Daily Crypto Brew: Buoyant Global Equities, Buck Weakness Boosts Crypto Sentiment

Joel Frank
7 min read
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Key Points

  • The macro backdrop of stronger global equities and a weakening US dollar is boosting crypto sentiment on Friday.

  • Bitcoin recovered $30,000 on Thursday and is now consolidating just above this key level.

  • The events to note next week are Fed minutes, US Q1 GDP (2nd estimate) and US Core PCE.

State Of The Market

Global macro risk appetite is on a better footing on Friday, with global equities rising across the board in wake of a surprise cut by China’s PBoC to one of its key lending rates. The bank cut its 5-year Loan Prime Rate (LPR) to 4.45% from 4.6%, and move analysts said should support the country’s struggling property sector.

Upside in global equity markets combined with a sharp, potentially positioning-related drop in the US dollar against most of its G10 peers on Thursday and continued subdued moves in US bond yields is helping to support cryptocurrency prices as the weekend approaches.

Nasdaq 100 index futures were last trading with pre-market gains of around 1.5%. Crypto has developed a strong positive correlation to US equities (tech stocks in particular) in recent months.

Meanwhile, the DXY fell back below the 103.00 level on Thursday, taking its losses since printed multi-decade highs above 105.00 last Friday to more than 2.0%. A weaker US dollar makes USD-denominated cryptocurrencies and other commodities cheaper for international buyers, thus boosting demand.

Elsewhere, longer-term US yields are down on the week, with the 10-year last down about 6 bps in the mid-2.80s% area. Lower yields reduce the “opportunity cost” of holding non-yielding assets like crypto (or precious metals and other commodities).

The total market capitalization of cryptocurrencies was last around $1.277 trillion according to TradingView, a bounce of around 6.0% from Thursday’s lows near $1.20 trillion. On the week, total crypto market cap is still down by about 4.3% or just under $60 billion, reflecting the fact that, on the week, US equities are also headed for losses.

But crypto bulls will take heart from the fact that the recent $1.20 trillion to $1.35 trillion (ish) range established over the last eight days continues to be respected. But broader macro conditions look set to remain difficult next week.

The release of the minutes of the Fed’s last policy meeting (where it hiked rates by 50 bps and signaled more 50 bps moves ahead) will be out on Wednesday ahead of the release of the second estimate of US GDP growth in Q1 on Thursday and then the release of US Core PCE inflation data on Friday (the Fed’s favored gauge of underlying inflation).

This will keep focus on the themes bearish themes of central bank tightening amid scorching hot inflation, despite a slowing economy. Traders will recall the first estimate of US Q1 GDP growth showed a surprise contraction, hence why the second estimate will be closely scrutinized.

If global equities can end this week on a strong footing and the moderation back from recent highs in the US dollar and US yields continue, total crypto market cap stands a good chance of recovering back into the $1.30s trillion area.

Price Action

Bitcoin is fairly stable in the $30,300 area on Friday, having bounced nearly 6.0% from Thursday’s lows in the mid-$28,000s. The world’s largest cryptocurrency by market cap still trades about 3.0% lower on the week, however, though also trades nearly 20% above last week’s lows in the $25,000s.

At current levels, bitcoin’s market cap is around $577 billion and its cryptocurrency market dominance is just above 45%, near its highest levels since last October. Analysts say that rising bitcoin market dominance is a sign of risk aversion in the crypto space, with investors allocating money out of riskier currencies/projects into the tried and tested bitcoin.

Ethereum, meanwhile, was last trading about 1.3% higher near the $2,050 per token mark on Friday, taking its gains since Thursday’s lows around $1,900 to about 7.5%. That means ethereum’s market cap is back to close to $250 billion once again.

In terms of notable ethereum news, one of the ethereum blockchain’s core developers on Thursday said that the merge to proof of stake (i.e. transitions to ethereum 2.0) could happen as early as August this year.

Out of the top 20 non-stablecoin cryptocurrencies, the top performers over the past two days include Avalanche’s AVAX (up 14% from Thursday’s lows), Solana’s SOL (up 10% from Thursday’s lows) and Ripple’s XRP (also up around 10% from Thursday’s lows).

Ripple on Friday announced a $100 million investment in climate-focused financial and carbon-reduction technology.

DeFi Update

The market cap of Decentralised Finance (DeFi) tokens remains broadly stable within recent $50-55 billion ranges, data on CoinGecko showed on Friday. Meanwhile, the trade value locked in DeFi smart contracts remains close to the $100 billion mark, around half of what it was at the start of April.

The collapse of the Terra, which had become one of the leading DeFi ecosystems in the space, has delt a severe blow to confidence across DeFi markets. Popular DeFi app Stablegains is reportedly being sued by its investors after it allegedly lost $42 million by investing in Terra’s UST without their knowledge.

Crypto Flows

Exchange wallets saw an inflow of bitcoin worth $470.7 million on Thursday, according to data from on-chain analytics firm Glassnode. Net flows between private and exchange wallets in ethereum, meanwhile, were near 0, whilst Tether’s stablecoin USDT continued to see flows into exchanges, this time of just above $200 million on Thursday.

When private wallets are moving a cryptocurrency to exchanges, this is often a bearish signal as it suggests intent to sell. USDT currently has a market cap of about $74 billion, according to CoinMarketCap data, down around $9 billion in the last two weeks, amid fears that it could be the next major stablecoin to collapse.

But according to the latest assurance report provided by accounting firm MHA Cayman, Tether’s USDT is fully backed. Nonetheless, many of the flows leaving USDT are going into Circle’s US dollar stablecoin USDC. According to CoinMarketCap, USDC now has a market cap of $52.78 billion, up from just under $48.50 billion just over two weeks ago.

Where there have been concerns in the past about whether or not Tether’s USDT is fully backed, USDC has never faced such worries.

Regulatory Landscape

G7 finance ministers and central bankers on Thursday called for the swift and comprehensive regulation of cryptocurrencies in wake of last week’s collapse of Terra’s UST stablecoin, according to a draft communique. “In light of the recent turmoil in the crypto-asset market, the G7 urges the FSB (Financial Stability Board)…to advance the swift development and implementation of consistent and comprehensive regulation,” the draft document read.

US President Joe Biden’s pick for the role of Vice Chair for Supervision at the Federal Reserve Michael Barr on Thursday called for US lawmakers to regulate stablecoins amid rising risks to financial stability. In his confirmation hearing before the Senate Banking Committee on Thursday, Barr said that crypto poses “potential for upside in terms of economic benefit”, but also “significant risks”.

Former Fed Chair Ben Bernanke was critical of bitcoin in a recent interview on CNBC. He highlighted the risk that bitcoin might be subject to a lot more regulation in the future, and lambasted the cryptocurrency for its volatility, which makes it difficult to use as a medium of exchange. In that regard, Bernanke said he thinks bitcoin is unlikely to replace fiat currencies as a form of money, though he did add that “it will be around as long as people are believers and they want to speculate in it”.

Commonwealth Bank of Australia (CBA) announced on Friday that it had put on pause its plans to offer cryptocurrency services to clients, with the bank citing uncertainty regarding market conditions and uncertainty regarding regulation. The bank’s CEO Matt Comyn said plans to offer crypto-related services would be picked back up at a later date.

This article was originally posted on FX Empire

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