In Markets

A renewed assault on crypto by US authorities has seen markets flag, and April’s negative return is on track to be Bitcoin’s worst month so far this year. MicroStrategy has again bought the dip of course. Bitcoin finished the week down 4.8% to trade around A$97,411 (US$63,906), while Ethereum was flat at A$4,904 (US$3,217). It was a sea of red elsewhere with Solana down 13.1%, XRP (-7.8%), Dogecoin (-27.7%), Cardano (-12.2%) and Shiba Inu (-11%). The Crypto Fear and Greed Index is at 67 or Greed.

Market Update 30/04/2024

From the IR OTC Desk

Risk assets, including cryptocurrencies, remain aligned to global macroeconomic movements. US BTC ETF flows have most recently been negative, causing choppy price action amongst the majors. BTC continues to be discussed in relation to gold, and broad questions remain as to whether BTC is a defensive or risk asset. For the time being, price action shows BTC quite clearly in the risk camp, although this can change over time, particularly under changing policies of global monetary supply. This can see BTC decouple from the broader cryptocurrency complex, which is almost certainly profiled collectively as ‘risk assets’.

The macroeconomic theme over the last several weeks has been ‘economy divergence’ – economic correlations breaking down between major jurisdictions. Historically, the US, Canada, Europe, UK, Australia and New Zealand would have broad correlations in their economic landscapes. Generally speaking, this is caused by their similar requirements in monetary policy targeting and the (near) free trade environment between these economic regions. At the current point in time however, inflation and pricing divergence is appearing. This is creating trading opportunities between the regions due to asset pricing confusion.

In the US and Australia, the theme of an emerging inflation impulse has most recently been presented. The US has just over one 25bp cut priced into this calendar year (at the end of last year this was closer to six 25bp cuts). In Australia, short term interest rate futures are now expecting the next move to be a 25bp hike!

In Europe, Canada, UK and New Zealand however, the reinflation impulse remains benign, and disinflation broadly continues in line with stable central bank monetary policy. Last week the BoJ continued to defy market expectations by maintaining their 0.1% interest rate. JPY has depreciated to levels not seen since the early 1990s!

Structurally, there are a number of reasons for this economic divergence. And while these reasons are somewhat technical, it is the structure of the labour market as well as the channels for fiscal stimulus which appear to be the primary catalysts. It makes sense therefore to profile the respective labour markets and fiscal policy as being the most important inputs to monetary policy. This week we will receive an update on the US labour market.

This week, the economic calendar includes:

  • Tuesday 10:30pm AEST, US Employment Cost Index (Q1)
  • Thursday 12:00am AEST, US JOLTs Job Opening (March)
  • Thursday 04:00am AEST, US FOMC Decision (May)
  • Thursday 04:30am AEST, US FOMC Press Conference
  • Friday 10:30pm AEST, US Unemployment data (April)

On the OTC desk, flows have become relatively defensive. While stable coin volumes remain near their highs, interest in mid to long tail assets has slowed. It was only a handful of weeks ago that I wrote of significant asset switching further out the curve. For now it would appear that these positions are being held, awaiting further information on US monetary policy direction. ETH/BTC remains range bound near 0.050 BTC and funding rates across the cryptocurrency complex have now stabilised. We will be carefully monitoring the update of the HK ‘in kind’ BTC ETFs this week.

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

In Headlines

Stripe embraces crypto again

After a six-year hiatus, fintech giant Stripe has announced it will allow customers to accept crypto payments again in the form of USDC on Solana, Ethereum and Polygon. Stripe previously dropped Bitcoin support in 2018 due to high fees and volatility.

Hong Kong crypto ETFs set to launch

Hong Kong’s Bitcoin and Ether ETFs are about to launch this week. Unlike the US ETFs, they actually buy, sell and hold crypto directly. A press briefing today heard that the issuance scale is expected to be larger than the US ETFs first day, however the final market size is more likely to be around US$2B to US$3B (A$3B to A$4.5B) according to Wu Blockchain. Hong Kong issuers also said it doesn’t matter if US regulators declare ETH a security. In related news, Bloomberg reported this week the ASX is likely to approve a Bitcoin ETF before the end of the year.

Consensys takes aim at SEC

Ethereum infrastructure provider Consensys has launched a preemptive lawsuit against the SEC in Texas. The SEC has been investigating Consensys, run by Ethereum cofounder Joe Lubin, since April 2022 and sent it a Wells Notice of enforcement action on April 10. Consensys is seeking a ruling that Ether is not a security, and that MetaMask swaps and staking are legal. Court documents show the SEC has also been investigating whether ETH itself is a security. This investigation began after April 2023 (following the switch to Proof of Stake), but prior to the approval of Futures ETFs — which implies the SEC endorsed the CFTC position that ETH is a commodity.

Wallet dramas

The founders of Bitcoin mixing wallet Samourai were indicted this week in the Southern District of New York over allegations they helped launder funds. Crypto industry figures claim that the Department of Justice’s legal arguments in the Samourai Wallet case, filed the same day as a new motion in the Tornado Cash case, have huge implications for crypto and internet freedom if upheld. The DOJ argues that projects do not need to have any control over funds to be classified as money transmitters, which could catch wallet owners, smart contract deployers and DApps. The Federal Bureau of Investigation also issued a warning to Americans to steer clear of unregistered money transmitting businesses, and warned of disruptions. The non-custodial Phoenix Wallet and Wasabi wallet are now leaving the US market as a result of uncertainty over whether wallets are considered money services businesses.

Other attacks on crypto

Senator Elizabeth Warren has fired off a letter to the Attorney General asking what can be done about crypto, claiming that it is the preferred money for child sexual abuse material purchasers. Not helping: Mango Markets exploiter Avi Eisenberg, who was found guilty of fraud recently, was charged over possession of child sexual abuse material allegedly found during the investigation. Meanwhile the Depository Trust and Clearing Corporation (DTCC) has announced that investment instruments backed by crypto such as the Bitcoin ETFs “will be subject to a 100% haircut” and cannot use the crypto as collateral for loans or other financial transactions.

US treasury refinancing

All eyes are on the US Treasury’s refinancing announcement on May 1 which will detail the US’s three month borrowing needs. CoinDesk reports that risk assets like crypto will likely rally if the Treasury General Account target is maintained or lowers from the current US$750 billion (A$1.14T), which it says is likely. A lower TGA balance results in monetary easing. Bitmex cofounder Arthur Hayes predicts bullish conditions for crypto if liquidity improves as a result.

Bitcoin ETFs floundering

Two positive days of inflows for the Bitcoin ETFs were outweighed by three days of net outflows last week. Fidelity lost US$22.6M (A$34.4M) in outflows on Thursday and Black Rock’s long streak of 71 inflow days came to an end, with three days of 0 inflows. However, it ranks second for inflows out of all 10.6K registered funds and ETFs in the US on YTD flows. The total inflows into the Bitcoin ETFs since launch has fallen to below US$12B (A$18.3B), although the total AUM including Grayscale is much higher at US$53.76B (A$81.9B).

Zombie blockchains

Forbes has named 20 billion dollar crypto zombie projects which it said are “unproven and have little utility other than for speculative crypto trading.” The contentious list includes: XRP, Cardano, Bitcoin Cash, Litecoin, Internet Computer, Ethereum Classic, Stellar, Stacks, Kaspa, Fantom, Monero, Arweave, Algorand, Flow, MultiversX, Bitcoin SV, Mina, Tezos, Theta, and EOS.

VC funding increases

The first quarter of 2024 saw US$2.52 billion (A$4.8B) raised from VCs for crypto and blockchain projects according to PitchBook data, a 25% increase on the final quarter of 2023. “It’s been an extraordinarily busy time. It has 2021 feels to it,” said David Nage, portfolio manager at Arca. He attributed the upswing to crypto showing resilience through the crypto collapses and bear market (“We didn’t die” is how he put it) along with the effects of the Bitcoin ETFs.

Bits and pieces

CoinShares notes that 15% of 84 hedge funds and wealth managers surveyed are now allocating to Solana, up from zero in January. However, XRP fell to zero in the latest survey. The HBAR token doubled in price after a misinterpreted announcement that BlackRock had tokenised shares of its money market fund on Hedera. The shares were indeed tokenised, but BlackRock had no official involvement. Veteran trader Peter Brandt noted that each low to peak Bitcoin cycle is about 20% as big as the previous one, which would mean Bitcoin has already peaked this cycle. However, analyst Giovanni Santostasi pointed out the “pre halving bubble” we’ve seen is not the usual halving increase and argues this cycle’s top should be US$210,000 (A$320K).