SEC Stabilization Act: A Game Changer for US Crypto Markets?
SEC Stabilization Act: A Game Changer for US Crypto Markets?
Macro Economics: The upcoming release of the May Consumer Price Index (CPI) data by the Bureau of Labor Statistics is a crucial economic indicator ahead of the Federal Reserve's monetary policy decision. According to Bloomberg consensus estimates, the CPI is expected to show that headline inflation rose 0.2% over last month and 4.1% over the prior year, indicating a slowdown from April's figures. This 4.1% increase in headline inflation would be the slowest annual rise since April 2021, but it is still significantly above the Federal Reserve's 2% target. The Fed has been raising interest rates to curb inflation, but there is a risk of sending the economy into a recession if rates are hiked too high too fast. The Fed has signaled it could pause its hikes, saying it would continue to assess incoming data ahead of the June meeting. The CPI data will be the last piece of data following a strong May jobs report and resilient readings on both the services and manufacturing sectors.
Digital Asset Market: Bitcoin miners are offloading their holdings due to reduced earnings from a decrease in on-chain activity and an all-time high in mining difficulty and hash rate, according to on-chain analytics firm Glassnode. The inflow of Bitcoin from miners to exchanges reached a three-year high on June 3, levels last seen during the early 2021 bull market. The one-hop supply metric of miners, which measures the quantity of Bitcoin stored in addresses that receive coins from mining pools, showed a consistent uptrend in miner holdings since May 2023. However, this trend reversed in the second week of June. The increase in Bitcoin difficulty reduces miners' earnings, potentially increasing their losses. The next difficulty adjustment due this week is likely to add to the selling pressure. The total fees paid for on-chain transactions on Bitcoin dropped to a two-month low, leading to reduced earnings for miners. The seven-day average earnings of miners dropped from a high of $33.9 million in May to $25.8 million at the start of June.
Regulatory: United States Representative Warren Davidson has introduced the "SEC Stabilization Act" to the House of Representatives, with one of the main provisions being the removal of Securities and Exchange Commission (SEC) Chair Gary Gensler. The bill aims to protect U.S. capital markets from what Davidson describes as a "tyrannical Chairman." The proposed legislation would redistribute power between the SEC chair and commissioners, add a sixth commissioner to the agency, prevent any party from holding a majority on the commission, and create an executive director position. While the lawmakers did not specifically mention cryptocurrency in their statements, both Davidson and co-author Rep. Tom Emmer are known to be pro-crypto and have been critical of Gensler's leadership at the SEC.
Equities: Goldman Sachs CEO David Solomon has warned of impending markdowns on commercial real estate holdings due to the sector grappling with higher interest rates. In an interview with CNBC, Solomon stated that the bank will disclose impairments on loans and equity investments tied to commercial real estate in the second quarter. The commercial real estate market has come under pressure due to years of low interest rates and high valuations for office buildings, now facing a difficult adjustment to higher borrowing costs and lower occupancy rates due to the shift to remote work. While Solomon considers these write-downs a "headwind" for the bank, he believes they are "manageable" in the context of Goldman's overall business. However, he expressed concerns for smaller banks, as about two-thirds of the industry’s loans are originated by regional and midsize institutions.
Geopolitical: Saudi Arabia's Ministry of Investment has signed investment agreements worth $10 billion with Chinese companies during the 10th Arab-China Business Conference in Riyadh. The agreements span various sectors, including technology, renewables, agriculture, real estate, minerals, supply chains, tourism, and healthcare. A significant deal includes a $5.6 billion agreement with Chinese electric car maker Human Horizons for automotive research, development, manufacturing, and sales of luxury electric vehicles. The volume of trade exchange between China and Arab countries reached $430 billion in 2022, up 31 percent from the previous year, with Saudi Arabia making up 25 percent of this volume. The agreements further strengthen the political, economic, investment, and trade ties between Saudi Arabia and China.
View from our desk
Through the flows we see across our desk, we continue to observe the stress in the Crypto Markets. Recent SEC actions have caused a decrease in overall volumes and a widening in spreads across the market as industry participants re-evaluate market risk, counterparty risk, and attempt to read the tea leaves of upcoming SEC (and potentially DOJ) actions. Our desk continues to see a heavy skew toward selling stables for USD, retail facing platforms purchasing Bitcoin, while larger blocks are slightly skewed toward the sell side.
Miners are also observed to be reducing their inventory under earnings stress, and the uncertainty caused by SEC’s actions. While institutional investors stay on the sideline in anticipation of clarity through the courts and Congress. Considering the current environment, we believe that BTC and ETH are at attractive levels and holding up well. As always, the digital asset markets are inherently volatile, and accumulating through dips with a longer-term holding view has historically proven beneficial, we expect this to continue as we head towards the next halving and future ETH upgrades.
In line with our expectations, the Fed has signaled they will pause hiking rates at the June 14th meeting. We expect this pause to extend through the end of the year given inflation coming in lower than anticipated, the real estate market cooling down, and the unemployment rate continuing to hold steady between 3.4% and 3.7%.
Happy Trading!
The 1Konto Team
Not Financial Advice Disclaimer