In markets

Hong Kong’s new crypto rules and the likelihood a US Government shutdown will be averted gave Bitcoin a 4.4% boost late in the week to A$43,150 (US$28,360), but the bulls haven’t convinced us they’re back in charge and Decentrader reports lots of traders are adding shorts. Analyst Michael van de Poppe believes sentiment is too bearish. “Retail is so extremely bearish on #Bitcoin and #Crypto, it’s almost insane. People are stuck in the 2022 mindset.” The in-principle debt limit deal could still fail to gain enough approval (as it has opponents on both sides), interest rates could rise further and the AI hype powering share markets could moderate, so it’s not a clear picture right now. Bitcoin finishes the week up 2.9% to trade at A$42,300 (US$27.7K) while Ethereum gained 4% to trade around A$2,895 (US1,893). XRP was up 6.6%, Cardano (2.7%), Polygon (3.8%) while Dogecoin was flat. The Crypto Fear and Greed Index remains at 52 or neutral.

From the OTC desk

Last week we highlighted a lack of price related activity in cryptocurrencies, despite a material change in macroeconomic conditions.  In general, the most significant market change was the underlying credit risk associated with the United States Government, (which alters the risk-free rate), magnifying all credit risks.  This week’s in-principle agreement of the US debt ceilings terms and conditions has seen a material retracement in US Government credit risk.  This, and further speculation of upcoming demand post Hong Kong’s crypto reopening (1st of June), drove cryptocurrencies higher on the week.   

In the US, economic data was seemingly overlooked.  The criticality of the US debt ceiling drop-dead date overwhelmed the market’s attention.  It remains, however, the US federal funds rate that drives the cost of carry (cost of funding) for risk assets.  This, in turn, necessitates the macroeconomic and inflation landscape as being one of the most significant inputs to pricing at the current juncture.

In the US, US PCE inflation (the Federal Open Market Committee’s preferred measure for inflation), increased from 4.6% in March to 4.7% in April.  This Friday, the market will receive US employment data – the unemployment rate is being forecast to remain at a near historical low of 3.4%.

In Australia, all eyes will be on the June Reserve Bank of Australia (RBA) meeting, which is scheduled for Tuesday the 6th of June at 2:30pm AEST.  In their recent communication, the RBA has forecast that domestic inflation has now peaked.  The monthly inflation data for April will provide the RBA with an additional critical input for the June meeting.  With global central banks running cash rates materially higher than the current level of the RBA, the pressure of high inflation numbers remains a risk to the current policy setting.  Watch this carefully.

On the OTC desk, the Memorial Day holiday in the US saw a temporary reduction in our traded volumes.  The positivity on the week in both BTC and ETH drew additional interest in the majors (from the buy side and sell side) – most of the flow however continues to be in USDT/AUD and USDT/USD.  Interestingly, enquiry in USDC pairs has remained quiet for a number of weeks now.  In general, this looks to correlate well to the change in stable coin market caps.  In alts, Pepe has brought out additional Dogecoin enquiries, with profit taking/de-risking in the sub sector taking place.

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

In headlines

Celsius warms up to Farenheit

A consortium called Farenheit, which includes Arrington Capital and US Bitcoin Corp, has become the successful bidder for the defunct crypto lender Celsius Network’s assets, which were previously valued at US$2 billion (A$3B). Court filings show Farenheit will take over its institutional loan portfolio, staked cryptocurrencies, mining unit and other alternative investments. The acquisition still needs to be approved by regulators.

Presidential candidate backs Bitcoin

Florida governor Ron DeSantis’s glitch plagued presidential campaign launch on Twitter Spaces made headlines for all the wrong reasons, but he did tell half a million listeners he’d go into bat for Bitcoin. “As president, we’ll protect the ability to do things like Bitcoin” he said adding “the only reason these people in Washington don’t like it, is because they don’t control it… they’re trying to regulate it out of existence.” Parts of the Republican party have embraced Bitcoin. Republican senator Warren Davidson noted the recent deal to raise the US Government debt ceiling excluded President Biden’s proposed 30% tax on Bitcoin mining.  

Ledger reverse recovery plan

Ledger has walked back its spectacular own-goal with the Ledger Recover service, which the community saw as a threat to self custody.  CEO Pascal Gauthier said: “This experience has been very humbling. We miscommunicated on the launch of this product; it was not our intention to take people by surprise.” The company will instead accelerate the open sourcing of its tech, which will enable a range of community led seed phrase back up providers, before Ledger Recover will reappear.

Hong Kong opens to retail

Hong Kong’s new crypto rules come into effect on June 1 and enable mum and dad retail traders to participate in the market once more on licensed exchanges (none are yet approved however). This suggests a thawing of attitudes from China which has banned crypto trading multiple times on the mainland. “China’s acceptance of crypto could stimulate global demand, boost prices, and potentially lead to wider acceptance of digital currencies,” says However, it’s two steps forward, one step back. A TV report about the new rules on China Central Television saw big names excitedly tweeting about a new bull run, but the report was pulled from the station’s website soon after. 

AI to save crypto?

AI has been taking hype and VC money away from crypto, but Hunter Horsley, CEO of Bitwise, argues AI will spark the next crypto bull run. He says blockchain has an obvious use case in denoting authenticity in a blizzard of deep fakes and AI generated fake news, plus he argues AI agents will use “blockchains, stablecoins, smart contracts, defi, and things not yet created” because they are “natively useful” to AI. USDC issuer Circle boss Jeremy Alaire chimed in to agree that AI and blockchain are made for each other: “We are already hearing about AI Bots spinning up on-chain wallets and using USDC.” AI brings new dangers too however: A Chinese businessman was conned out of almost a million dollars by a scammer using AI to mimic the voice and appearance of one of his close friends in a video call. 

Wen bull run?

Bitcoin has been consolidating for a couple of months and Glassnode suggests many 2021-2022 Bitcoin buyers are still underwater, and waiting for breakeven prices to sell. However, the analytics firm says BTC is trading slightly above long term holders’ cost basis, which means we’ve entered the second stage of the bull cycle called “transition’ (after capitulation but before equilibrium and euphoria). Meanwhile analyst PlanB says that if Bitcoin can cross above its two year realised price (around US$29,5K/A$45.15K) the metric has historically signified the start of a bull run. Analyst Credible Crypto told his 340K followers that Bitcoin may hit a new all time high this year, based on the similarity between the current setup and 2020. But former Bitmex CEO Arthur Hayes thinks the bull run will be delayed a bit. “I think next year is when we cross that barrier, then we get the blow off top [2025], [2026] and then it’s Armageddon,” he said on the What Bitcoin Did podcast. 

Bits and pieces

Former legal counsel for the Commodities Futures Trading Commission Dan Berkovitz says that Ethereum may fall under the jurisdiction of both the CFTC and the Securities and Exchange Commission. “The law is clear. Something can actually be both a commodity and a security,” he said.  Singapore state holding company Temasek has announced the team members behind the disastrous US$275 million (A$422M) investment into collapsed exchange FTX have been punished with pay cuts. An independent review found no misconduct however.  Global investment manager VanEck has released new research laying out the bull case for Ethereum by 2030 is a US$51K (A$78K) price, but only if it can become the dominant open source global settlement network. The base case puts the target at US$11.8K/A$18.1K, and the bear case sees the price fall to US$343/A$525.