U.S. Debt-ceiling Drama and Banking Sector Woes Weigh on Markets

Weekly News Wrap Up

Debt-ceiling drama and banking sector woes remain the focus on markets last week, further pressured by strong U.S. employment data and elevated inflation expectations that pushback against the idea that the U.S. Federal Reserve is done with rate-hikes. A small positive was weaker April inflation at 4.9% YoY, beating consensus of 5%. 

In Crypto, hype around Ordinals and Bitcoin’s new token standard, BRC-20, caused massive network congestion with fees skyrocketing, leading to Binance halting BTC withdrawals twice over the week. Bloomberg also reported that large market makers Jane Street and Jump Trading are rumored to leave the U.S. market.

SPX-0.29%, DJIA -1.11% and NASDAQ +0.40%, while BTC -5.45% and ETH -3.93%, trading below $27K and $1,800 respectively with some speculating weakness coming from a short squeeze on USD from bad U.S. data last week.

Cryptocurrency News

• The US Department of Justice (DoJ) is investigating Binance for possible violation of Russian sanctions. Binance has not commented on the matter, but it told Bloomberg in a statement that it was compliant with U.S. and international sanctions, and its KYC protocols are in line with those of traditional banking.

• Governor Ridwan Kamil to speak at Bitcoin 2023 in Miami. The governor of West Java, Indonesia, is a big proponent of digital transformation and innovation, and is a Honorary Board Member of the Indonesian Digital Council. He seeks to “drive innovation, collaboration, and regulation to ensure that the benefits of digitalization are accessible to all Indonesians, while also safeguarding their privacy, security, and dignity”.

• The kingdom of Bhutan has been quietly mining Bitcoin for years. Forbes reported that the country has been leveraging its immense stores of hydroelectricity to power its state-owned Bitcoin mines.

• Ordinals upend Bitcoin mining, pushing transaction fees above mining reward for the first time in years. For the first time since 2017, some bitcoin miners are getting paid more to process transactions on the blockchain than they’re rewarded for creating new BTC. The big recent jump in profits from processing transactions, therefore, could be a welcomed development, especially given the intense pain – including multiple bankruptcies – that has struck the mining industry during this crypto winter.

• Bitcoin network congestion causes Binance to pause withdrawals. The hype around BTC Ordinals and the new BRC-20 standard, which allows the Bitcoin network users to mint and send fungible tokens via the Ordinals protocol, caused a surge in transactions and fees. The exchange has since resumed withdrawals.

• Conglomerate of Finance and Technology companies look to launch an interoperable blockchain network. The Canton Network will be a privacy-enabled blockchain network aimed at those working with institutional assets, allowing the synchronization of financial markets that were previously siloed. Participants in the network currently include: BNP Paribas, Cboe Global Markets, Digital Asset, Paxos, Microsoft, Goldman Sachs, Deloitte and others.

• Bloomberg: Jane Street and Jump Trading retreating from U.S. crypto trading. The report said that the market makers are looking to exit as a regulatory crackdown on the industry has intensified.
  Our View: the trend of big crypto-players leaving or reducing their exposure to the U.S. continues as regulatory uncertainty leaves business expansion plans in the U.S. unfeasible. As we’ve mentioned before, one of the unintended consequence of increasing regulatory scrutiny to protect investor interests is the offshore of these services, leaving investors less protected than before.

• U.S. crypto exchange Bittrex files for bankruptcy. The company had already announced its intention to exit the U.S., but was sued by the U.S. SEC in mid-April for allegedly illegally operating a national securities exchange, broker and clearing agency. 

• BNP Paribas partners with Bank of China to promote digital yuan usage. The partnership will enable BNP Paribas China’s corporate clients to connect with the BOC system, allowing users to manage their digital yuan wallets by linking them to their bank accounts, track transactions and make payments using China’s digital currency via an e-CNY management system. 

• MetaMask launches ETH purchases via PayPal to U.S. users. Users in the United States can also transfer ETH from PayPal to MetaMask. The companies first announced their collaboration in 2022.

• Stripe launches fiat-to-crypto on-ramp feature. The internet payment processor attempts to address the “cold start problem” faced by Web3 companies where customers do not have “crypto in their wallets to carry out transactions”. The service, which Stripe itself will host, will allow Web3 companies to offer U.S.-based users the ability to purchase crypto without the need to embed any code into their website/app.
  Our View: we’ve seen a string of non-crypto companies (Venmo, Robinhood) looking to optimize the fiat-to-crypto experience recently as centralized exchanges struggle to find U.S. banking relationships that is choking this channel. With a better experience, backed by a trusted company that users are familiar with, this could prompt further adoption into the industry.

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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