Crypto News

Critical Vote Looms for FIT 21 Regulatory Crypto Bill

This week, a cryptocurrency bill is set for a floor vote in the U.S. House of Representatives, aiming to establish clear steps regarding regulating digital assets. The Financial Innovation and Technology for the 21st Century Act (FIT21) will be the first bill to set a framework for cryptocurrencies in the United States. This will significantly shift U.S. regulatory legislation for how these assets are governed.

The bill already has the backing of several leaders in the cryptocurrency industry, including Coinbase, Kraken, and the Digital Currency Group. These organisations have written a letter to Mike Johnson, the Speaker of the House, and Minority Leader Hakeem Jeffries, stating that passing the bill is essential for the U.S. to maintain its leadership in global financial innovation. They emphasise that other countries are advancing in this area, and the U.S. needs to keep up.

The bill designates the Commodity Futures Trading Commission (CFTC) as the regulatory authority to oversee digital assets within the cryptocurrency space in the U.S. It also defines the regulatory duties and responsibilities of the Securities Exchange Commission (SEC) in this area, aiming to reduce regulatory confusion and overlap in digital asset matters.

Importantly, the bill introduces measures to protect consumers and investors from the pitfalls of the cryptocurrency space. This includes setting rules for the custody of digital assets and implementing measures to safeguard customers from risky conduct and bankruptcy within the space.

There is thought to be support from both sides of the House, Democrats and Republicans. However, while the House of Representatives is moving forward with a regulatory framework, the Senate has been more cautious in addressing the subject.

CME In Major Plan to Allow Bitcoin Spot Trading

The Chicago Mercantile Exchange (CME) could allow plans to start allowing customers to trade spot Bitcoin according to a Financial Times report last week. This move marks a significant step towards mainstream adoption, as the CME is fully regulated by the Commodity Futures Trading Commission (CFTC) in the United States. Additionally, it is the largest Bitcoin futures exchange by open interest in Bitcoin futures contracts. This new offering allows investors and traders to buy into Bitcoin without owning the underlying asset.

Many traders often hedge a financial instrument by buying the spot asset while selling the futures contract. Being able to perform both transactions in one place provides a substantial advantage.

However, not all of this news has been received positively. Markus Thielen, founder of 10x Research, expressed concerns that centralised exchanges like Binance, currently an unregulated offshore company, may suffer. Despite being the largest Bitcoin spot exchange in the world, Binance might face challenges due to CME's new offering.

What makes CME's proposition so attractive is its appeal to financial institutions such as banks and hedge fund companies. These entities favour trading in a fully regulated marketplace, which offers better security. CME's new spot Bitcoin trading will effectively meet these demands.

The CME spot trading is expected to be operated by their current platform, the Electronic Broking Services (EBS), based in Switzerland. The more significant issue is whether this will establish CME as the leading Bitcoin exchange globally and whether it will significantly impact other world cryptocurrency exchanges.

El Salvador's Bitcoin Mining Boom Sparks Global Attention 

El Salvador has mined around $29 million worth of Bitcoin since September 2022, as per official data recently released. This sum translates to nearly 474 Bitcoins, harnessing geothermal energy from the country's Tepaca volcano. This energy source generates 102 megawatts of electricity, with 1.5 megawatts dedicated specifically to Bitcoin mining. Consequently, El Salvador's Bitcoin reserves now stand at 5,750 BTC, valued at over $360 million. This energy utilisation taps into the planet's natural internal heat to facilitate Bitcoin mining. The endeavour is a collaborative effort involving El Salvador and various Bitcoin mining companies such as Foundry USA, Antpool, ViaBTC, F2Pool, and Binance Pool.

President Bukele has authorised the deployment of 300 Application-Specific Integrated Circuit (ASIC) mining processors to facilitate the mining process. El Salvador has been at the forefront of cryptocurrency adoption, becoming the first country in 2022 to embrace Bitcoin as legal tender. While the International Monetary Fund (IMF) deemed this move risky, it has proven to be a successful gamble thus far, as El Salvador remains steadfast in its commitment to Bitcoin.

Simultaneously, El Salvador has introduced a proof-of-reserves website, enabling transparent monitoring of the country's entire Bitcoin holdings through on-chain data. This initiative enhances accountability and fosters trust in El Salvador's management of its Bitcoin reserves.

Crypto Analysis

Bitcoin (BTC)

Bitcoin experienced positive gains last week after successfully testing support from the previous week. At the time of writing, the world’s largest digital asset was moving sideways on low volume, hovering around $66,792—the high of the last seven days. This sideways movement indicates consolidation and suggests the likelihood of resuming the primary uptrend.

Several signs point to future gains now that key barriers have been cleared. These include a significant move above the support line and the bear trap discussed in our previous analysis at the $60,600 level. This was followed by a large green candle on positive volume and solid price action last Wednesday, which we had previously highlighted as crucial.

Currently, the price has managed to clear the 10-day exponential moving average. Additionally, the major moving averages are beginning to slope upwards again and are approaching key resistance levels. The RSI momentum indicator is mid-ranging, showing that price has room to move in either direction.

The resistance in question is marked by the 22nd April swing high, indicated by the green arrow at $67,232, and the crucial 0.618 Fibonacci retracement level from the 14th March all-time high down to the significant 1st May low, which stands at $67,197. A break and close above this level in the next few hours could propel prices to new all-time highs.

Additionally, it's important to note the break of the neckline of an inverse Head & Shoulders pattern, illustrated on the chart on the right, with a strong 12-hour green bullish candle. The measured objective for this pattern is $72,188, derived from the distance between the neckline and the bottom (Head) of the pattern. While I find these patterns can be 50/50 at best, considering all the positive indicators mentioned above is crucial in determining whether we are indeed heading higher.

Based on prior analysis, this positive outlook remains valid. I look forward to revisiting the chart next week.

Bitcoin Dominance (BTC.D), excluding major stablecoins

A brief look at the Bitcoin Dominance chart, which excludes major stablecoins, shows that Bitcoin is beginning to trend upwards against altcoins following an extremely positive week. As discussed in the previous analysis, the trigger for this up move was a successful test on the 1st of May of the complex parallel trend channel. On the 13th of April, at the high of 60.68%, it will likely be tested.

The RSI momentum indicator is not yet overbought, indicating that Bitcoin still has room to grow relative to altcoins.

We need to examine the weekly chart to gauge how high Bitcoin might rise. The next point of interest is the 0.618 Fibonacci retracement level from the December 2020 swing high down to the significant May 2021 low, which stands at 62.84%. This level also has a minor confluence of resistance, indicated by the blue arrow on the chart to the left, though it is not of major concern.

All things considered, unless we observe a topping pattern in Bitcoin's dominance, the uptrend will likely continue.

TOTAL3 excluding Bitcoin, Ethereum & Major Stablecoins

Our final chart of the week is the Total 3 chart, which tracks altcoins excluding Ethereum and Bitcoin. Over the past month, the price has been in a sideways consolidation, reflecting a period of indecision. The major moving averages have flattened, and the price frequently crosses the 10-day EMA, indicating a lack of a clear trend.

A few noteworthy levels: the daily support zone ranging from $414.413 to $470.5659. Multiple taps of support in this area, highlighted by green arrows and a rectangular green pattern, suggest possible accumulation. This repeated testing of the support zone might indicate buyers stepping in at these levels. Although there hasn't been a clear break above the upper resistance zone, which spans from $546.037 to $531.371, the repeated interactions with this zone suggest that it remains a significant area to watch. Another touch of the support zone seems likely, given the current market behaviour, at least until that upper resistance line is broken.

The mid-range RSI momentum indicator suggests that the price has room to move in either direction. This mid-range position implies that neither buyers nor sellers have full control, allowing for potential upward movements. In summary, while the market is in a consolidation phase, the key levels identified will be crucial in determining the next direction of the trend.

In Summary

Over the past few weeks, we have observed a continued retest of support levels, as mentioned in previous analyses. Although these key areas of support were briefly broken, the price managed to rise back above them, revealing this movement as a bear trap. This scenario was anticipated over the last month or so, and it now seems increasingly likely that Bitcoin could attempt to reach new all-time highs. For this to happen, a break and daily close above the 0.618 Fibonacci retracement level, as previously mentioned, is crucial.

While altcoins have been more subdued, they are not entirely out of the woods. The odds of an upturn for these particular coins increase significantly if Bitcoin continues its current rise and reaches new highs, as profits from Bitcoin gains are likely to flow into altcoins. For now, it appears more likely that Bitcoin will outperform altcoins. This does not mean that altcoins will decline; rather, they may consolidate at their current lows, accumulating at key support levels until they eventually break out to the upside.

As always, it is important to remember that nothing is certain in cryptocurrency, and we must be prepared to adjust to the market's volatility. Wishing everyone a successful and prosperous week ahead.

Macro News and Analysis

All three major US equity indices (SPX, NDX, DJI) set record weekly closes last week as equities continue to explore price discovery. Gold also made a new weekly record high, while bitcoin closed the week green but still lags behind its April record. Silver broke long-term resistance to close above $30/oz, a price not seen since early 2013.

The US 10-year yield fell -78bp to close at 4.42%; other major economies’ 10-year yields were flat to down, with the exception of Japan’s 10-year government bond, which continues to push the upper 1% bound of the Bank of Japan’s yield curve control policy. The dollar weakened compared to major currencies, with the exception of Japan’s yen, which was volatile but ended the week marginally stronger.

Powell Says Inflation Falling Slower Than Expected; Rates to Remain Steady

During a panel discussion last week in Amsterdam, Federal Reserve Chair Jerome Powell reiterated that whilst inflation has fallen significantly from its June 2022 peak, the first quarter 2024 data is higher than anticipated.

Some key quotes from Powell’s Amsterdam speech:

“We did not expect this to be a smooth road. But these [inflation prints] were higher than I think anybody expected. That has told us that we’ll need to be patient and let restrictive policy do its work.”

“I do think it’s really a question of keeping policy at the current rate for longer than had been thought.”

“I don’t think that it’s likely, based on our data, that the next move that we make would be a rate hike.”

“I think it’s more likely that we’ll be at a place where we hold the policy rate where it is.”

Quoting Mohamed El-Erian, Bloomberg Surveillance anchor Jonathan Ferro summed it up well on X last week “One gear: dovish. Powell says policy is restrictive and the presser ended almost as soon as it started. The 2-year rallies for the 5th straight Fed decision-day.”

US Protectionist Policy Likely to Reignite Inflation

The US is facing stubbornly elevated inflation, making the Federal Reserve’s task of “price stability” – ie. keeping consumer inflation at 2% – increasingly difficult. As discussed in previous newsletters, this inflation has, to my understanding, largely been driven by unprecedented fiscal deficit spending.

US President Joe Biden has repeatedly called – most recently last week – for “grocery chains to lower prices for consumers”. As Adam Taggart notes on X, the St Louis Federal Reserve wrote a 2022 paper titled “Why Price Controls Should Stay in the History Books”. Price controls, whilst intended to ease pressure on low-income households, don’t work:

Vanguard Breaks Tradition; Appoints Outsider as New CEO

In a statement last Tuesday, 14th May, Vanguard Group Inc announced former BlackRock leader Salim Ramji will take over as CEO, effective 8th July.

Vanguard, the asset management giant started by John Bogel in 1974, revolutionised investing with the creation of low cost index funds. Bogel’s pioneering, investor-oriented approach to long-term index based investing over speculative bets, led to the ubiquitous exchange traded fund (ETF) we know today.

That Vanguard has brought in an outsider to lead the firm is a big deal. Eric Balchunas, Bloomberg ETF Analyst and author of The Bogle Effect, said in a post on X Vanguard that until now, Vanguard CEOs have always been “internal star[s] and former [John] Bogle assistant[s]”.

At BlackRock, Ramji led “strategy, wealth management and, most recently, its iShares ETF and index business. And yes, this includes an active leadership role in developing BlackRock’s $IBIT spot bitcoin ETF. But no, sorry folks, this does not mean we’ll see a Vanguard spot bitcoin ETF soon. Eric Balchunas posted on X that he thinks the “door [is] much more open” now to at least allow spot BTC ETFs to be traded on the Vanguard platform at some point. Speaking on Bloomberg’s ETF IQ, Balchunas sad the probability has “gone from zero to non-zero”.

Currently, Blackrock has the top spot for assets under management, but Eric thinks this could flip to Vanguard within a couple of years; now Ramji is CEO

Oklahoma State Passes Ground Breaking Bitcoin Rights Bill

In a precedent-setting move, Republican-governed and historically “red” state Oklahoma passed a wide-ranging bill to protect the rights of bitcoin owners and users. The bill was sponsored by four Republicans – State Senators Bill Coleman and Dana Prieto and State Representatives Brian Hill and Cody Maynard. Effective 1st November 2024, right before US presidential elections take place, the bill was signed into law by Governor Kevin Skitt Monday 13th May.

Satoshi Action Fund CEO Dennis Porter posted on X an outline of what the bill covers:

Significantly, the bill excludes additional taxes on Bitcoin and digital assets when used as payment. This only refers to state taxes, meaning Federal taxes still apply, this is a big step in adopting digital assets as currency rather than property.

The above post is worth reading and explains the main parts of the bill in more detail than I can write here. Further reading: Forbes, Blockworks, Oklahoma Legislature.

Other major headlines from a packed week of news

• Japan econ data weakens more than expected: FT, AP News

• US Senate passes resolution to overturn SEC anti-crypto banking regulation SAB-121: Blockworks (here and here), The Block, Coindesk

• Sen Lummis, Wyden Rase Alarm on Criminalising Crypto: Cynthia Lummis press release

• OpenAI Launches Audio and Video Enabled GPT-4o: Bloomberg, OpenAI

• Ethereum ETF Looks Less Likely: Bloomberg’s James Seyffart and Eric Balchunas (thread)

• Q1 2024 13F filings complete: Millennium Management and Wisconsin Investment Board among heavy hitters to invest in spot bitcoin ETFs. Further coverage: Reuters, WPR, Eric Balchunas (here, here, here), Eric Balchunas on The Bitcoin Layer pod, Matt Hougan, and for the bear case (tongue somewhat in cheek) we have Jim Bianco’s input

• Freddie Mac’s Second Mortgage Proposal Is[n’t] Consumer Friendly: Urban Institute. See also KBRA, AS Report, and here’s George Gammon on why this is “insane”

The Week Ahead

A quieter calendar this week as earnings season is mostly behind us, although there are several CPI prints including the UK. But fear not, in case you get bored we have plenty of Fed and other central bank speak this week!

Events This Week

Monday

• China loan prime rates, foreign domestic investment

• Chile GDP

• BOE Deputy Broadbent speech on monetary policy transmission

• Fed’s Bostic, Barr, Waller, Jefferson speak

Tuesday

• Reserve Bank of Australia minutes of May policy meeting

• Australia Westpac consumer confidence

• UK CBI industrial trends orders

• Canada CPI

• Fed’s Waller, Barkin, Williams, Bostic, Barr speak

• BOE Governor Andrew Bailey speech

Wednesday

• Japan Reuters Tanken index, balance of trade, exports, machinery orders

• New Zealand rate decision

• UK CPI

• Indonesia rate decision

• South Africa CPI

• FOMC minutes from April 30-May 1 policy meeting

• ECB President Lagarde speech

• US Existing home sales

Thursday

• Australia Judo Bank manufacturing and services PMI flash

• Japan Jibun Bank manufacturing and services PMI flash

• Singapore CPI, GDP

• South Korea rate decision

• India S&P Global Manufacturing & Services PMI

• Eurozone S&P Global PMI, consumer confidence, negotiated wage growth

• Canada new house prices index

• US S&P Global PMI flash, new home sales, initial jobless claims

• Chile rate decision

• Fed’s Bostic speech

Friday

• Japan, Malaysia CPI

• Germany GDP

• UK GFK consumer confidence

• US durable goods, University of Michigan consumer sentiment

• Fed’s Waller speech

Earnings Calendar