In Markets
Whether thanks to Vitalik Buterin singing at Token2049, Donald Trump buying a burger with BTC — or, most likely, a 50 basis points interest rate cut in the US — crypto markets have taken a turn for the better. Bitcoin finishes the week up 7% to trade around A$92,295 (US$63,032), and Ethereum has fought its way from beneath a mountain of bearish commentary to record a 16% gain this week to trade around A$3,900 (US$2,663), with ETH/BTC increasing to 0.0424. Its performance was even better than Solana’s 9% gain after bullish announcements at its Breakpoint conference. XRP dropped 1%, Dogecoin gained 8.7%, and Cardano was up 8%, with founder Charles Hoskinson set to meet with Argentina president Javier Milei next month. Microstrategy has bought another 7,420 BTC, and this month is on track (so far) to be Bitcoin’s best-performing September ever. Rekt Capital points out that historically, Bitcoin has broken out from its reaccumulation range 154-161 days after the Halving. “It is 157 days after the Halving now,” he writes. “History suggests it is ‘Breakout Time’ for Bitcoin. The Crypto Fear and Greed Index is at 54, or Neutral.
From the IR OTC Desk
The US Federal Open Market Committee (FOMC) meeting delivered a 50bp cut to the Federal Funds rate. This was the first interest rate cut by the FOMC since the days of the pandemic. The change takes the federal funds rate to a 4.75%-5.00% band.
While the magnitude of the cut may have surprised the interest rate market, it is the forward interest rate projections that perhaps should be given the most weight for risk assets.
Interest rate projection – 1st Yr moved from 4.1% to 3.4%
Interest rate projection – 2nd Yr moved from 3.1% to 2.9%
Interest rate projection – 3rd Yr remained at 2.9%
Interest rate projection – Longer moved from 2.8% up to 2.9%
It is now very clear that the FOMC will remain supportive of the labour market and remain less concerned with the inflation mandate.
The aftermath was telling, with cryptocurrencies and other high beta risk assets performing strongly on the week. BTCUSD moved up circa 9%, while the NASDAQ gained near 2.1%. Critically, capital appears to be flowing to more speculative (lesser market cap) assets in the cryptocurrency space, with layer 1 tokens performing particularly well: ETH +16%; SOL +11%; AVAX +16%; SUI +49%!
As previously mentioned, the beginning of a broader monetary policy cutting cycle can create volatility in the foreign exchange market. This is due to a change in the cost of carry through the forwards market – which is derived by the underlying yield curves. For now, AUD/USD has remained relatively stable, despite a clear divergence between the FOMC and the Reserve Bank of Australia (RBA).
Today we heard from the RBA, who convened for their September meeting. While holding the cash rate steady at 4.35% the Board continued to highlight a cautious path to ensure the abatement of any upside inflation risks. In today’s statement they highlighted:
Policy will need to be sufficiently restrictive until the Board is confident that inflation is moving sustainably towards the target range.
In the Australia (AEST)
- Today 2:30pm RBA Interest Rate Decision (September)
In the US (AEST)
- Thursday 10:30pm US GDP Growth Rate (Q2)
- Thursday 11:20pm US Fed Chair Powell Speech
- Friday 10:30pm US PCE Inflation (August)
In Singapore (AEST)
- Wednesday 3:00pm SG Inflation (August)
- Thursday 3:00pm SG Industrial Production (August)
On the OTC desk, Token 2049 has delivered key themes of real-world asset tokenisation, stable coins and cross chain bridging. With so many market participants in Singapore, it makes sense that trading volumes have been lower this week – despite the positive price action. In relative value trading, the increase in risk appetite has seen ETH/BTC finally buck its long-term trend lower, to trade above BTC 0.04 on the week. Generally, outperforming ETH bodes well for alts. It has been quite some time now (November last year) since the market was truly excited about the alternative token narrative. Could the most recent shift in global monetary policy be the catalyst for alt outperformance?
For any further information, please feel free to reach out.
New licences required
The Australian Financial Review reports that updated regulatory guidance is expected within two months. The guidance requires a broader range of “crypto asset firms” to hold an Australian Financial Services Licence. ASIC commissioner Alan Kirkland says the new regulations are necessary because the Corporations Act captures most major crypto assets, like Bitcoin.
Kamala talks Krypto
Democrat Presidential candidate Kamala Harris finally broke her silence about crypto at a Wall Street fundraiser. “We will partner together to invest in America’s competitiveness, to invest in America’s future. We will encourage innovative technologies like AI and digital assets while protecting our consumers and investors,” Harris said. While the statement is hardly a ringing endorsement, it’s a start. Polls suggest Harris is now in pole position to win after the pro-crypto Republican campaign made a series of unforced errors over cat-eating claims and the “black Nazi” candidate scandal.
Make Ethereum Expensive Again
Much of the bearishness around the ETH roadmap was related to a collapse in L1 fee revenue, but it’s on the road to recovery with daily average fees now around 15-20 gwei, rather than the usual one gwei of recent times. The seven-day average fees are now US$6.74M (A$9.9M). Matt Hougan, Bitwise Asset Management’s chief investment officer, believes the market is on its way to reevaluating ETH. “For now, it looks like a potential contrarian bet through the end of the year.”
Solana Breakpoint
The Solana Breakpoint conference was held in Singapore this week, with some huge announcements – including two significant upgrades to the Solana network: Frankendancer and Firedancer. The Frankendancer upgrade has gone live on the mainnet. It represents a significant update to the Solana network to enhance its performance and stability. The new Firedancer client was also introduced into the Solana ecosystem, which demonstrated the capability to handle up to 1 million transactions per second (TPS) in testing environments. It is currently available on the testnet for further development and testing. Alongside these, ZK compression technology has also gone live on the mainnet, contributing further to the efficiency and scalability of the network.
In traditional finance news, Franklin Templeton is launching a mutual fund on Solana and Citibank is exploring plans for the blockchain. Sky (formerly Maker) is debuting its USDS, SKY, and sUSDS tokens on Solana. Meanwhile, Coinbase is introducing its cbBTC, a wrapped Bitcoin product, on Solana.
Solana or Ethereum? Why not both
The Firedancer client is also coming to the Ethereum ecosystem on the Eclipse L2, which launches in October. The L2 uses Ethereum’s decentralised and bomb-proof base layer for security, runs Solana Virtual Machine on top and Celestia for data availability. Ethereum researchers are also working on their own highly performant client called Reth (Rust Ethereum), which reportedly hit 27,000 TPS on mainnet during an archive sync.
Bitcoin options approved
The SEC has greenlit BlackRock’s application to list options trading on its spot Bitcoin ETF IBIT. The approval reportedly allows for physically settled options, meaning when a contract is exercised it will deliver Bitcoin. Options trading is a form of derivatives that allows investors the right, but not the obligation, to buy and sell an asset at a predetermined time and price. Bloomberg analyst Eric Balchunas said, “I’m assuming others will be approved in short order. Huge win for the Bitcoin ETFs (as it will attract more liquidity which will in turn attract more big fish).”
BNY can custody crypto now
Coinbase looks like getting some competition as a custodian for ETF Bitcoin, with BNY (America’s largest custodian bank) receiving permission from the SEC to custody crypto for institutions. The SEC’s SAB 121 accounting guidelines prevent banks from custodying crypto. President Biden vetoed a vote to overturn the rules, but the SEC now allows selected banks to hold crypto. SEC Chief Accountant Paul Munter said other exemptions have also been granted to brokerage houses and other entities but did not name them.
SEC commissioners grilled
All of the SEC commissioners will be up for a grilling by the House Financial Services and Senate Banking committees later today. Republicans have signalled they will attack the commissioners over the SAB 121 guidance and for not providing clear guidance to crypto companies on what the rules actually are — something a judge in the Coinbase case this week also criticised the agency over. There are reports that even some Democrats believe SEC boss Gary Gensler has been too aggressive in his approach to crypto, so the hearings are set to be very interesting.
Dead by Fed
An affidavit by Elaine Hetric, former chief admin officer of Silvergate Bank, suggests the bank was solvent after a bank run caused by rumours of criminal involvement in the FTX collapse. Castle Island Ventures partner Nic Carter says the Fed deliberately killed the bank by ordering it to cut crypto deposits to just 15%. “They did NOT die on their own due to mismanagement or bad trades. they were killed because the Fed said they weren’t allowed to service crypto clients,” he said.
Bits and pieces
The Bitcoin ETFs had another positive week, taking in a total of US$397.2 million (A$581.2M), but flows into BlackRock and out of Grayscale are starting to dry up. The Ethereum ETFs were negative for US$34.2M (A$50M) primarily due to Grayscale outflows. Singapore-based exchange BingX suffered a US$44M (A$64.4M) hack, according to Bitrace, but the exchange says it suffered only minor losses. The I Stand With Crypto campaign has registered more than 100,000 pro-crypto voters in its tour of swing states Arizona, Michigan, Nevada, Pennsylvania and Wisconsin this month, and there are rumours that I Stand With Crypto is going to make its presence felt in Canberra, too.
Until next week, happy trading!
