A Volatile Week, Slowing U.S. Inflation, No Rate Cut & All-Time Highs For U.S. Equities

You can now listen to a summary of this week's Weekly Wrap on Spotify and Apple Podcasts. It is a summary with the help of AI-voices. 

        

What Happened This Week

The Calm Before The Storm

After the crypto markets experienced a downturn last Friday evening, the weekend did once more not bring any surprises and Bitcoin and most other digital assets traded sideways on muted volume. Monday was also a calm day, with Bitcoin closing the day at roughly the same price as the week opened while U.S. equities already showed some positive movements on Monday, with the S&P 500 closing Monday slightly in the positive.

Looking back on the previous week, digital asset investment products saw inflows totaling $2 billion, bringing the total inflows over the past five weeks to over $4 billion. Bitcoin saw inflows of $1.97 billion, while Ethereum saw its largest inflow week since March this year, with a total net inflow of $69 million.

One other thing we want to highlight from last week: The Roaring Kitty livestream on Friday evening. We have mentioned him before, the guy behind the meme stock mania that took place three years ago. He hosted his first livestream since 2021 and expectations were high… Over 600’000 people were watching his stream live on YouTube but seemed to have been disappointed by his performance as the stock of GameStop tumbled 40% during his stream, including multiple trading halts during the show. Oh well, it will be interesting to observe how this story turns out during the next couple of weeks.

The Crypto Market Seems To Lack A Narrative

While the Ethereum spot ETFs were approved by the U.S. Securities & Exchange Commission (SEC) a couple of weeks ago, the issuers, who have submitted their drafts of the S-1 filings on May 31, are still waiting on the SEC to comment on said documents. It is still unclear, how long this process will take, SEC Chairman Gary Gensler recently mentioned on CNBC, that the approval will “take some time”. The market seems to be eagerly awaiting news on these Ether spot ETFs and seems to be lacking any other meaningful narrative to keep the sentiment positive.

Ethereum has lost its momentum since the approval on May 23 and has been trading to the downside, although it is still up almost 15% since the rumors of an approval started on Monday, 20 May. Bitcoin is trading at roughly the same price as on 20 May, after four weeks of hectic sideways trading.

On Thursday however, there was a spark of hope after Gary Gensler was quoted saying that he sees the Ethereum spot ETF approval this summer. Gensler said “I would envision sometime over the course of this summer…”  that Ether spot ETFs would be approved and U.S. Senator Hagerty, replied: “If you’re indicating to me that those applications will be approved by the end of the summer, I appreciate that.”

Tuesday: U.S. Equities Up, Bitcoin & Crypto Down

The crypto market participants were left wondering on Tuesday, when U.S. Equities, Gold, and the U.S. Dollar Index all traded to the upside, while Bitcoin and crypto assets took a turn in the other direction, with Bitcoin reaching a new multi-week low at around $66’000 on Tuesday evening. The S&P 500 and the Nasdaq were both approaching a new all-time high simultaneously, and crypto stocks like COIN or MSTR were in the positive as well.

Trump Commits to Championing Bitcoin Mining

U.S. presidential candidate Donald Trump met with the largest Bitcoin miners in the U.S. and pledged to support them on the global stage once he is re-elected. Among the attendees were representatives from leading Bitcoin mining firms, including CleanSpark, Riot Platforms and Marathon Digital. After the meeting, Donald Trump posted on his Truth Social saying that he wants all "remaining Bitcoin to be made in the USA" and that "It would help us be energy dominant." He also mentioned that Bitcoin mining may be “their” last line of defense against a CBDC. U.S. President Biden’s campaign on the other hand seems to be discussing with industry leaders whether they should begin to accept crypto donations through Coinbase Commerce, hoping to attract voters who are interested in cryptocurrency and replenish campaign funds.

A Wild Ride On Wednesday Amidst U.S. CPI Data And The FOMC Meeting

As we have mentioned on our last Weekly Wrap, market participants were awaiting the release of the U.S. inflation data and the U.S. Federal Reserve’s interest rate decision on Wednesday.

The consumer price index (CPI) showed no increase in May and held flat on the month, though it increased 3.3% from a year ago, according to the department’s Bureau of Labor Statistics. The number came in lower than the estimates, as economists had expected a monthly rise of 0.1% and a 3.4% annual rate. Excluding volatile food and energy prices, core CPI increased 0.2% on the month and 3.4% from a year ago, the lowest since April 2021.

U.S. equities, Bitcoin and other digital assets reacted positively to the slowing in U.S. inflation, with the S&P 500 opening its Wednesday trading session at a new all-time high and Bitcoin increasing by over 3% after the CPI data release. The U.S. Dollar Index took a hit to the downside at the time of the release but recovered some of its losses in the hours afterward.

The move to the upside for Bitcoin and the crypto markets was short-lived on Wednesday and came to an abrupt ending during Jerome Powell’s press conference, where he explained why the Federal Reserve is not ready to cut its interest rates. The Federal Reserve held interest rates steady at their current range of 5.25% to 5.5% but revised its outlook for rate cuts to just one in 2024, with Powell noting during the press conference that the central bank does not yet have the confidence to cut rates, even as inflation has eased from its peak levels. The markets, and the crypto market in particular, did not like his comments during the press conference, and Bitcoin corrected back down below $67’000 on Wednesday evening. In the chart below, we are looking at the price action of Bitcoin since last Friday, showcasing the wild ride.

Vitalik: Crypto Assets Can Actually Be Used In Daily Life

While some market participants are starting to lose hope and are questioning the use case of digital assets in the times of meme coins and what not, the Ethereum co-founder Vitalik Buterin listed several areas in which he believes cryptocurrencies can be used in daily life, including: zk reputation/identity/credentials, p2p cross-border payments (much lower fees and quickly improving UX this cycle), decentralized social, prediction markets (actually usable this cycle), privacy, enterprise apps via zk validiums, and zk + censorship-resistant voting.

MicroStrategy Wants More Bitcoin

On Thursday, MicroStrategy announced plans to raise funds through a private offering of $500 million of convertible senior notes, which they intend to use to purchase more Bitcoin and for other general corporate purposes. Bitcoin did not react very much to the news, as this has happened many times in the past and the market participants seem to have priced in such additional Bitcoin buys from MicroStrategy.

Negative Producer Price Index Numbers On Thursday

As a surprise to the markets, the PPI numbers in the U.S. declined by 0.2% in May, against expectations for a 0.1% increase. The core PPI came in lower than expected as well, with the U.S. core PPI staying flat for the month of May (exp. 0.3%). The Producer Price Index measures the average changes in prices in primary markets in the U.S. by producers of commodities. Changes in the PPI are widely followed as an indicator of commodity inflation.

U.S. spot ETFs Short Update

After last week’s wave of inflows for the U.S. spot ETFs, the tides have changed again this week with three days of outflows so far, Wednesday being the only day with inflows, BlackRock’s IBIT is continuing its daily streak without outflows, so far the U.S. spot ETFs saw weekly outflows totaling almost $400 million this week. IBIT has now crossed the $20 billion Assets under Management (AuM) mark, GBTC is still in second place, followed by FBTC with almost $12 billion in AuM, as seen in the chart below.

Market Sentiment Check

When looking at the crypto fear & greed index, people on crypto Twitter are starting to question its reliability. The index is still in greed territory (74), even though the crypto prices have more or less been trading sideways for three months and the sentiment on Twitter and other social media platforms is rather bad, especially when it comes to altcoins. A sentiment survey by Coinglass shows that 50% of market participants are either bearish or very bearish, while 23% are neutral and 27% are bullish or very bullish.

The fear and greed index for stock markets has reached fear territory (43) after being on the verge of fear last week. This might also come as a surprise, since the U.S. equity indices are at all-time highs, but considering the concentration of the Magnificent 7 (the seven largest U.S. listed companies in regard to market capitalization), it might make a little more sense: Because the S&P 500 is weighted based on market capitalization, the largest companies comprise an outsized portion of the index. While the exact concentration changes frequently as the market caps of the member companies fluctuate, the Magnificent 7 composed 31.5% of the S&P 500 as of June 7. With companies like NVIDIA performing so well, it has a big impact on the S&P 500, while many of the other stocks might not be performing so well at the same time, which might be reflected in the fear and greed index.

Our Take

After a week with over $2 billion of inflows into digital asset investment products, last weekend was, as the previous ones, a rather quiet one. The tranquility continued into Monday, with Bitcoin and the crypto markets trading sideways until early Tuesday morning. Tuesday was a red day, with Bitcoin reaching a new multi-week low at $66’000, while U.S. equities were trading toward new all-time highs. Overall, be it in gold, the U.S. Dollar Index, stocks or crypto, this week was packed with volatility. A look at the DXY shows the significance of decisions from the Fed in the U.S., with the Dollar Index dumping after the release of the CPI data on Wednesday, but then increasing again, reaching a new monthly high after the press conference of Jerome Powell. Even though U.S. inflation seems to be slowing down, the Federal Reserve revised its outlook for rate cuts to just one in 2024. While U.S. equities have reached new all-time highs this week, the crypto markets are still trading more or less sideways, with the market eager for a new narrative. After Gary Gensler’s comments on the Ether spot ETFs, crypto traders might have to wait a little longer until the products start trading, which is expected to happen towards the end of the summer.

The Week Ahead

Monday, 17 June 2024

• U.S. – FOMC member Harker Speaks

Tuesday, 18 June 2024

• EUR – CPI, Core CPI
• U.S. – FOMC member Kugler Speaks

Wednesday, 19 June 2024

• GBP – CPO, Core CPI, PPI

Thursday, 20 June 2024

• CHF – SNB Interest Rate Decision
• U.S. – Initial Jobless Claims
• U.S. – FOMC member Barkin Speaks