Crypto Volume and GDP Soar: Is a Fed Rate Hike on the Horizon?
Crypto Volume and GDP Soar: Is a Fed Rate Hike on the Horizon?
Digital Asset Market: Trading volumes experienced a rise in June for the first time in three months, driven by optimism following the filing of spot Bitcoin exchange-traded-fund (ETF) proposals by asset manager BlackRock and other large institutions. According to a report by CCData, the combined spot and derivative trading volumes on centralized exchanges increased 14% to $2.71 trillion. This is the first monthly increase since March. Despite this, spot trading volumes remain at historically low levels, with the second quarter seeing the lowest volume since Q4 2019. The derivatives market also saw a 14% increase in volumes in June, accounting for 78.7% of the crypto market. However, this is a decrease from 79.1% in May, suggesting that the ETF filings spurred spot accumulation of crypto assets.
Macro Economics: The U.S. economy demonstrated stronger-than-anticipated growth in the first quarter, according to the Commerce Department's significant upward revision. The Gross Domestic Product (GDP) rose at a 2% annualized rate for the period from January to March, surpassing the previous estimate of 1.3% and the Dow Jones consensus forecast of 1.4%. This upward revision challenges the widespread expectations of an impending U.S. recession. The revision was largely due to stronger consumer expenditures and exports than initially estimated. Personal consumption expenditures, which measure consumer spending, increased by 4.2%, marking the highest quarterly pace since Q2 2021. Concurrently, exports rose by 7.8% after a 3.7% decline in Q4 2022. Despite these positive indicators, the economy remains vulnerable, and the risk of a recession is still present.
Commodities Market: The precious metals dealer Robert Higgins has been ordered by a Delaware court to pay $146 million in damages after over half a million silver coins disappeared. The Commodities Futures Trading Commission (CFTC) stated that Higgins ran a "fraudulent and deceptive scheme" linked to the purchase and sale of precious metals from 2014 to 2022. He convinced almost 200 investors to buy and store their American Eagle Silver coins through his two companies, Argent Asset Group LLC and First State Depository Company LLC. However, the vault where Higgins claimed to be storing the coins was found to be empty, except for boxes of paper IOUs. Higgins has been ordered to pay $113 million to clients and $33 million in penalties, and he is banned from the industry for life.
Equities: On July 5, 2023, the Dow Jones Industrial Average fell as Wall Street resumed a holiday-shortened week, with investors looking forward to the Federal Reserve meeting minutes due in the afternoon. The Dow lost 118 points, or 0.3%, while the S&P 500 shed 0.1%, and the Nasdaq Composite added 0.1%. The minutes from the June 13-14 Fed meeting could provide more insights into the future of monetary policy. Despite the decision to hold interest rates steady, indications suggest that members see at least two more hikes before the end of the year. The market is also monitoring factory order data, which showed a weaker-than-expected rise in May. Despite these developments, investors are optimistic, coming off a positive session on Monday, which marked the start of a new trading month, quarter, and half-year.
View from our desk
In our observation, there is a consistent accumulation of spot Bitcoin from a diverse range of participants, including institutional investors and retail-facing counterparties. The price of Bitcoin appears to be maintaining its current range, with the primary determinants being regulatory shifts and the impending decision on the spot Bitcoin ETF. These factors are critical, and we are monitoring them closely due to their potential to influence the market significantly.
As we shift our gaze to the wider economic panorama, the recent upward adjustment of Q1 GDP has handed the Federal Reserve further ammunition to justify one or two additional rate hikes in the latter half of this year. Interestingly, markets have shown a resilient response to the ongoing hiking cycle, a trend that could potentially persist. The financial community eagerly awaits the release of the Federal Reserve minutes today at 2 pm, which promises to shed more light on the thoughts of the 12 people in the Eccles building and their probable course for monetary policy.
Lastly, the Biden administration's strategy to gradually reintroduce student loan repayments could make inflation stickier and complicate the Fed's task of navigating the current economic environment over the next six months. Once borrowers (finally) start to repay their loans in earnest, they may need to cut back on spending in other areas. The timing of this pivot is unknown but will create a deflationary effect as cash flow is redirected towards loan repayments. Furthermore, this shift could lead to an uptick in defaults on other forms of debt, such as auto loans, mortgages, and credit cards. We anticipate that the full economic impact of the resumption of student loan repayments won't become apparent until late 2024, at which point we expect to see a rise in defaults and corresponding deflationary pressure as we head into the election.
Happy Trading!
The 1Konto Team
Elevate your institution's digital asset trading with 1KPrime. Reach out today for a consultation on our tailored solutions for best price liquidity and services in digital and fx.
Not Financial Advice Disclaimer