Newsletter Volume 20
Article 1 – The Market This Week
Great news for those who are invested in cryptocurrency! The Federal Reserve has announced another small interest rate hike, causing the equity and crypto markets to jump. Markets widely expected this decision as the Federal Reserve continued its strategy of slow-paced increases to combat the highest inflation the United States has seen in over 40 years.
The US central bank cited ongoing geopolitical tensions, inflation, and a need for maximum employment for this repeat 25 basis point increase. This marks the ninth consecutive rate increase, with the Fed hoping that it will lead to a soft landing and curb inflation. However, some are worried that this may not be achievable.
Despite concerns, Bitcoin gained more than 1% following the news, while Ether lost 1.1%. The S&P 500 and Nasdaq Composite indexes also rallied slightly, rising around 0.4% and 0.5%, respectively. This was likely because the markets had predicted the rate increase.
According to Fed Chairman Jerome Powell, recent stress in the banking sector has caused central bankers to reconsider their policies. The KBW Bank Stock Index, which tracks the 24 largest firms in the US, has been relatively stable over the past few days, leading some to believe there won’t be ripple effects. However, others disagree and believe that the wait-and-see approach is a sign that ripple effects are already priced in after the severe drop earlier in the month.
Powell gave few hints as to his expectations for the future, but he did say that market participants who are pricing in rate cuts this year are likely wrong. Nevertheless, the Federal Open Market Committee members stated in a statement at the end of their two-day policy meeting that some additional policy firming may be necessary to attain a stance of monetary policy that is restrictive enough to return inflation to 2 per cent over time.
When asked about the probability of a soft landing for the economy, Powell said it was too early to tell if there had been any change in his assessment. He did, however, mention that there is still a pathway to a soft landing and that they are currently trying to find it.
In conclusion, while the rate increase was expected, it is excellent news for those who are invested in cryptocurrency. The markets seem to be responding positively to the announcement, and we will have to wait and see what the future holds for the US economy.
KEY METRICS
Total Crypto Market Cap
$1.23 T
Bitcoin Market Cap
$550.05 B
Ethereum Market Cap
$220.94 B
ETH/BTC Ratio
0.06
Ethereum Gas Price
60 gwei
DeFi TVL
$74.78 B
Fear and Greed Index
57 (Greed)
Federal Reserve Balance Sheet
$8.63 T
Article 2 – Weekly Review of IC15
Cryptocurrency investors are rejoicing this week as Bitcoin surges past the US$28,000 mark, gaining 13.22% for the week, while Ether rises 4.99% for the past seven days, breaching the US$1,800 mark for the first time since August 2022. XRP led the winners with a surge of over 20% due to expectations of a favorable ruling in an SEC lawsuit. As a result, the total crypto market capitalization rose 1.05% in the past 24 hours to US$1.18 trillion.
Cathie Wood, the CEO of Ark Invest, spoke about Bitcoin’s price surge amid bank failures in the US this month, pointing to more institutional acceptance of cryptocurrencies as a store of value. In addition, the Bitcoin Fear & Greed index, which measures crypto market sentiment, rose to a 16-month high of 68 points on Tuesday, indicating that investors are becoming more optimistic than fearful.
While crypto is booming, US equities have also been rallying into Tuesday, with the Dow Jones Industrial Average increasing 0.98%, the S&P 500 adding 1.30%, and the Nasdaq Composite Index rising 1.58%. This was primarily due to Treasury Secretary Janet Yellen’s assurance that financial authorities would intervene if smaller lenders suffer bank runs, easing investor concerns over recent bank failures.
All eyes are now on the Federal Reserve’s decision on interest rates, with most analysts expecting a 25 basis-point increase. However, some analysts predict the Fed will leave the rate unchanged in light of recent bank failures and forced rescues. U.S. interest rates are currently between 4.5% to 4.75%, the highest since October 2007. Analysts at the CME Group expect an 89.3% chance the Fed will raise the rate by another 25 basis points on Wednesday, with a 10.3% likelihood for no change.
As investors await the Fed’s decision, U.S. stock futures mainly traded flat, with the Dow Jones Industrial Average dipping 0.04%, the S&P 500 futures edging up 0.01%
Article 3 – Battle of Bull and Bear
Bitcoin and Ethereum, the two largest cryptocurrencies, have been on a rollercoaster ride recently, with their values dropping below $28k and $1,800 levels, respectively, creating a bull and bear situation in the market. The market volatility can be attributed to a dovish statement from the US Federal Reserve regarding interest rates. The Fed raised rates as predicted but hinted at a possible halt in its rate rise cycle due to the banking turmoil.
While the Fed’s decision generated some uncertainty and volatility in the market, it is essential to understand how interest rate changes can affect the cryptocurrency market. Bitcoin is often used as a hedge against inflation, and higher interest rates may reduce its appeal as an investment. Additionally, higher interest rates may make investing in the US dollar more attractive, leading to a drop in Bitcoin and other cryptocurrency investments.
Despite the recent turbulence, Bitcoin’s safe haven status has boosted the crypto market. People have been turning to Bitcoin as a viable alternative to traditional financial institutions, especially after the collapse of Silicon Valley Bank, Silvergate Capital, and Signature Bank. As a result, Bitcoin is often referred to as a safe haven and has gained significant traction among investors looking to protect their money from inflation and market volatility.
While the Fed’s decision may have affected Bitcoin’s appeal as an investment, there is some positive news for the cryptocurrency. Recent reports suggest that more significant investors are buying Bitcoin and Wrapping Bitcoin on other networks. This has led to a surge in whale activity, with over 13,000 large transactions done by Bitcoin whales and over 100 transactions performed by Wrapped Bitcoin whales. This indicates that large investors believe in Bitcoin’s future and are confident in its potential.
In conclusion, the cryptocurrency market is constantly evolving and subject to various external factors such as interest rate changes, financial crises, and market volatility. While recent developments may have affected Bitcoin’s value in the short term, it is crucial to remember that the cryptocurrency market is highly speculative and subject to fluctuations. However, with the surge in whale activity and growing investor confidence, Bitcoin and Ethereum’s long-term outlook appears promising.
Article 4 – Weekly Spotlight
Crypto markets were rattled this week by the news that Do Kwon, the co-founder and CEO of Singapore-based Terraform Labs, had been arrested in Montenegro on suspicion of falsifying documents. Do Kwon, who has been dubbed a “crypto fugitive,” is the man behind Terraform’s stablecoin TerraUSD and cryptocurrency Luna.
TerraUSD was designed to maintain a constant value of $1, but it lost its dollar peg in May 2021 due to a sell-off in the crypto market. While Terraform Labs partially repaired the peg by purchasing $2 billion of the stablecoin, continued sell-offs caused the price of both Luna and TerraUSD to crash.
The crash of the Terra ecosystem wiped out roughly $40 billion from the crypto market, causing significant losses for investors worldwide. Do Kwon was previously believed to be hiding in Serbia before being apprehended in Montenegro.
This news is significant for the crypto world, as Terraform Labs and its stablecoin have been seen as promising alternatives to traditional financial institutions. However, the crash of TerraUSD, along with Do Kwon’s arrest, has brought uncertainty and volatility to the market.
However, it is worth noting that while the news of Do Kwon’s arrest is certainly concerning, it is still unclear what impact this will have on the broader crypto market in the long term. It remains to be seen how this situation will develop and what it will mean for the future of Terraform Labs and its products.
In any case, this news highlights the risks of investing in the cryptocurrency market. The lack of regulation and oversight can make it difficult for investors to make informed decisions. As always, investors should be cautious and do their due diligence before investing in any cryptocurrency or crypto-related project.
