Good morning. Here’s what’s happening:
Prices: Bitcoin holds firm at $26.5K as investors remain largely unstirred by SEC lawsuits and look toward the Federal Reserve's monetary policy decision next week.
Insights: The Fed may halt its hawkishness at its next FOMC meeting, but not after, said Valkyrie Chief Investment Officer Steven McClurg.
A Resilient Bitcoin
Bitcoin soldiered on for yet another day, unmoved from this week’s Securities and Exchange (SEC) lawsuits against exchange giants Binance and Coinbase and ongoing concerns about inflation and central bank hawkishness.
The largest cryptocurrency by market capitalization was recently trading at $26,474, roughly flat over the past 24 hours and about where it’s stood since Tuesday when the SEC filed its suit against Coinbase and asked a court to grant a temporary restraining order to freeze assets tied to Binance.US. The agency sued Binance, the world’s largest exchange by trading volume, on Monday, raising concerns that the latest regulatory crackdown would send markets plunging. BTC took an initial dive below $26,000 on Tuesday but has since held steady above the threshold with analysts suggesting that investors had already priced in the actions.
“It’s hard to imagine a tougher regulatory situation facing the digital asset industry in the United States than what’s happening right now,” Andrew Lawrence, co-founder and CEO of onchain custody platform Censo, wrote in an email to CoinDesk. “ It can feel pretty bleak, and yet there’s been a tremendous resilience shown by Bitcoin and other key crypto assets. We saw a pullback that was far less pronounced than what happened during last year’s daisy chain of collapses.”
Read More: Can Binance Survive the SEC's Charges?
Lawrence attributed cryptos’ resilience at least partly to the growing embrace of digital assets outside the U.S. He highlighted the growing trade volumes in Asia as Hong Kong has facilitated retail trading and wider access to the industry, and new more crypto-friendly regulatory frameworks in the European Union and Dubai.
“Digital assets are truly global,” Lawrence noted, adding that “longer term, this industry is poised to continue its exponential growth. I just worry that the bulk of this growth will occur outside of the United States – that is, if there are no developments in terms of the positive proposed legislation that is currently working its way through Congress.”
Ether was recently changing hands at $1,852, about where it perched on Wednesday, same time. The second largest crypto in market value held tight in “uptrend” territory of the CoinDesk Indices Ether Trend Indicator (ETI), a bullish sign even as bitcoin has languished in a “downtrend” position.Tokens mentioned in the separate lawsuits rebounded slightly with BNB, the token of the Binance exchange, recently up 0.5% and ADA, SOL and MATIC, the tokens of the Cardano, Solana and Polygon smart contracts protocols, either flat or up slightly. Popular meme coins DOGE and SHIB were also in the green.
Major stock indexes closed on the upside with the S&P 500 rising 0.6% to end its longest bear market in 85 years amid a surge in technology stocks. Bear markets end when an index rises from a previous market low. The technology-heavy Nasdaq Composition was up a percentage point. Treasury yields, which tend to travel inversely from crypto markets, sank. Jobless claims arrived higher than expected on Monday to buoy hopes that the U.S. central bank would suspend its year-long diet of interest rate hikes at its Federal Open Market Committee (FOMC) meeting next week. Investors will be eyeing the next Consumer Price Index (CPI) for the latest indication that inflation is waning.
Meanwhile, in an email to CoinDesk, Sacha Ghebali, director of strategy at crypto information provider The Tie, wrote of “clear dislocations in the (crypto) market, resulting in rapid outflows of capital” from Binance. On Wednesday, the BTC-U.S. dollar trading pair on Binance.US jumped as high as $28,800 – likely the result of “large investors and active traders stopping their trading activity and pulling assets off the exchange as a result of risk-mitigation actions,” Ghebali wrote.
But he noted bitcoin’s price strength and the outperformance of DeFi tokens relative to centralized exchange ones. “This could be a result of users preferring decentralized exchanges over their centralized counterparts in light of the regulatory risks facing the latter,” he wrote.
He added: “The Ethereum ecosystem has also held up relatively well when compared to other ecosystems. The DeFi market capitalization, in general, is down roughly five percent since the beginning of the month, whereas the DeFi market capitalization on the Ethereum ecosystem specifically is down less than two percent.”
|Polygon||MATIC||+2.1%||Smart Contract Platform|
|Terra||LUNA||+1.2%||Smart Contract Platform|
|Avalanche||AVAX||−1.0%||Smart Contract Platform|
|Stellar||XLM||−0.6%||Smart Contract Platform|
|Polkadot||DOT||−0.5%||Smart Contract Platform|
A Halt to Rate Hikes but Not for Long
Will the U.S. central bank boost interest rates again next week? What will a decision to the affirmative or negative mean for crypto?
Steven McClurg, the chief investment officer for alternative asset management company Valkyrie believes the Federal Reserve will suspend its nearly year-long diet of rate hikes, given what he sees as an ongoing banking crisis. That may weigh favorably for digital assets, but in an interview on CoinDesk TV's "First Mover" program, McClurg agreed with other analysts who believe the cessation will be temporary amid continued price pressure and other macroeconomic uncertainties.
Over the past year, Interest rate increases have tended to unsettle investors and send crypto prices downward.
"It's very prudent that the Fed has decided to stop raising rates at the moment, primarily because we do have a banking crisis on our hands right now, and we also have a dollar competence crisis," McClurg said.
According to the CME Fedwatch tool, the probability that interest rates will remain at the current target rate of 5%-5.25% is 72.5%. That's ticked down over the past month when a flurry of data suggested that inflation would continue waning, but more mixed signals in recent weeks seem to have discouraged interest rate traders who participate in the ongoing survey.
Still, threats to the banking system have loomed large since a series of U.S. bank failures, that central bank critics have tied to its overzealousness. McClurg noted that banking deposits totaling hundreds of billions of dollars "left the U.S. this year," and that Switzerland, which suffered its own banking crisis in March, resulting in the sale of Credit Suisse to rival UBS, had also seen a significant outflow "to places like Singapore, Dubai, other jurisdictions where they feel like your money is a little safer."
"With continued interest rate hikes, the Fed would put many other banks in danger. So that's why we're on pause."
McClurg called any continued decline in CPI a "reversion to the mean scenario with inflation," where 4% plus is still very high. We're not seeing the 12% to 18% clips, but we're going to see that again."
He added that he would be closely watching oil prices, which have retreated over the past year from near record highs. "I believe oil will probably double in price this year, which will drive the rest of inflation," McClurg said. "That will force the Fed to continue to raise rates to try to stave off inflation to the last half of the year.
9:30 a.m. HKT/SGT(1:30 UTC) China Consumer Price Index (YoY/May)
4:00 p.m. HKT/SGT(8:00 UTC) European Central Bank's De Guindos Speech
8:30 p.m. HKT/SGT(12:30 UTC) Canada Net Change in Employment (May)
Major cryptocurrencies targeted as unregistered securities in recent SEC lawsuits against Binance and Coinbase continue to decline. Valkyrie Chief Investment Officer Steven McClurg reacted. Meantime, a letter from Binance’s counsel said that SEC Chair Gary Gensler should be recused from the case because he once offered to be an "informal advisor." Bain Capital Crypto Partner and Head of Regulatory and Policy, TuongVy Le, weighed in on the state of crypto regulation. Plus, CoinDesk Executive Director of Global Content Emily Parker explained what Apple's new mixed-reality headset means for Web3.
Crypto Custody Firm BitGo Reaches Preliminary Agreement to Buy Prime Trust, Sources: The financial terms of the deal were not disclosed by the source.
Optimism Says Ether Now Treated as Native Cryptocurrency Alongside OP Token: Representatives of the layer-2 network atop Ethereum confirmed the change in the treatment of ETH after CoinDesk observed a $550 million transfer in blockchain data. The change occurred in conjunction with Optimism's “Bedrock” upgrade this week.
Ethereum Developers Cement Final Lineup of Changes in ‘Dencun’ Upgrade: Proto-danksharding is at the heart of the package, with other improvements for storage on-chain, as well as minor code changes related to the Ethereum Virtual Machine.
Aave-Developed Lens Protocol Raises $15M to Expand 'Social Layer' of Web3: Uniswap CEO Hayden Adams, OpenSea co-founder Alex Atallah, entrepreneur Balaji Srinivasan and Polygon co-founder Sandeep Nailwal joined the round as angel investors.
Banks Have Come to the Metaverse: Several big-name financial institutions have set up shop in virtual worlds, making inroads to a whole new generation of clients.
The leader in news and information on cryptocurrency, digital assets and the future of money, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups. As part of their compensation, certain CoinDesk employees, including editorial employees, may receive exposure to DCG equity in the form of stock appreciation rights, which vest over a multi-year period. CoinDesk journalists are not allowed to purchase stock outright in DCG.