Daily Crypto Brew: Global Equity Rebound Lifts Crypto Ahead Of US Retail Data, Fed Speak

Key Points

• A rebound in global equity markets is helping lift crypto markets from Monday’s lows.
• But cryptocurrencies are still mostly lower on the week as focus shifts to US retail data and Fed speak.
• Bitcoin has rebounded to the mid-$30,000s from Monday’s lows around $29,000.

State Of The Market

Global equities are on the front foot following a strong Asia Pacific session, where sentiment was boosted amid positive reporting on a decline in Covid-19 cases and easing restrictions in Shanghai and on the possibility that China might soon ease its crackdown on big tech, thus (modestly) easing fears about the current slowdown in global growth.

S&P 500 index futures are currently trading about 1.75% higher in pre-market trade, while Nasdaq 100 futures are more than 2.0% higher. This is giving a lift to cryptocurrency markets, which have shown to be tightly correlated to US equities in particular as of late.

The total market capitalization of cryptocurrencies was last up about 2.5% in the $1.3 trillion area, up around 5.0% from Monday’s dip to $1.24 trillion. But that still leaves total market capitalization lower by around 2.5% on the week and around 56% below last November’s record highs above $3.0 trillion.

Concerns about aggressive monetary policy tightening from major central banks (most notably from the US Federal Reserve) continue to dampen the prospect of a more meaningful crypto (and equity) market rebound.

NY Fed President and influential FOMC member John Williams gave no indications that the Fed is looking to slow the pace of monetary tightening in the month ahead, instead emphasizing the Fed’s stance that controlling rampant inflation remains its number 1 priority.

Plenty more Fed policymakers will be speaking on Tuesday, most notable of which is remarks from Fed Chair Jerome Powell from 1800GMT. Markets currently expect the Fed to hike rates by 50 bps at its next three meetings in a bid to get interest rates to around 2.5% by the end of the year.

While there is room for more of a relief rally in crypto if equities continue recent positive momentum, traders should be cautious about assuming the bottom is in. For the bottom to truly be in, we will likely need to see inflation in the US (and elsewhere) moderate, the Fed soften its rhetoric on the need for tightening and global growth fears abate somewhat.

US retail giant Walmart will both be posting their Q1 earnings results, whilst US Retail Sales data for April is also out at 1230GMT, meaning there will be a lot of focus on the underlying strength of the US consumer. Given consumption is the major growth engine of the US economy, this data could impact broader macro and crypto market sentiment, so will be worth monitoring.

Bitcoin, Ethereum, Altcoins

In tandem with the broader improvement in macro and crypto risk appetite, bitcoin is trading higher by about 2.5% on Tuesday just above the $30,500 level per token, taking its gains versus Monday’s lows around $29,000 to around 5.0%.

That gives the cryptocurrency a market cap of around $580 billion, while its crypto market dominance is stable at around 45%. Nonetheless, BTC/USD is still trading lower on the week by about 2.0%, meaning it is currently on course for a record eighth successive weekly decline.

Eight weeks ago (i.e. the end of March/the start of April), bitcoin went as high as $48,000, and so has dropped by more than 35% during this time.

Ethereum, meanwhile, is trading higher by about 3.5% near the $2,100 level, up around 6.0% versus Monday’s sub-$2,000 per token lows, but still down by about 2.2% on the week. That puts ethereum on course for a seventh successive weekly loss, during which time it has dropped roughly 40% back from the $3,500 area.

According to Bloomberg commodity strategist Mike McGlone, bitcoin and ethereum will outperform equities in the future as their volatility continues to decline. Referring to bitcoin in an interview with Yahoo Finance, McGlone said “asset that went up the most in the last 5-10 years is going to come back as the Fed hammers down.”

Elsewhere, traders in Brazil will be able to trade bitcoin and ethereum futures in the next three to six months on the B3 stock exchange.

Brazilian Stock Exchange B3 will offer Bitcoin and Ethereum futures in three to six months. The exchange is also planning to offer studies for asset tokenization and crypto trading, among others.

In other news, China was still the second-largest bitcoin hash rate providing country in the world in January despite banning cryptocurrency mining last year, according to data released by the Cambridge Bitcoin Electricity Consumption Index (CBECI) on Tuesday. Bitcoin miners in China still accounted for about 21.1% of the network’s global hash rate, while the US accounted for 37.8% of the global hash rate.

An index of the top ten altcoins was up more than 3.0% on Tuesday in tandem with the broader uptick in crypto market sentiment. Top ten non-stablecoin cryptocurrencies including Solana’s SOL (+5.3%) and Cardano’s ADA (+5.5%) for the most part outperformed the likes of bitcoin.

DeFi Markets

The market cap of the major DeFi tokens fell to around $53.7 billion as of the early hours of Tuesday trade, CoinGecko data showed. It has been relatively stable in the $50-60 billion area over the past few days after dropping back from above $100 billion at the start of the month following the collapse of Terra’s LUNA and UST tokens.

As of Tuesday, the total value locked in the entire DeFi space remained close to $100 billion, data from DeFi Llama showed. It has been stable at around $100 billion in recent days after collapsing lower from above $180 billion in wake of Terra’s downfall.

There has been a lot of focus on the outperformance of MakerDAO’s governance token MKR as of late. MakerDAO is the creator of US dollar-pegged stablecoin DAI which has held up well despite turbulence across stablecoin markets.

MKR/USD is up more than 75% from a brief dip below $1,000 per token in the immediate aftermath of TerraUST’s initial de-pegging from the US dollar.

The token currently trades in the upper $1600s, giving it a market cap of around $1.64 billion, making it the seventh-largest of the major DeFi tokens. MKR’s recent strong performance comes despite investors pulling money out of DAI in recent weeks.

At the start of May and prior to UST’s crash, DAI had a market cap of around $8.7 billion, compared to now being around $6.5 billion. DAI still has the second-largest market cap of the major DeFi tokens.

In terms of notable news stories related to the DeFi space, Coinbase is reportedly testing a new in-app browser that will allow users to access ethereum-based decentralized Apps (or dApps).  Users will be able to exchange funds into these dApps through a new co-custodial hot wallet.

Terra Founder Do Kwon proposed on Monday proposed forking Terra onto a new chain that gets rid of its failed UST algorithmic stablecoin, with the new chain to instead be focused on the development of DeFi applications.

Kwon said the current chain would continue and be called Terra “Classic”. LUNA holders on the current and soon-to-be “Classic” Terra chain will receive a token airdrop on the new chain. The proposal is at the moment just that, but Kwon said that, if approved by Terra’s network validators and community, the fork could take place as soon as 27 May.

Exchange Flows

As of 0500GMT on Tuesday, exchanges had seen a net outflow of $326.5 worth of bitcoin in the last 24 hours, a sign of improving investor confidence, Glassnode data showed. Ethereum, meanwhile, saw an even heftier net outflow from exchange wallets worth around $977.7 million. USDT saw a net inflow to exchange wallets of around $430 million, a sign confidence in stablecoins is yet to fully recover.

Regulatory Landscape

US Securities and Exchange Commission Chair Gary Gensler took aim at cryptocurrency markets once again on Monday, saying that investors need to be provided with more protections. According to Gensler, those who invest in cryptocurrencies don’t normally get the same disclosures about their investment that come with investments in other asset classes.

Elsewhere, the US launched its first case involving the use of bitcoin to evade sanctions. The defendant in the case stands accused of creating a payments platform that moved approximately $10 million worth of bitcoin through it, with the defendant allegedly boasting that the service could be used to evade sanctions.

Meanwhile, European Central Bank officials are calling for regulation in wake of Terra’s collapse last week. According to Bank of France Governor Francois Villeroy de Galhau, “crypto-assets could disrupt the international financial system if they are not regulated, overseen and inter-operable in a consistent and appropriate manner across jurisdictions”. Separately, ECB executive board member Fabio Panettarecently warned that “stablecoins are vulnerable to runs”.

Portuguese Finance Minister Fernando Medina stated that Portugal is building a framework that tees up the taxation of cryptocurrency income gains. Portugal has up until now been seen as something of a European crypto tax haven given its lack of crypto-related taxation.

Meanwhile, over in Australia, the Australian Taxation Office (ATO) has warned cryptocurrency investors that they must report capital gains/losses from digital assets, including non-fungible tokens (NFTs), in an announcement on Sunday. Australia’s next tax season begins on 1 July.