Ethereum ETF Approval Imminent?
Digital Asset Market: Bitcoin soared above $71,000 and Ethereum reached $3,700, driven by anticipation of Ethereum ETF approval. This marks a 6% rise in BTC and a 20% jump in ETH. Over the past 24 hours, the crypto market saw over $360 million in liquidations, with $290 million coming from short traders who were hit hard by the sudden price surge. Ethereum experienced the most liquidations, followed by Bitcoin and Solana. The significant market movement was triggered by reports of a potential Ethereum ETF approval, making it a particularly painful day for short traders in the crypto market.
Macro Economics: The escalating debt and deficits in the United States have become a major concern for both government officials and financial experts. The current federal IOU has reached $34.5 trillion, which is around 120% of the total US economy and has risen by $11 trillion since the start of the Covid pandemic. The Congressional Budget Office estimates that the debt will continue to grow over the next decade, reaching levels higher than at any other point in history. The surging deficits are mainly responsible for the mounting debt, and the CBO predicts that they will only get worse in the coming years. Experts are warning that the debt could have long-term repercussions, such as making US Treasurys less attractive to foreign buyers and potentially leading to market instability. Both the Federal Reserve Chair and several prominent figures in the finance world are urging policymakers to address the issue before it becomes even more challenging to manage.
Equities: US markets are trading flat this morning as investors wait for earnings from Nvidia and other Semis. European and Asian markets are down, and there is generally a risk-off sentiment in the US market. The macro focus is on Fedspeak and minutes due tomorrow, which will be the day's main event along with Nvidia's earnings. There is also some attention on the JPM TMT Conference (Telecom, Media, Tech). In trading earlier today, NVDA is slightly higher, while some companies, like Palo Alto Networks, are trading lower after issuing disappointing forecasts. Global-e Online and Larimar Therapeutics are up after positive news, while Zoom Video Communications is down after reporting weaker earnings.
Morgan Stanley's Mike Wilson, who has been bearish on the stock market, has raised his price target for the S&P 500 by 20% over 12 months to 5400, due to high uncertainty. However, his analysis of historical data shows that rate cuts, typically seen as beneficial for stocks, have not always resulted in high returns for the S&P 500. Even in the years with positive returns, there were significant market challenges. The current market is anomalous, with the Fed looking for low rates not due to a negative shock, but because of inflation concerns. Mike thinks that this unpredictable environment is expected to continue.
The Fed and US Treasury: Federal Reserve Governor Christopher Waller stated that the Fed would need to observe several more months of favorable inflation data before considering cutting interest rates. He also expressed confidence that keeping rates steady for a few months will not negatively impact the economy, highlighting the recent April CPI figures as an encouraging sign of progress towards the central bank's 2% target. US yields are up a bit, with some steepening of the curve. US sales this week include $16 Billion 20-year bonds Wednesday and a $16 Billion 10-year TIPS reopening Thursday. The US session lacks scheduled data, leaving focus on another heavy dose of Fed speakers.
Geopolitical: The Ukrainian president has appealed for more Western aid and involvement in the conflict due to the unfavorable situation on the battlefield. The Kremlin dismisses this as Zelenskyy "slipping into hysterics" and says new arms supplies will not change the dynamic. In separate news, Poland has arrested nine people for acts of sabotage carried out on behalf of Russian services. A former Russian army commander, who had previously criticized the country's defense system, has been arrested on suspicion of fraud.
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The approval of an Ethereum ETF appears imminent, as Fidelity has amended its S-1 filing with the SEC, indicating it will not stake Ether in its proposed spot exchange-traded fund. This strong signal of approval has bolstered market confidence, making a pullback like the one seen after the BTC ETF approval less likely or smaller. Investors expecting a pullback might be too late, as we anticipate the current momentum to drive prices to new highs. Additionally, the resignation of the FDIC chairman is viewed positively by the crypto industry, as it may alleviate some banking constraints that have been stifling the sector.
Meanwhile, the broader financial markets seem to be in a holding pattern, with investors keenly awaiting Nvidia's earnings report and the release of the Fed Minutes tomorrow. The economy is navigating uncharted waters with the interplay of inflation, interest rates, and equity markets. Despite Wall Street's bearish outlook, we maintain our belief that strong earnings and robust employment figures will continue to underpin the equity markets. Inflation, while persistent, is beginning to show signs of easing, which is encouraging for long-term stability.
However, a significant concern remains the national debt, which has ballooned to $34.5 trillion. This issue looms large over the economic landscape, with no clear solution in sight. While Wall Street has yet to fully grapple with this problem, the focus remains on short-term gains and stability. For now, we align with the prevailing sentiment and do not foresee any immediate downside risks.
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The 1Konto Team
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