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Market Highlights
Bitcoin (+15.0%) and Ethereum (+14.1%) have managed to shrug off regulatory headwinds in the form of SEC lawsuits against Coinbase and Binance to participate in the macro-driven surge in global equity markets over the last quarter. Bitcoin also benefitted from the application from Blackrock to launch a spot Bitcoin ETF in the US.
The big cryptocurrency story of the second quarter was accusations, expressed via lawsuits, from the SEC against the world’s largest cryptocurrency exchange Binance, and the largest US exchange, Coinbase. The lawsuits imply that many other cryptocurrency assets traded on their platforms are unregistered securities. This saw the named directly suffer significantly.
It is, however, clear that there remains a keen interest amongst financial institutions to embrace cryptocurrency. Blackrock, the world’s largest asset manager, recently filed for a spot in Bitcoin ETF in the US. While the SEC has rejected all previous proposals for a spot ETF to date, Blackrock’s reputation has led many to conjecture that the company would only consider the application if they were reasonably confident in the prospects for success.
Additionally, the recent launch of a cryptocurrency exchange modelled after traditional US securities exchanges could herald an explosion of institutional interest in the sector. EDX Markets is backed by major names in finance, including Charles Schwab, Citadel Securities, Fidelity, Paradigm and Sequoia Capital.
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Macro-Economic Summary
Turning to the global macroeconomic environment, inflation in the US has continued to moderate, and although further rate hikes from the Fed are a possibility, the underlying economy continues to surprise to the upside. This has pressured analysts to push back the expected date for the most widely predicted recession in recent memory – rekindling appetite for riskier tech bets on AI that has driven a rally in the S&P500 despite equities unexposed to AI languishing.
This market dynamic is no surprise as bearish sentiment at the end of the first quarter meant large swathes of capital were sitting on the sidelines, with shifting market predictions driving a rotation into risk assets, providing tailwinds for cryptocurrencies, and softening the blow dealt by the SEC’s lawsuits. Rand prices of crypto assets have found further support from a weakening rand.
Cryptocurrency Market Outlook
A future spot Bitcoin ETF approval in the US would likely drive significant demand for Bitcoin; however, this narrative continues to compete with the hostile regulatory approach in the US that has disproportionately targeted altcoins.
Despite many blue-chip cryptocurrency assets shrugging off recent regulatory tensions, and it appears that the implications of the SEC’s lawsuits have already been priced into the affected assets, in the longer-term the outcome of the SEC’s lawsuits against Binance and Coinbase (for which Coinbase is committed to the fight) will be pivotal for the prospects of the assets beyond those named explicitly in the filings.
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Macro-Economic Outlook
The macroeconomic outlook is less clear. Although recession expectations have been pushed out, worrying signs in services and inflation suggest the need for a potential Fed-engineered hard landing (i.e. recession) for the US economy, with interest rate expectations trending steadily upwards over the quarter in line with this possibility. Prospects for the economies in Europe, especially the UK, appear more dire, with the Russia-Ukraine war and its potential fallout still hanging over their heads.
This may lead to macro-driven market weakness over the rest of the year, although analyst expectations are roughly split – with many noting the durability of corporate profit margins in the face of inflation as a reason for continued optimism for risk asset performance, including cryptocurrency.
- Jason Welz – Jaltech Fund Management
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