TA Tuesday: Macro events and regulatory uncertainty drive volatility

Macro events and regulatory uncertainty drive volatility.

Week-over-week performance:

  • BTCUSD: 26,058, +1.01%
  • ETHUSD: 1,749, -3.58%
  • US02Y: 4.56%, +7bps
  • DXY: 103.34, -0.47%
  • GOLD (USD/OZ): 1,959, -0.1%
  • NDX: 14,784, +1.57%
  • VIX: 15, +1.9%
  • VVIX: 93.02, +8.45%

On the macro side:

This week’s macro landscape is brimming with events and developments.

Today, the focus is on the US CPI, while Wednesday brings the US PPI and the eagerly anticipated FOMC rate decision, followed by the subsequent press release.

Amidst all this, outside of the cryptocurrency realm, the volatility complex appears to be relatively calm. Equities are soaring higher in a risk-on environment, propelled by a select group of technology companies.

Interest rate traders suggest that the Fed might go with a pause in their actions this week.

Nonetheless, this pause should not be mistaken for the end of tightening measures. Traders currently anticipate that the Fed will raise rates by another 25 bps during their July meeting.

Chart 1 & 2: FOMC June and July

Similar to the previous instances of cryptocurrency turmoil experienced in recent years, the spot prices of cryptocurrencies are currently driven by idiosyncratic risk factors. The focus lies on their decentralised nature and the determination of whether they qualify as securities.

On the crypto side:

“We don’t require additional digital currencies because we already have them. The US dollar, euro, and yuan are all digital now,” Gensler expressed during an appearance on CNBC’s Squawk Box. Upon hearing this, I was taken aback. It seems evident now that Gensler’s opposition to cryptocurrencies is driven more by political motives and media attention rather than genuine investor protection.

Ironically, it has come to light that the US government relied on Coinbase to sell seized digital assets. Despite the controversies surrounding the SEC, both Bitcoin (BTC) and Ethereum (ETH) demonstrated resilience and maintained their value, while most alternative Layer-1 cryptocurrencies experienced a decline of around 20% to 30% compared to the previous week.

The substantial impact of last week’s headlines serves as a testament to the significant presence of retail investors that still exists in this market.

There is a dark cloud hovering over digital assets, and should they fall into the category of securities in the US and potentially in Europe, this would cause a short-term liquidity shock/one-way market that would cause market prices to drop drastically.

Having said that, the total market capitalisation of cryptocurrencies excluding BTC and ETH currently stands at $311.94 billion at post-FTX levels, signalling an opportune moment for long-term crypto believers to enter the market.

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