Markets Catch A Breather As Optimism Builds Around U.S. Debt-ceiling Negotiations

Weekly News Wrap Up

U.S. debt-ceiling negotiations remained in focus last week as time grew short to avert a U.S. default. Elsewhere, U.S. consumer sentiment took a hit in May (57.7, -9.1% vs. April) from concerns over rising inflation and the state of the economy while U.S. labour markets continue to defy recession fears as weekly jobless claims fall. In Crypto, hardware wallet company Ledger came under fire after unveiling its “Ledger Recovery” service, Jump Trading faces a lawsuit for allegedly manipulating TerraUSD (UST) in May 2021, Binance exits Canada citing regulatory tensions, and BNY Mellon outlined its plan for digital assets which could mark a significant shift in the traditional banking landscape towards digital assets.

U.S. equity markets caught a break last week: SPX+1.65%, DJIA +0.38% and NASDAQ +3.04% as optimism grew around a potential deal on the U.S. debt-ceiling. BTC -0.67% and ETH +0.29% continued trading sideways, with the former dipping below $27K support level and the latter hovering at $1,800 support. Throughout the week, BTC has remained within a range bound by the high ($27,666) and low ($26,737) of Monday and a breakthrough beyond this consolidation zone is required to generate further momentum in the corresponding direction. For ETH to experience a bullish scenario, it needs to breakthrough the hourly descending trendline before building momentum towards the daily descending trendline while $1,800 remains supported.

Cryptocurrency News

• Jump Trading faces lawsuit over alleged $1.3 billion profit from TerraUSD (UST). The plaintiff claims that the company colluded with Terraform Labs to manipulate the price of UST in May 2021 to defend the peg, and in return received a significant amount of LUNA tokens at a steep discount which Jump Trading resold into the market for a profit of $1.28 billion.
  Our View: if the claims are true, there will be a big liquidity impact on cryptocurrency markets given Jump’s size of market-making in the industry. Lower liquidity will lead to higher volatility given that a smaller amount transacted is required to move the price.

• U.S. Securities and Exchange Commission (SEC) revises $22 million penalty against LBRY to $111,614. The SEC first filed a civil lawsuit against LBRY in March 2021, alleging that the firm’s LBC token-sales were unregistered securities offerings. The regulator won the case in November 2022, with the presiding judge ruling that LBC is a security. Citing LBRY’s “lack of funds and near-defunct status”, the SEC requested the court to impose a fine of $111,614 instead.

• Bloomberg’s Markets Live Pulse Survey: BTC a top three asset in the event of a U.S. default. Gold was listed as the top asset, Treasuries second and BTC third, ahead of traditional safe-havens like JPY and CHF.
  Our View: the survey data validates BTC as a viable alternative asset class in investment portfolios, illustrating the diversification benefits it can bring to traditional portfolios.

• Bitcoin-Ether correlation dips below 80% for the first time in 18 months. The falling correlation shows the two biggest cryptocurrencies are becoming less dependent on each other, with their prices moving in different directions more often. Theoretically, a falling correlation between two assets reinforces the case for diversification by including both assets in an investment portfolio.
  Our View: this is in-line with our view of having exposure to the two cryptocurrency majors – BTC for its store-of-value appeal, and ETH as the foundation token for programmable-money and smart-contract capabilities.

• Coinbase launches zero-fee USDC purchases with SGD. Based on their study, 25% of Singaporeans consider crypto as the future of finance, on par with the U.S. and higher than the 17% reported in the U.K.. The exchange has launched the zero-fee program as a means for SGD-onramps into crypto via USDC.

• Binance announces exit from Canada citing regulatory tensions. The company said new guidance related to stablecoins and investor limits prompted the exit. In February, the Canadian Securities Administrators (CSA) revealed new guidance that prohibited crypto asset trading platforms within the country from allowing customers to buy or deposit stablecoins without the CSA’s prior approval.

• Claimants against bankrupt Quadriga CX to get back 13% on the dollar. The interim distribution to users will account for 87% of the funds the collapsed exchange’s Trustee is currently holding.

• Ethereum’s Beacon Chain updated after finality issues. On May 11th and May 12th, unidentified problems prevented block finalization, resulting in outages lasting for 25 minutes and over an hour, respectively. The Beacon Chain serves as the consensus layer for the Ethereum network. Ethereum core developers has since released patches for Prysm Labs and Teku clients, which are two of the software clients available to network validators.

• Liquid staking leader, Lido, upgrades to V2 on Ethereum. Users can now unstake their stETH and receive ETH at a 1:1 ratio. When a user requests to unstake, they will receive a Lido-issued NFT representing their withdrawal request. Afterwards, the user uses the NFT to claim their ETH rewards and the NFT is burned.

Investment Consideration

Our best strategy for the moment is to take at least 1-3 years in Moderate Portfolio because it has a good defense with 50% Fixed Deposit , 30% In DCD and 20% in Staking.  After  all,  we  still  have  potential  returns  in  DCD  and  Staking,  especially in BTC.

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