ GDP Growth (Q1)

 In China (AEST)

  • Thursday 11:15am CN 1yr/5yr Loan Prime Rates (June)

On the OTC desk, a lack of cryptocurrency volatility continues to skew flows towards stable coins – which continue to see ongoing trading volume growth in both Australia and Singapore. For the time being, alt coin discussions have been particularly quiet, with tokens outside of the top 10 by way of market cap, receiving a limited amount of attention. 

ETHBTC also remains somewhat unchanged down 0.65% on the week to trade at 0.05245.  Other than the initial ETF related move on the 21st of May, ETH BTC has been directionless. An interesting dynamic for two materially different assets. Is the market mis-guided in trading the underlying protocols with such high correlation?

For any further information, please feel free to reach out.

In Headlines

Miner capitulation

With the average cost of mining Bitcoin around US$83,668 (A$126.5K), which is well above the spot price, CryptoSlate reports that miners have been selling off their inventories over the past month. The hashrate’s 18-month upward trend has gone into reverse and fallen 12%, suggesting some miners are capitulating. But publicly listed Bitcoin miners surged on the share markets this week. Traders might expect they will soon benefit from less competition, or they could have been boosted by Donald Trump’s recent pro Bitcoin miner comments.

Trumping the Democrats on Bitcoin

Presidential candidate Donald Trump has pledged to “end Joe Biden’s War on Crypto” at a rally, and proclaimed on social media: “We want all the remaining Bitcoin to be MADE IN THE USA!!! It will help us be ENERGY DOMINANT!!!” That isn’t remotely feasible of course but at least shows that he’s enthusiastic about Bitcoin. Trump also held a meeting with Bitcoin miners including Riot Platforms, Marathon Digital Holdings, Terawulf, CleanSpark, Core Scientific and others at Mar-a-Lago. His embrace of crypto appears to have prodded Democratic Congressman Ro Khannain to organise a Bitcoin and blockchain roundtable in July. It will be attended by officials from the Biden Administration, House, and Senate as well as billionaire Mark Cuban.

ETH ETFs may launch on July 2

Although SEC boss Gary Gensler told the US Senate this week the Ether ETFs would launch “sometime over the course of this summer,” Bloomberg ETF analyst Eric Balchunas reports that ETF issuers have started to receive “pretty light” comments back on their S-1 applications. He’s now tipping the ETFs will launch on July 2. Analyst Credible Crypto this week predicted that ETH would hit US$10,000 (A$15.1K) minimum by the end of the cycle, and likely “significantly higher than that.”

Bitcoin ETFs go into reverse

The Bitcoin ETFs saw a combined US$580.6 (A$878M) million of outflows last week which CoinShares Head of Research James Butterfill blamed on “a more hawkish-than-expected FOMC meeting, prompting investors to scale back their exposure to fixed-supply assets.” There’s also growing awareness of the cash and carry trade (also known as the basis trade which we mentioned in last week’s newsletter) and its fairly neutral impact on Bitcoin prices. MicroStrategy has announced plans to raise another US$700M (A$1.05B)via convertible notes to buy more Bitcoin.

VanEck Bitcoin ETF on the ASX

The VanEck Bitcoin ETF will launch on the Australian Securities Exchange on June 20. It’s the first crypto ETF on the ASX, which accounts for 90% of local share trading.  Offerings from Betashares and DigitalX are also likely to list on the ASX shortly too. The Monochrome Bitcoin ETF (IBIT) which launched earlier this month on CBOE has so far amassed around 48 Bitcoin (A$4.72M).

Blockchain Week and Blockchain Australia are no more

Blockchain Australia is rebranding itself the Digital Economy Council of Australia (DECA) and will offer eight membership categories, including crypto and Web3, tokenization, government and charities, and payments and banking. CEO Simon Callaghan has resigned, with former operating chief Amy-Rose Goodey stepping up as managing director. Blockchain Week, held in Sydney last week, is being renamed The Digital Economy Conference.

JPMorgan’s bearish take on Bitcoin ETFs

JPMorgan analysts suggest the vast majority of Bitcoin ETF inflows are simply funds rotated from Bitcoin held on exchanges, and thus the reported inflows massively overstate the amount of new money entering the industry. The analysts point to historically low balances on exchanges as evidence and issued a gloomy forecast. “Given how high bitcoin prices are relative to its production cost or relative to gold, we are sceptical that the YTD pace of US$12B (A$18.1B) will continue into the remainder of the year.”

Curve founder liquidated

The founder of Curve Finance, Michael Egorov, borrowed US$100 million (A$151B) in stablecoins a few years ago by putting up around 30% of the entire CRV token supply as collateral. Part of the funds were used to buy a couple of mega mansions in the Melbourne suburb of Hawthorn. He was liquidated last week in part due to a US$20M (A$30.2M) exploit of the UwU Lend protocol.

Terraform Labs is no more

A New York district judge has signed off on Terraform Labs and the SEC’s US$4.5 billion (A$6.8B) settlement. Terraform will pay around US$3.6 billion (A$5.4B) in disgorgement, US$420 million (A$635M) penalty and US$467 million (A$706M) in interest – with founder Do Kwon chipping in more than US$200M (A$302M). Terraform Labs is bankrupt however, and is shutting down, so it’s not clear where the money is coming from.

$1 billion in funding in May

Investors funded around 156 crypto projects in May worth US$1.02 billion (A$1.54B), which is down 6.4% on the month before but is 10.61% above a year ago. Ethereum ecosystem L2s and EVM chains were the big beneficiaries along with Bitcoin, Solana, Fantom and TON. Animoca Brands and OKX Ventures signed the most deals.