PayPal Joins the Tokenization Race: The Digital Frontier Expands!

1. Digital Asset Market: PayPal has launched a US dollar-backed stablecoin called PayPal USD (PYUSD) to facilitate payments in a digitally native environment. The stablecoin is redeemable for dollars and is backed by dollar deposits, short-term US treasuries, and similar cash equivalents. The launch of PayPal's stablecoin comes as market participants await a vote in Congress on a key stablecoin bill. It is issued by Paxos, a veteran of the stablecoin space. However, the market cap for USD Coin, the biggest dollar-backed stablecoin issued by a US company, has dropped 41% since Jan 1. Stablecoins are cryptocurrencies whose prices are pegged to an underlying asset, and they are often used to trade in and out of other cryptocurrency assets.

2. Macro Economics: Global markets tumbled and bond yields fell on Tuesday morning due to a trifecta of dismal news: a collapse in Chinese trade, an unexpected windfall tax on Italian banks, and a downgrade of US banks by Moody's. U.S. equity futures and the S&P 500 index declined, as investors sought safety in Treasury bonds, pushing yields down. The weaker dollar and plunging commodity prices worsened the global economic outlook, with China's dismal economic recovery felt in emerging markets. In Europe, the Stoxx 600 dropped 0.7%, with banks posting the steepest losses. In Asia-Pacific, the Hang Seng and Shanghai Composite indexes declined and Nikkei 225 lost most of its gains. Meanwhile, Chinese companies were forced to cut prices amid tepid demand.

3. Equities: JPMorgan Chase economists have soured on their previous recession call, signifying a general shift in opinion on Wall Street. Despite headwinds, the bank's forecasters now think GDP growth of 2.5% in the third quarter is likely. Bank of America and Goldman Sachs have similarly lowered their probability of an impending recession. The Fed's GDP projections show growth of 1%, 1.1%, and 1.8% over the next three years, with Chair Jerome Powell stating that the Fed no longer anticipates a mild recession this year. Market pricing, however, still indicates a high risk of a downturn.

4. Geopolitical: Ukraine's Secret Service has arrested a woman from Ochakov on suspicion that she was planning to assassinate President Volodymyr Zelensky while on an assignment in the Mykolaiv region. On the other side, in June, India imported Russian crude oil at a price that surpassed the G7's price cap, and it is expected that India may reduce its imports even further in August. Furthermore, the reports of assassination attempts on the President depict the tense state of the war in Ukraine.

View from our desk

The cryptocurrency market experienced a brief period of turbulence following rumors of insolvency surrounding Houbi, a prominent exchange. These rumors, which were later dismissed by Houbi's management, led to a temporary discount on USDT. However, this dip was short-lived as several large buyers seized the opportunity to purchase, bringing USDT back closer to par. Aside from this incident, the price action in the major cryptocurrencies, namely Bitcoin (BTC) and Ethereum (ETH), remained relatively muted and cyclical. Looking ahead, we anticipate that prices will continue to hover around current levels, maintaining a range-bound pattern.

Turning to the broader economic landscape, it's becoming increasingly apparent that a recession is likely to be averted, with a soft landing now appearing more probable. This perspective, which has been a long-held view of ours, is now gaining widespread acceptance among economists. This shift in consensus is significant, as it suggests a more optimistic outlook for the economy moving forward.

In relation to monetary policy, the Federal Reserve is expected to adjust its inflation target expectations, a move that will undoubtedly influence its rate policy decisions. The key question that remains is the timing of the Fed's next rate cut. While there's some debate on this, we believe that a rate cut is more likely to occur in Q2 04 rather than Q1 04. This projection is based on current economic indicators and the Fed's recent policy trends.

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The 1Konto Team

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