In Markets
With massive ETF inflows, Bitcoin looked like it was heading toward new all-time highs last week, but it came crashing back to earth following stronger than expected US jobs data, which increases the chances of inflation numbers and interest rates remaining elevated. Record leverage build up on Bitcoin futures was flushed out as Bitcoin fell from A$108.5K (US$71.9K) to A$104.6K (US$68.9K). A US Federal Reserve meeting and CPI data are due out this week, with analysts scrapping predictions for a July rate cut. However, Europe and Canada have already cut rates. Bitcoin finished the week flat at A$105,058 (US$69.53K) while Ethereum eased back 2.7% to A$5,534 (US$3,655). Elsewhere, it was a sea of red with Solana (-3.8%), XRP (-4.7%) and Cardano (-4.1%) all falling. The slide in meme stock GameStop also appeared to weigh on memecoins, with Dogecoin losing -8.6% and Shiba Inu decreasing -6.7%. The Crypto Fear and Greed Index is at 72 or Greed.
From the IR OTC Desk
Positive ETF inflows continue. Historically, we would expect that these positive inflows would also align with positive price increases for BTC and more generally the cryptocurrency complex. However, this natural alignment (surprisingly) has not progressed as per expectation.
And while the reason behind this is unclear – it may simply be a small time period of risk asset substitution – the cryptocurrency political landscape, as well as the global monetary landscape, both appear to be at key inflection points.
This week, we saw the Bank of Canada become the first major central bank to reduce their primary interest rate by 25bp, moving the underlying cash rate to 4.75%. This was followed by the European central bank, which also reduced their target rate by 25bps to 3.75%.
In a clear sign that global central banks are now actively exploring the ability to provide monetary policy stimulus, risk assets and cryptocurrencies will place additional importance on the economic data most sensitive to central bank decision making. Counterintuitively, this means that risk assets will exhibit positive price action to weak economic data (vice versa).
On the economic front, Central Banks now appear particularly sensitive to labour markets and perhaps less sensitive to inflation rates. This has certainly been the underlying observation following the from the Bank of Canada meeting. With this in mind, wage price indices as well as labour market slack should be carefully monitored, labour market slack being defined as an unemployment rate relative to the non-inflationary rate of unemployment (NIRU).
This week we hear from the US Federal Open Market Committee (FOMC), who are scheduled to meet on Thursday at 04:00am (AEST). This meeting will update the federal funds rate ‘committee’ projections, and will provide the market with near term guidance of any US interest rate change. Currently there is a 50% chance that the FOMC will look to reduce the federal funds rate by 25bps at their 18th September meeting. Watch this space.
Economic releases this week are particularly light, and include:
In Australia (AEST)
- Thursday 11:30am AU employment (May)
- Thursday 11:00am AU Consumer Inflation Expectations (June)
In US (AEST)
- Wednesday 10:30pm US inflation data (May)
- Thursday 04:00am US FOMC decision/economic projections (June)
- Thursday 04:30am US FOMC press conference (June)
In China (AEST)
- Wednesday 11:30am CN inflation data (May)
On the OTC desk, USDT has continued to trade below par. Despite this being a cost to USDT sellers, offramping from USDT to fiat continues to drive our largest trading volumes. More recently, AUD/USD has proven to be (relatively) stable, trading in a wider USD 0.6300/0.6900 range for the last 12 months. With global central banks becoming more active, this may also align to move volatility in foreign exchange. A sensitivity that many stable coin holders have only faced in a moderate sense and something to begin paying close attention to. BTC and ETH flows continue to be skewed to buyers, with some active participation in the relative value between the tokens. We continue to wait for a much more structural uptick in alt flow, which may be closely aligned with a ‘pivot’ in US monetary policy.
For any further information, please feel free to reach out.
In Headlines
Ether ETFs approved
Ethereum’s price has been lagging amid uncertainty over when the S-1 filings will be approved for the ETFs to start trading. K33 Research put out a report this week predicting the spot Ether ETFs could accumulate up to 1.26 million ETH in five months, or US$3B to US$4.8B worth (A$4.5B to A$7.3B) based on the size of similar ETH products globally and CME futures interest relative to Bitcoin. ETH ETF issuer Bitwise released data today showing that Ethereum generates more revenue than publicly listed companies including Robinhood, Etsy, Yelp, Reddit and Moderna. Meanwhile Coinshares reported that global investment products holding Ether saw US$69 million of inflows last week, the highest since March. And ProShares has just filed an application to become a late entrant to the Ether ETF race, although it isn’t expected to start trading at the same time as the existing applicants.
Altcoins are bleeding
If your portfolio is underperforming this “bull market” you’re not alone. Altcoins, excluding the top 10 cryptocurrencies, are currently doing worse than they were last November and only eight coins have broken their previous highs against BTC since the fall of FTX. There are a few things weighing on prices, including the million or so memecoins created in May (twice the number of all tokens created on Ethereum between 2015 and 2023) as well as token unlocks flooding the market with sell pressure. The good news is that in previous cycles, altcoins have peaked around 546 days after the halving, which would be October next year.
Bitcoin upgrade for ZK scaling?
A Bitcoin upgrade first introduced by Satoshi and then withdrawn, could be the key to scaling Bitcoin. Ethereum zero knowledge proof scaling solution StarkWare says the fairly simple proposed OP_CAT upgrade would enable it to use ZK-proofs to scale Bitcoin. While Bitcoin and Ordinals proponents like Udi Wertheimer are confident the upgrade will happen, the unintended effects of the last Taproot upgrade, which brought Ordinals, BRC tokens and Runes, means that new upgrades may face resistance. To learn what OP_CAT is from a technical perspective, have a look at this simple and interactive explainer website https://opcat.wtf/
Optimism introduces fault proofs
Ethereum layer two scaling network Optimism has taken a crucial step towards decentralisation and hit “Stage 1” with the inclusion of fault proofs. Until now users had to trust that the centralised team running the network was behaving honestly, but fault proofs enable observers to challenge fraudulent transactions. Initially at least the Security Council can still intervene if the system goes bung. The upgrade will also filter down to Superchain networks like Base.
70/30 portfolio
VanEck has released a report suggesting that a crypto portfolio of 71.4% Bitcoin and 28.6% ETH provides the best risk adjusted returns. “A 100% allocation to either BTC or ETH had a lower Sharpe ratio compared to a 50/50 split (sorry, maxis),” VanEck’s account tweeted. It noted that a 50/50 split also demonstrates “substantial advantages” and in a traditional portfolio of stocks and bonds, a 3% allocation to both Bitcoin and Ethereum offered the best risk adjusted return.
Bitcoin ETFs going gangbusters
The Bitcoin ETFs took in US$1.83 billion (A$2.8B) in net inflows last week, including US$886.6 million (A$1.3B) on June 4 alone. The ETFs took 25,700 Bitcoin off the market in a week — almost the same amount as in the whole of May while April actually had net outflows. “I don’t think people appreciate how ridiculous this is,” said Nate Geraci, president of the ETF stores. “Especially for a product that I was told nobody wanted.” Globally, 34 ETFs and funds now control over 1 million BTC. Despite the funds flowing in, the price went backwards, leading to all sorts of theories. The most obvious one is that the Bitcoin ETFs are only a small part of the overall volume, however some analysts including BitMEX research believe that hedge funds may be using a sophisticated basis trade strategy, of buying the Bitcoin ETFs and selling CME futures, which is a lower risk way to profit from market pricing inefficiencies, and doesn’t have a big impact on the Bitcoin price.
Crypto a political force
The I Stand With Crypto advocacy group has now signed up 1 million members to put pressure on anti-crypto politicians. Tech industry figures like David Sacks and Elon Musk have started to line up behind Presidential candidate Donald Trump, who also doubled down on his crypto advocacy during a fundraiser in San Francisco last week, stating that he “would be the crypto president.” Bitwise CIO Matt Houghan says recent pro-crypto votes in Congress and the Senate mark a seismic shift in crypto’s political fortunes. “The market is undervaluing the impact of Washington’s changing attitude towards crypto,” he wrote, noting that clearing up regulatory uncertainty would allow financial advisors representing US$20T (A$30.3T) of funds to enter the market.
Global liquidity
One reason for crypto’s bull run during the pandemic was a huge increase in money floating around the global economy. Philip Swift, founder of LookIntoBitcoin notes that the world’s M2 money supply is now at a record US$94 trillion (A$142T), which is US$3T (A$4.5T) higher than it was in 2021 when Bitcoin hit its ATH. “The most important chart for this bull run has just made a new all-time high,” Swift wrote. “Are you ready?”
Thailand enters the spot Bitcoin ETF space
Following in the footsteps of the US and Hong Kong, Thailand’s Securities and Exchange Commission (SEC) has approved the country’s first Bitcoin exchange-traded fund (ETF), as reported by the Bangkok Post. This decision places Thailand among nations such as the US, Hong Kong, Australia, and the UK that have also approved spot Bitcoin ETFs. Meanwhile, Singapore’s MAS reiterated its stance against retail cryptocurrency ETF offerings. A spokesperson for the MAS noted that retail investors in Singapore can participate in collective investment schemes (CIS) regulated by the Securities and Futures Act.
