Pivotal Week for Central Banks; Risk-off as Investors Await

Weekly News Wrap Up

It was a busy week for central banks and the U.S. earnings calendar. Equity markets overall reacted positively with SPX +1.01%, DJIA +0.66% and NASDAQ +2.02%. 

As widely expected, the FOMC resumed its rate hikes after a one-meeting pause with a 25 basis point increase to the benchmark fed funds rate (5.25% to 5.50%), taking interest rates to its highest level in more than 22 years. At the post-meeting press conference, Fed Chairman Jerome Powell said no decisions about future rate actions had been made and the central bank will be highly data dependent going forward. The Fed will have two additional inflation and employment reports before the next meeting in September.

The European Central Bank (ECB) followed suit and raised its main rate by 0.25% to 3.75%, completing a full year of hikes. No forward guidance was shared. The Bank of Japan loosened yield curve control and will now offer to buy JGBs at 1% through fixed rate operations, effectively raising its tolerance by 50bps.

In Crypto, attention has shifted away from the recent Ripple euphoria and Bitcoin ETF applications as investors de-risked in realization that the Fed would begin lifting interest rates again. BTC -2.00%, trading towards the bottom of the range for the past month ($29,000 to $31,800) while ETH -0.96%.

On-chain, data supplied by Glassnode shows that Bitcoin short-term whales (hold for 155 days or less) have recently ramped up exchange activity, reaching a recent high of +16.3k BTC/day, representing 41% of total inflows. Whale-to-exchange net flows have typically oscillated between ±5k BTC/day over the past five years. The last two times we saw such a spike in Bitcoin Whale-to-Exchange Inflows were during the FTX and LUNA incidents and could suggest a pickup in selling activity for shorter-term Bitcoin traders.

From a longer-term perspective, a separate set of data from Glassnode shows that the Bitcoin long-term holder supply has reached a new all-time high of 14.52M BTC, equivalent to 75% of the circulating supply. This suggests holding is the preferred market dynamic amongst mature investors. 

 

Cryptocurrency News

  • U.S. House Financial Services Committee passes bills to establish a regulatory framework for Crypto. The framework aims to temper the SEC’s crackdown on the digital assets industry, incentivizing companies to remain in the U.S. instead of migrating to more crypto-friendly jurisdictions. Both bills now move to the full House of Representatives for a vote. 
  • U.S. Stablecoin Bill: A bipartisan agreement on US stablecoin legislation was in reach, but disagreements between the White House, Republicans and Democrats have halted talks. Neither the Fed nor the U.S. Treasury Department supports the bill as it stands.
  • Singapore High Court recognized crypto as property. Judge Philip Jeyaretnam of Singapore’s High Court ruled that individuals can hold cryptocurrency as property in trust despite its intangibility, regarding a case decision on crypto exchange Bybit. The court’s classification of cryptocurrency as a “thing in action” or a right over intangible property under common law could significantly impact the legal status and integration of digital assets in future frameworks.
  • Bank of America: Regulations are still being established for trading of blockchain-native crypto tokens as the implications of Ripple-SEC court ruling for wider crypto industry are unclear, the report said.
  • European Banking Authority (EBA) Draft: EU stablecoin issuers with bank assets in reserve will get extra regulation. The EBA is consulting on new Markets in Crypto Assets regulation (MiCA) as financial distress at one issuer can materially increase the likelihood of distress at other issuers of crypto-assets or at other financial institutions given the network of contractual obligations in which issuers operate. Under MiCA, stablecoins deemed significant will be supervised by the EBA rather than national regulators, must carry out extra stress tests, and must have their own funds equal to 3% of their reserve rather than the usual 2%. 
  • The United States Government Accountability Office (GAO) publishes a report on crypto oversight. GAO has found that there is a significant regulatory gap for crypto assets and a lack of an ongoing coordination mechanism for addressing blockchain risks in a timely manner and has suggested a whole-of-government approach to addressing it.
  • Coinbase vs SEC: Court dates are confirmed for initial case arguments with the 4 Aug deadline for Coinbase’s initial brief and 11 Aug for supporting documents. SEC’s opposition brief to be due on or before 10 Oct.
  • Russian President Vladimir Putin signed a law introducing a central bank digital currency (CBDC), the Digital Ruble, and creating an electronic platform for its use. The Digital Ruble will serve as a third means of payment alongside cash and non-cash Rubles, with the Central Bank responsible for operating the infrastructure and custody of all assets. In another development, Russia would allow the creation of crypto exchanges for two years through an experimental legal regime.
  • Grayscale urges the SEC to treat all spot Bitcoin ETFs equally by approving all applications simultaneously if it approves any in order to prevent unfair advantage. Grayscale further suggests that the recent applicants’ surveillance-sharing agreement with Coinbase may not meet SEC’s requirement.
  • Binance has filed a motion to dismiss the U.S. Commodity Futures Trading Commission’s (CFTC) lawsuit against Binance, alleging that the exchange operated a derivatives trading operation in the U.S. The filing suggests that the CFTC is reaching beyond its jurisdiction and several of the charges do not meet the legal standards set out by statutory requirements. 
  • Miners are preparing for Bitcoin’s fourth halving next April. As the halving date approaches, miners are already carrying out extensive research and planning to deal with potentially double the energy cost to mine one bitcoin.

 

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.

 

Sources:

  1. https://www.cnbc.com/2023/07/26/fed-meeting-july-2023-.html
  2. https://www.cnbc.com/2023/07/27/ecb-rate-decision-july-2023-raises-rates-by-25-basis-points.html
  3. https://www.cnbc.com/2023/07/28/bank-of-japan-boj-to-guide-yield-curve-control-with-greater-flexibility.html
  4. https://twitter.com/glassnode/status/1683401299956465665?s=20
  5. https://cointelegraph.com/news/bitcoin-whale-exchange-inflow-1-year-high
  6. https://research.kaiko.com/insights/altcoin-dominance-hits-4-month-high
  7. https://www.cnbc.com/2023/07/26/live-updates-fed-decision-july-2023.html
  8. https://www.coindesk.com/policy/2023/07/27/house-financial-services-committee-votes-in-favor-of-crypto-blockchain-bills/
  9. https://www.coindesk.com/policy/2023/07/27/white-house-derailed-negotiation-on-us-house-stablecoin-bill-mchenry/
  10. https://www.straitstimes.com/business/companies-markets/high-court-rules-crypto-asset-holder-has-legally-enforceable-property-right-in-landmark-decision
  11. https://cointelegraph.com/news/crypto-singapore-high-court-rules-crypto-personal-property-compares-it-to-fiat-money
  12. https://www.coindesk.com/policy/2023/07/24/implications-of-ripple-sec-court-ruling-for-wider-crypto-industry-are-unclear-bank-of-america/
  13. https://www.coindesk.com/policy/2023/07/24/eu-stablecoin-issuers-with-bank-assets-in-reserve-will-get-extra-regulation-eba-draft-says/
  14. https://cointelegraph.com/news/coinbase-vs-sec-court-dates-confirmed
  15. https://www.coindesk.com/policy/2023/07/25/federal-regulators-are-needed-for-crypto-oversight-us-accountability-office/
  16. https://cryptoslate.com/president-putin-approves-digital-ruble-as-russia-prepares-for-crypto-exchange-trial-run/
  17. https://www.coindesk.com/business/2023/07/27/grayscale-urges-equal-treatment-for-all-spot-bitcoin-etfs-in-letter-to-sec/
  18. https://www.coindesk.com/policy/2023/07/28/cftc-is-overreaching-in-binance-lawsuit-crypto-exchange-says/
  19. https://www.coindesk.com/consensus-magazine/2023/07/24/how-miners-are-preparing-for-the-next-bitcoin-halving/

 

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