Crypto Comeback: Why Optimism is Skyrocketing in the Digital Currency World!

1. Digital Asset Market: On Tuesday morning, the US Securities and Exchange Commission overturned a prior decision, allowing for the launch of the first Bitcoin ETF in the US. This news caused surges in currencies such as Bitcoin (BTC-USD) and stocks for investors with heavy crypto exposure, such as Coinbase (COIN), Riot Platforms (RIOT) and Marathon Digital Holdings (MARA). The Grayscale Bitcoin Trust saw a 16% jump on the news.

2. Macro Economics: Chinese investors are increasingly turning to Qualified Domestic Institutional Investors (QDII) products as an investment channel to diversify their portfolios and get access to lucrative overseas assets. The QDII quota of roughly $165.5 billion is almost used up, as demand for U.S stocks has surged due to their high returns and a weak CSI300 index performance this year. Asset managers are hotly competing for QDII quota, and the State Administration of Foreign Exchange (SAFE) is slow in approving further quota. This year has seen 38 QDII funds launched, leaving the combined size of QDII mutual funds to exceed 400 billion yuan. Individual investors such as Tracy Liu are also investing in funds with exposure to emerging markets such as India.

3. Equities: Stocks rose on Tuesday as new data showed that US job openings fell below 9 million for the first time since March 2021, and consumer confidence reversed its summer gains. The S&P 500 and the Dow Jones Industrial Average (DJIA) both increased by 1.2% and 0.65% respectively, while the Nasdaq Composite (IXIC) saw the highest gains at 1.6%. This comes ahead of the PCE inflation and August payrolls reports, which could sway investors' expectations for more interest-rate rises from the Federal Reserve.

4. The Fed and the Banks: The US Labor Department's Job Openings and Labor Turnover Survey for July showed that job openings had dropped to their lowest level in nearly two and a half years. This was led by the professional and business services sector, which saw a decline of 198,000 in openings. This decrease in vacancies is not due to an increase in layoffs and unemployment, but rather companies reducing their number of vacancies. The stock market reacted positively to this news, with the dollar weakening against other currencies. At the same time, consumer perceptions of the labor market cooled in August according to a survey from the Conference Board. The JOLTS report also revealed a drop in hiring, resignations, and the quits rate, indicating a decrease in labor market confidence. Despite this, the unemployment rate remains low and labor market conditions remain tight, with 1.5 job openings per unemployed person. This, along with a drop in vacancies, suggests that the Federal Reserve will leave interest rates unchanged in September.

5. Geopolitical: In a powerful speech delivered in Hungary last week, Tucker Carlson apologized on behalf of America for US Ambassador David Pressman's lack of diplomacy regarding LGTBQ issues and also criticized America's "cultural imperialism" for attempting to force its ideologies onto smaller nations. Carlson conveyed a message to the West that Hungary wanted to be part of Western civilization but without the oppressive force of cultural changes that don't align with its values. Additionally, Carlson praised Hungary's stance on migration and encouraged people to read books rather than tweets in order to regain collective wisdom.

View from our desk

The cryptocurrency market is experiencing a resurgence of positive sentiment, largely fueled by the SEC's recent decision to overturn its previous stance and approve the launch of the first Bitcoin ETF in the United States. This regulatory shift has set an optimistic tone for the major cryptocurrencies, and we anticipate this will lead to upward price movement in the near term. Given the current market dynamics, it wouldn't be surprising to see Bitcoin trading at the $29,000 or even $30,000 level in the near future.

Conversely, in the broader U.S. economy and equity market, what may initially appear as bad news is actually proving beneficial. The likelihood of a rate hike in September has significantly decreased, now standing at less than 10%. This change is largely due to an 'unexpected' revision in job data, which has given the Federal Reserve ample reason to maintain current interest rates.

We have consistently held the view that the Federal Reserve prefers to keep rates stable, especially in the face of economic uncertainties. The recent weak job data has not only validated our position but also provided the Federal Reserve with the justification it needs to hold rates steady. This confluence of factors in both the crypto and traditional financial markets indicates a complex but cautiously optimistic landscape moving forward.

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The 1Konto Team

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