Crypto News

SEC Takes Legal Action Against Ethereum Claiming It a Security

The Securities Exchange Commission (SEC) has intensified its efforts to slam the brakes on the cryptocurrency space by issuing a subpoena against Ethereum, aiming to classify it as a security. This move casts doubt on the possibility of an Ethereum Exchange-Traded Fund (ETF) gaining approval shortly. Despite the launch of a Bitcoin spot ETF earlier this year, the crypto community had hoped for Ethereum to follow suit, especially after BlackRock and other companies were allowed to apply for such a fund. However, the SEC's action against the Ethereum Foundation, which oversees Ethereum's operations, underscores its commitment to regulating cryptocurrency assets.

The SEC's decision appears to stem from its belief that Ethereum transitioned from a proof-of-work to a proof-of-stake model in September 2022, thereby meeting the criteria for classification as a security. Additionally, the SEC is focusing on the governance structure of Ethereum and has requested documents and financial records from companies associated with the Ethereum Foundation. While some within the SEC may have previously viewed Ethereum differently, SEC chairman 

Gary Gensler's stance indicates otherwise. Interestingly, despite this uncertainty, the SEC approved an Ethereum Futures Fund last year, regulated by the Commodities and Futures Trading Commission (CTFC).

Recent announcements from the SEC indicate a further delay in the decision regarding the approval of an Ethereum spot ETF until May 30, 2024. This delay fuels speculation about the regulatory status of the world's second-largest digital asset and adds to the ongoing debate within the cryptocurrency community.

BlackRock Dives into Real-World Assets, Defining Investment Landscape

Blackrock, the world's largest investment company, is emulating Citi and JPMorgan by entering the realm of Real World Assets (RWA). Utilising the Ethereum Network, BlackRock announced that they plan to tokenize various assets like cash, U.S. Treasury Bills, and Repurchase Agreements (REPOs), amalgamating them into a tokenized trust fund named the BlackRock USD Institutional Liquidity Fund (BUIDL). 

Securitize, a company in which BlackRock has invested, will serve as the transfer agent and tokenization platform, bolstering the success of the fund. Anchorage Digital Bank, Coinbase, and BNY Mellon are collaborating with BlackRock, responsible for asset tracking within the fund. BlackRock intends to distribute rewards to fund owners in the form of yields. 

Robert Mitchnick, Head of Digital Assets at BlackRock, emphasised the company's focus on developing digital asset solutions that address real client needs, expressing eagerness to collaborate with Securitize. Larry Fink, BlackRock's CEO, has previously hinted that this venture into new investment territory is part of a larger strategic plan, citing the recent launch of a Bitcoin Spot Exchange Traded Fund (ETF) on January 11 as a step towards tokenization.

Numerous Real World Assets (RWAs) have surged by as much as 53% since Wednesday, as cryptocurrency investors process this significant development.

EU Cracks Down: Bans Anonymous Transactions with New Law

The European Union (EU) has enacted fresh legislation aimed at combating fraud and money laundering while prioritising transparency. The new laws restrict users of self-custody wallets from engaging in anonymous transactions with regulated organisations and making large cash withdrawals.

Transactions exceeding €3,000 without proper identification and withdrawals surpassing €10,000 will be considered unlawful under these regulations. While most EU Parliament members supported the legislation, it faced dissent from representatives like Patrick Breyer and Gunmar Beck. Although the full implementation of these laws is anticipated to take around three years, experts speculate that enforcement may commence sooner than expected.

Public response to this development has been diverse. While some view it as a necessary step towards enhancing security and accountability, others within the cryptocurrency community argue that it infringes upon financial liberties and privacy, contradicting the fundamental principles of cryptocurrency. MEP Mr. Breyer shares this sentiment.

Undoubtedly, these regulatory changes will ignite further discussions, both within the cryptocurrency sphere and the broader financial landscape, regarding investors' rights and the balance between transparency and anonymity.

Crypto Analysis

Bitcoin (BTC)

Bitcoin experienced a downward trend throughout the week, reaching a low point on Thursday. However, it rebounded, forming a noteworthy hidden bull pattern on the daily chart. This pattern observed when the price reaches a higher high while the RSI indicator suggests decreasing downward momentum, hints at a potential shift towards bullish sentiment. Moreover, the decrease in volume during this decline suggests a decrease in selling pressure compared to buying interest.

The price fell just short of the 0.382 Fibonacci retracement level, calculated from the January 23rd low of $38,505 to the recent all-time high of $73,754, settling at $60,267. Examining the 8-hour chart on the right, we also notice the emergence of a Head & Shoulders pattern, typically interpreted as bearish. However, it's important to note that such patterns don't always play out as expected. Therefore, it's crucial to complement this analysis with other indicators rather than relying solely on this pattern.

The RSI indicator has demonstrated weakness in tandem with the formation of this pattern, adding another dimension to our analysis. A definitive break and closure below the neckline of the pattern could indicate a potential downside target around the $51,280 area, which aligns with the measured objective of the pattern. This calculation involves determining the difference between the top of the head and the breakout point, then subtracting that total from the breakout point to derive the downward target.

Conversely, a close above the right shoulder of the pattern could invalidate it, potentially signalling a shift towards bullish momentum. Although the possibility of another right shoulder forming exists, it's deemed unlikely and would further reinforce a bullish perspective. Keeping a close eye on these developments will be crucial for assessing the direction of the market.

Another crucial aspect to consider is the 0.618 Fibonacci retracement level, calculated from the all-time high down to Thursday’s swing low, depicted on the 4-hour chart below, which stands at $68,810. What makes this level particularly noteworthy is the confluence of resistance indicated by the blue arrow and thickened horizontal black line. A decisive break and close above this level are highly likely to propel the price back towards all-time highs. Although there does seem to be some resistance at the 0.786 Fibonacci at $70,994, I would think by that time, it would be unlikely to hold for a long period of time.

Turning our attention to the weekly chart, we observe that the price has rebounded from the 0.236 Fibonacci level, derived from the September 2023 swing low of $24,920 to the all-time high, and this is situated at $65,620. Additionally, the RSI is coming off overbought territory which may indicate a cooling off has already happened.

While it's essential to remain cautious as price movements in the market can be unpredictable, current indicators suggest a potential short-term bottom has been reached. However, whether the price can resume its bullish trajectory depends on various factors, with particular emphasis on the critical 0.618 level on the 4-hour chart as previously mentioned.

A break above this level would present a highly favourable scenario. Conversely, if we witness a break and close below the previously mentioned neckline of the Head & Shoulders pattern, we would need to reassess and identify new downward Fibonacci and support levels. I've already identified one such level on the weekly chart, characterised by a confluence of support at 50% and 0.618 areas. This level could serve as a crucial point of reference in assessing potential downside targets and support levels. I look forward to revisiting the Bitcoin chart next week.

Ethereum Vs Bitcoin (ETH/BTC)

Next we will be taking a look at the Ethereum/Bitcoin chart, and I’ve started with the monthly chart because we have once again found ourselves at an important multi-month juncture as can be seen by the Fibonacci tool below and the green shaded area of resistance which shows a confluence of support. 

Taking the Fibonacci reading from the major monthly swing low of 0.01615 up to the December 2021 swing high of 0.08837, the 50% level comes in at 0.05226 which we are currently below and more importantly, we have a confluence of support from that 50% level, right down to the 0.618 level at 0.04374 shown by the horizontal green shaded area on the chart, meaning we are at area of interest. 

Examining the daily chart, it's evident that the price is swiftly approaching the monthly support level we previously identified. Over the past few weeks, we've witnessed a series of down days, with minimal green candles and predominantly bearish red candles since reaching its secondary high on February 26th. Although the RSI has not yet entered oversold territory, indicating potential further downside movement, it's worth noting that volume has been declining in recent days. This decrease in volume could be interpreted as a signal of a possible short-term bottom.

When considering this decrease in volume alongside the robust monthly support level, there's little doubt that the upcoming days could be pivotal for Ethereum. A strong performance by Ethereum against Bitcoin has the potential to ignite a significant altseason in the market. Alternatively, a crash through these levels could prolong Bitcoins ascendence on the general crypto markets.

Bitcoin Dominance (BTC.D) Including Stablecoins

In our final analysis of the week, let's turn our attention to the Bitcoin Dominance chart, which tracks Bitcoin's performance relative to all other cryptocurrencies, including stablecoins. Examining the BTC.D chart allows us to tie in with the other analyses we've conducted this week and gain a comprehensive understanding of the cryptocurrency landscape.

As depicted by the large rectangle box on the chart, we can observe that price has been consolidating within this range since October last year, experiencing significant fluctuations. Currently, we find ourselves positioned in the middle of this consolidation zone. However, what adds intrigue to this scenario is the observation that we are nearing the lower end of a substantial ascending wedge pattern, a pattern typically associated with bearish outcomes. This wedge has been forming since late 2022, gradually contracting in price movement.

Zooming in on the daily chart, we notice that price is tracking along a medium-term trendline that initially formed on January 14th. Presently, we are hovering at the support level of this trendline. Should we see a break below this daily trendline, it could potentially lead to a retest of the lower boundary of the ascending wedge on the weekly timeframe. A subsequent break and close below this lower boundary would likely signify a significant downward move.

The first line of support, marked by the initial black horizontal line, is approximately at 50.85%. A breach of this level could pave the way for further decline towards the next support line at 48.86%. With both daily and weekly momentum indicators situated in the mid-range, there appears to be ample room for downside movement if we indeed witness a break below the ascending wedge.

It's imperative to closely monitor this chart in the coming week as it could provide valuable insights into the direction of the cryptocurrency market.

In Summary

Bitcoin is at a critical point and its  crucial for Bitcoin to demonstrate strength not just against the dollar but against altcoins in the near term in general. A rebound from the current daily trendline support on the BTC.D chart would be a positive development, potentially signalling a resurgence in Bitcoin's dominance. Subsequently, a move back towards the upper boundary of the ascending wedge pattern, followed by a decisive break and close above it, would invalidate most bearish scenarios and this cannot be understated enough. 

Such a scenario would not only bolster confidence in Bitcoin's position but also potentially pave the way for a renewed uptrend, reaffirming its dominance in the cryptocurrency market. Monitoring these developments closely will provide valuable insights into the evolving dynamics between Bitcoin and altcoins.

Macro Analysis

All eyes were on major central banks last week with the Bank of Japan (BOJ) largely expected to raise rates but all others expected to hold. Market participants were on the edge of their seats ahead of rate announcements, and the week didn’t disappoint. More on that later.

The 3 main US equities indices, European Stoxx 50 and Japanese Nikkei made new all time highs whilst the FTSE 100 and Australian ASX 200 made a good attempt. Asia ex-Japan, US & UK small caps still lag well behind their 2021 peaks.

All major currencies were down against a relatively stronger USD although the dollar was down vs gold and oil. Bitcoin, silver and copper were down on the week following strong performance over recent weeks.

Government bonds rallied across the board which is unusual, given strong equities and a relatively strong dollar vs its FX peers.

Macro News

The Anticipated Hike, the Surprise Cut & the Dubious Dove

The Anticipated Hike: Bank of Japan (BOJ)

As mentioned above, the BOJ raised rates by 10bps from -0.1% to zero, finally exiting negative interest rate policy (NIRP). Whilst this is a rise in rates, the move could best be described as less easy, than being in any way restrictive. The BOJ continues to move at glacial speed, guiding markets well ahead of enacting policy changes.

Japan exiting their decades long, ultra-easy monetary policy will have major consequences for global markets, as dollar and euro positions are closed, and the currencies sold for yen to unwind multi-year yen carry trades. Raising rates will also have significant impact on Japanese commercial banks, just as happened in the US a year ago. The difference is, Japanese banks have significantly more government debt and more importantly, much of it has a negative yield. As rates rise, bond prices fall. That was a pretty big deal in the US. For Japan, it could be catastrophic.

The Surprise Cut: Swiss National Bank (SNB)

Switzerland’s central bank have traditionally been concerned about the strength of the Swiss franc (CHF) and adjust rates to keep demand for the currency controlled. However, since mid-2021 Swiss inflation has become uncomfortably high. According to Bloomberg, the market got this right as significant hedging positions had been put in place against the euro, yen, dollar and pound, ahead of the SNB meeting. Economists on the other hand appeared to miss this as only 5 out of 23 surveyed got the rate cut call right.

Now we have the first major central bank cut, others are expected to follow with both the Bank of England (BOE) and European Central Bank (ECB) seeing inflation falling in the quarters and years ahead.

I’ll finish with comments from former Fed open market trader, Joesph “Fed Guy” Wang and Bleakley Financial Group CIO Peter Boockvar on what to expect next:

The Dubious Dove: Is Jerome Powell In Another World?

Finally we have Jerome Powell, who has left Wall Street economists, analysts and pundits scratching their heads.

Economic data has been strong with higher than forecast GDP, higher than forecast inflation, unemployment remaining below 4% and equities and crypto rallying to new all time highs. Financial conditions indices (FCI) from Goldman Sachs, Bloomberg and even the Chicago Fed showing decidedly easy conditions

Despite all this data pointing to easy financial conditions, and whilst the FOMC did hold rates, Powell was unquestionably dovish. He pointed to jobs data which is starting to show signs of turning, although on a historical basis still looks strong.

When asked whether the easing in financial conditions, as reflected in the Fed’s own FCI, Powell downplayed the relevance of such indices on the economy.

This appears to be in stark contrast to both higher GDP and inflation expectations in this meeting’s summary of economic projections, and in quotes from recent FOMC meetings. December’s FOMC minutes stated "Many participants remarked that an easing in financial conditions beyond what is appropriate could make it more difficult for the Committee to reach its inflation goal".

Another cautionary quote from January’s meeting read "several participants mentioned the risk that financial conditions were or could become less restrictive than appropriate, which could add undue momentum to aggregate demand and cause progress on inflation to stall".

Yet in last week’s meeting, Powell said "We do think that financial conditions are weighing on economic activity" and that labour "demand [is] cooling off a little bit". Maybe they see something we don’t, or maybe they’re actually taking notice of anecdotal data that paints a very different picture to the official numbers that show a booming economy. Either way, markets appeared to like it.

US Tax Deadline Looms, Buy the Dip Opportunity?

Most US business and personal taxes are due by Monday 15th April. This could cause volatility in markets as liquidity is drawn to settle tax bills. This is only a seasonal factor though, so doesn’t take away from the upward trend in liquidity and asset prices. As such, any dips over the coming weeks could provide buying opportunities but I’ll caveat this by saying we’ve already seen huge run ups in markets since November, and have only seen a correction over the last couple of weeks in crypto. The S&P has relentlessly pushed higher for 5 months so a 10% correction is to be expected and tax season could be the trigger.

The Week Ahead

Australia closed higher Monday, whilst other Asian indices all closed lower. UK & EU are trading lower, as are US futures. The dollar has dropped slightly from Friday’s close, whilst oil, gold and industrial commodities are flat or slightly higher ahead of US open.

The trend for the year remains positive although developments from the BOJ, continued weakness in China despite more encouraging talk from Chinese officials and the US tax deadline approaching means we can expect volatility in the near term and throughout the rest of the year.

Events This Week

Monday

• Bank of England’s Catherine Mann speaks

• ECB’s Lagarde speaks

• US new home sales

• Fed’s Austan Goolsbee, Lisa Cook, Raphael Bostic speak

Tuesday

• Australia Westpac consumer confidence

• RBA’s Connelly speaks

• Germany consumer confidence

• ECB chief economist Philip Lane appearance

• US durable goods, Conference Board consumer confidence

• Korea business confidence

Wednesday

• Australia CPI

• Bank of Japan board member Noaki Tamura speaks

• China industrial profits

• Eurozone economic, consumer confidence

• Bank of England issues financial policy committee minutes

• Fed’s Christopher Waller speaks

Thursday

• BOJ summary of opinions

• Germany retail sales, unemployment

• UK GDP revision

• US University of Michigan consumer sentiment, initial jobless claims, GDP, pending home sales

Friday

• Japan unemployment, Tokyo CPI

• France, Italy CPI

• US personal income and spending, wholesale inventories, core PCE, PCE

• Exchanges closed in US and many other countries in observance of Good Friday holiday

• Fed’s Jerome Powell, Mary Daly speak

Earnings Calendar