What happened last week

Crypto Markets

Bitcoin stabilized above $40,000 following a slowdown in outflows from the Grayscale Bitcoin Trust, potentially mitigating a recent two-week decline of the price of BTC. Since the Grayscale Bitcoin Trust transitioned to an ETF on January 11, approximately $4.8 billion has exited the decade-old BTC portfolio—the world's largest—contributing to a 20% decline in BTC’s value during the same period. Despite a peak daily outflow of $641 million on January 22, the pace has since eased to $394 million as of January 25. Crypto markets have consequently experienced sharp price fluctuations this week, with ETH opening at $2’460 and BTC at $41’600, marking a week-to-date performance of -8.5% and -1%, respectively. ETH has ceded ground again relative to BTC this week so far, after having made some promising gains recently. The graph below illustrates the performance of BTC, ETH and the rest of the crypto market in terms of market cap since last Monday.

Looking back to a challenging last year, the European crypto market is poised for growth in 2024, propelled by the landmark Markets in Crypto Asset Regulation (MiCA) framework enacted in June 2023. This regulatory milestone has positioned the European Union as one of the most favorable environments for crypto companies globally. Notably, leading U.S.-based firms, including Coinbase, Robinhood, Gemini, and Circle, have announced expansions into Europe as a strategic move to navigate the uncertainties of the U.S. regulatory landscape. In 2023, European traders overwhelmingly favored BTC, with over €37 billion in trades compared to €15 billion for ETH and €9.5 billion for XRP. The top 10 assets traded in Europe closely mirrored global and U.S. trends in trading activity.

Tradfi Markets

Tradfi markets continued to perform generally well over the week. The S&P 500 index sustained its remarkable five-day winning streak on Thursday. Despite a 12% decline in Tesla shares, which exerted downward pressure on the Nasdaq Composite, the overall market was lifted by robust economic indicators. Notably, technology shares played a pivotal role in driving the market higher, with anticipation building for the upcoming earnings reports of major tech companies in the following week. Investors are closely monitoring the performance of tech or tech-related mega-caps such as Apple, Amazon, Google parent Alphabet, Facebook parent Meta Platforms, and Microsoft, as their results are expected to have a significant impact on the broader market direction.

In the fourth quarter of the previous year, the US economy exhibited robust growth as reported yesterday, surpassing expectations with a quarterly GDP increase of 3.3% compared to the anticipated 2.0%. This is likely to prompt a downward adjustment of market expectations for US interest rate cuts. Despite initial projections of a 50 basis points reduction by the Federal Reserve by June, recent data releases suggest that such a significant cut may be unwarranted. The ongoing trend of diminishing rate cut expectations, a prominent theme this year, is expected to persist in the coming weeks.

In contrast, yesterday the European Central Bank opted to maintain its existing interest rates, with no indication of a potential reduction. Emphasizing its commitment to combating inflation, the ECB announced its decision to keep the key rate at 4% for an extended period. ECB President Christine Lagarde, in a subsequent press conference, reiterated the need for policymakers to gain greater confidence in the subsiding inflationary pressures before considering rate cuts. Following this announcement, the euro depreciated against various currencies, while European shares rebounded from losses and entered positive territory.