Signs suggesting that inflation is coming down and interest rate hikes will pause are gathering, with the February US Personal Consumption Expenditures (PCE) index modestly beating expectations in some areas. The White House claimed inflation: “Was down by nearly 30 percent from this summer, against a backdrop of low unemployment and steady growth.” Closer to home, inflation has fallen to 6.8%, which is the best reading in eight months. Analysts are now looking ahead to a potential “Fed pivot” when rates start to decrease. The average one-year return for the S&P 500 following a pivot since 1984 was 18.9% (although the data is more mixed further back.) Bitcoin finishes the week up 2.8% to trade around A$41,170 (US$27.9K), and Ethereum gained 5.7% to trade around A$2670 (US$1810). Ripple gained $5.3%, Cardano was up 13.2%, Dogecoin gained 30.2% thanks to Elon Musk (again), and Polygon was up 5.6%. The Crypto Fear and Greed Index is at 63, or Greed. Historically speaking, April is a good month for crypto prices, with monthly gains in six of the last 10 years averaging 17%, according to Matrixport.
From the OTC desk
US banking and liquidity concerns appear to have abated. This has delivered a positive risk impetus. While developed economy inflation rates have lowered, the absolute level of inflation remains well above target. Global bond markets now appear to be the dominant driver of risk sentiment, with long end yields continuing to fall on the back of softer growth expectations. For reference, the US 10yr treasury yield has fallen from 3.60% this time last week, to currently trade at 3.415%. With markets being forward looking, and risk assets pricing inversely to yields, risk market stabilisation seems logical – for now.
Today, we received the April interest rate decision for the Reserve Bank of Australia (RBA). With the most recent monthly inflation data having moderated to 6.8% from 7.4% prior, the Bank has taken the time to pause the interest rate hiking cycle. In the Statement by Philip Lowe, the RBA has again ‘pushed out’ when they expect the inflation target to return to the band.
“The central forecast is for inflation to decline this year and next, to around 3 per cent in mid-2025.” (Previous at the beginning of 2025).
Concluding that: “The Board expects that some further tightening of monetary policy may well be needed to ensure that inflation returns to target” attention now turns to the more reliable quarterly inflation data scheduled for Wednesday the 26th of April to determine whether more work is required by the Central Bank. Watch this space.
Last week we received US PCE inflation data. This is the Federal Open Market Committee’s (FOMC’s) preferred measure for inflation. Taken positively by the market, Core PCE inflation moderated from 4.7% in January to 4.6% in February. With the unemployment rate at historical lows, the moderation is certainly welcome.
Elements of the US economy are now showing signs of slowing growth. This week’s ISM Manufacturing PMI decreased to 46.3 in March. To provide some context, this is the lowest reading since 2010 (outside of the covid period of 2020). An updated snapshot of the US labour market is set to be delivered on Friday night at 10:30pm (AEST). Current market expectation is for the unemployment rate to move back down to 3.5% in March, versus 3.6% in February.
In cryptocurrencies, BTC and ETH volumes have increased materially this week. Stable coin selling, (particularly USDT and USDC) continues, with the shortage of USDs during the Asian time zone continuing to skew stable coin pricing. The drama this week in Arbitrum appears to remain self-contained. For the time being, however, there remains little Alt coin enquiry – and this includes Doge! BTC call vols. have shown a direct relationship with concerns in USD banking. It makes sense that the near expiries have drifted lower this week.
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Singapore crypto survey
The Independent Reserve Cryptocurrency Index for Singapore dropped from 61 out of 100 last year to 55 in 2023, reflecting a decline in short-term confidence due to the ongoing bear run and negative headlines in 2022-23. Nonetheless, Singaporeans continue to display a significant level of conviction and sustained interest in the cryptocurrency sector. The poll of 1,500 respondents found crypto ownership had risen from 40% to 43%, and 44% of crypto investors reported that at least a tenth of their portfolios was in crypto. The report also highlighted the growth of female investors (up 6 pp to 37%) and high earners investing in crypto. IR Singapore CEO Lasanka Perera noted the collapse of Terra Luna and FTX had shaken confidence, however the industry was turning a corner. “As recent global financial events continue to unfold, many may also re-evaluate their dependence on traditional financial institutions to safeguard their money and turn to alternative assets such as Bitcoin to hedge against bank defaults and currency debasement,” he said. Read the comprehensive 34-page report.
Musk pumps Doge Edition #34567
This week, Twitter and Tesla boss Elon Musk asked a judge to dismiss a US$258 million (A$380M) lawsuit alleging his involvement in a pyramid scheme to promote Dogecoin. In a move suggested by the ‘Wall Streets Bet Chairman’ Musk then changed the Twitter logo to the Shiba Inu face of Dogecoin which saw the price of Doge pump by one-third.
Arbitrum’s decentralisation theatre
Ethereum layer 2 network Arbitrum recently airdropped users a token in an effort to decentralize governance, but the core team doesn’t seem to understand what that means. The first Arbitrum Improvement Proposal was a fiasco, with holders asked to approve the allocation of 3.5 billion ARB to the DAO treasury and 750 million to the Foundation’s ARB budget. Despite losing the vote badly with 78% opposed, it emerged it had already put the plans into effect. Following a backlash, it’s now going to break the AIP into parts and revote.
There are rumours flying around that Binance CEO Changpeng Zhao is the subject of an Interpol Red Notice, however, the rumour was started in a coded message by known shitposter Cobie. The recent CFTC complaint against Binance has seen some fallout however, including a judge pausing its US$1 billion (A$1.47B) purchase of Voyager Digital and a $1 billion lawsuit by three American investors
Ambre Soubiran, the CEO of institutional crypto market data provider Kaiko, said that the US Government’s war on crypto will shift the “centre of gravity” of the crypto industry to Hong Kong. Coinbase tweeted that the US, UK, UAE, Hong Kong, Singapore, Australia and Japan all stood to benefit. Meanwhile, Bittrex announced it was closing its US operations due to the unfavourable regulatory environment.
Bragg’s crypto bill
Liberal Senator Andrew Bragg has submitted a private senators’ bill titled Digital Assets (Market Regulation) Bill 2023. The bill is based on the 12 recommendations on crypto regulation from the Senate Select Committee on Australia as a Technology and Financial Centre in October 2021. It’s unlikely to go anywhere of course given the Liberals aren’t in power, but seems designed to put pressure on the Labor government to actually pass something.
Bits and pieces
Investment bank Citi predicts the tokenization of real-world assets will be the “killer use case” for blockchain and will be worth up to US$5 trillion (A$7.36T) by 2030. Economist Alex Kruger says Bitcoin isn’t going to make investors stupidly rich anymore. “Bitcoin is now for wealth preservation, attractive risk-adjusted returns, trading, and hedging against the fiat system,” he said. However, he still thinks a 10X from Bitcoin’s local lows is on the table. The US government has sold US$215M (A$317M) worth of Bitcoin confiscated in a Silk Road Darknet marketplace case. but racked up US$215,000 (A$317K) in trading fees when they could have got an OTC trade free. Withdrawals from Ethereum’s Beacon Chain arrive in the evening of April 12, when the Shapella hard fork is activated. A new outfit called ZeroSync is applying ZK proofs to enable users to authenticate the state of the Bitcoin blockchain without having to download all 500GB of data. Blockstream will be broadcast it from space via its satellite network. Securities and Exchange Commission boss Gary Gensler told Congress that the SEC defines what is and isn’t a security and not necessarily legislation. Ripple’s Brad Garlinghouse was astonished and said: “For the Chair of the SEC to assert that he dictates what is a security – and not the legislation from which his agency derives its power – is beyond comprehension. It’s time for elected officials in the U.S. to take notice.” The Russians are talking up the prospects of a new currency for the fast-rising BRICS countries of Brazil, Russia, India, China and South Africa. The idea would be to take on USD dominance around the world. China and Brazil reached a deal this week to trade in their own currencies and avoid USD altogether.
Until next week, happy trading!