Crypto News

Consensys Battles SEC: Metamask Developers Launch Legal Fight

Developers of the decentralised exchange, Consensys, known for creating the Metamask wallet, have initiated legal proceedings against the Securities Exchange Commission (SEC). This action, filed in a Texas federal court, seeks to prevent the SEC from potentially suing them and could significantly impact the future of the cryptocurrency industry. Consensys argues that this lawsuit is critical as it challenges the SEC's efforts to suppress cryptocurrency operations. A victory for Consensys could establish a precedent affecting the entire sector.

The SEC contends that since Ethereum has transitioned to a proof-of-stake model, it should be classified as a security. Consequently, by selling Ethereum, Consensys might be in violation of the law concerning unregistered securities. However, Consensys counters that the SEC is exceeding its regulatory authority. They maintain that Ethereum should be considered a commodity, which would subject it to less rigorous regulations. Consensys warns that an SEC victory could disrupt not only their operations but also the broader Ethereum network and its users in the U.S.

The position of the SEC has shifted over the years. In 2018, SEC Chairman Gary Gensler stated he did not believe Ethereum was a security. However, since Ethereum's switch to proof-of-stake and under Gensler's leadership, the SEC has aggressively pursued legal actions against various cryptocurrency firms, suggesting a crackdown on innovation. The ongoing legal struggle between Consensys and the SEC is critical, with the potential to escalate to the Supreme Court given its significance. Both parties, undoubtedly significant in their respective domains, are unlikely to concede defeat easily.

Morgan Stanley: Financial Powerhouse Consider Unsolicited Basis Sales

Morgan Stanley, a leading global bank and investment firm, is considering a new approach to Bitcoin spot ETFs, allowing their sale on an 'unsolicited' basis. This development implies that the firm's brokers could proactively offer Bitcoin funds to clients, marking a more assertive stance in the cryptocurrency sector. The decision reflects the growing interest and potential profits anticipated in the cryptocurrency market.

Bitcoin Spot ETFs were launched on January 11th of this year following approval from the Securities Exchange Commission (SEC) which has authorised eleven investment firms to offer this service to their clients. These ETFs allow investors to track Bitcoin prices without buying directly from a cryptocurrency exchange, eliminating the need to navigate the complex process of purchasing from an exchange and transferring funds to a self-custodial wallet.

Despite a recent decline in capital flows into these assets, this news from Morgan Stanley could rejuvenate the market. While the move is generally viewed positively, Morgan Stanley has emphasised the need for caution due to the inherent risks associated with cryptocurrency investments. Nevertheless, this initiative by a prominent financial institution could set a precedent, likely prompting other firms to adopt similar strategies.

This news arrives concurrently with reports that the daily net outflows from all Bitcoin spot ETFs have increased to $217 million.

Stripe Resumes Cryptocurrency Payments, Re-Enters Market After Six-Year Hiatus

Stripe, a leading online payment processor, has resumed accepting cryptocurrency payments after discontinuing the service six years ago. Initially halting Bitcoin transactions in 2018 due to its high volatility and escalating transaction fees, Stripe has now opted to reintegrate cryptocurrency payments using USDC (USD Coin). Unlike Bitcoin, USDC is a stablecoin tethered to the US dollar, aiming to maintain a consistent 1:1 value ratio with the USD, which significantly curtails the volatility issue.

This strategic choice allows Stripe to leverage the stability of USDC while taking advantage of its compatibility with multiple blockchains, including Ethereum, Solana, and Polygon. These platforms offer enhanced speed and reduced costs in processing transactions, addressing some of the critical challenges faced with Bitcoin transactions previously. Although Stripe has not reinstated Bitcoin as a payment method, the reintroduction of cryptocurrency payments with USDC marks a significant step forward for digital transactions in the cryptocurrency space.

The move reflects a broader acceptance and integration of digital currencies in mainstream financial operations, suggesting a growing trust and recognition of their potential benefits. While it remains uncertain whether Stripe will expand its cryptocurrency options to include Bitcoin or other digital currencies, this development is undoubtedly a positive signal for the future of digital payments in the crypto sector.

In Other News

• Do Kwon: SEC Proposes $5.3 Billion Fine for Ex-Terra Boss

• UK Law Enforcement Gains Rapid Crypto Seizure Capabilities

Crypto Analysis

Bitcoin (BTC)

Bitcoin is currently exhibiting a pattern of sideways movement, a trend that has persisted for the last seven weeks. The price of Bitcoin is approaching a crucial daily support level around the $61,300 mark, as illustrated in the accompanying chart. While it might be tempting to interpret this pattern negatively, citing the lower highs and lower lows, a detailed examination reveals consistent touches on the mentioned support line, suggesting signs of accumulation.

The price is nearing a critical point, with an ongoing attempt to touch the support line for the fifth time, as indicated by the four blue arrows on the chart. According to WD Gann, considered by many to be the greatest trader ever, a fourth or subsequent attempt at breaking a support or resistance line is more likely to result in a breakthrough. In this scenario, breaking the support line could lead to further downward movement. However, Gann also noted that failing to break below a support after the fourth touch often leads to the price holding firm.

Applying Gann's principles to the current market scenario suggests that the repeated interactions with the support line could be indicative of significant buying in this area and some kind of Wyckoff accumulation pattern. Meanwhile, the price movements in relation to the moving averages add another layer of complexity. The 10-day exponential moving average (EMA) is being repeatedly crossed, while the 50-day EMA has levelled off, and the 100-day EMA is beginning to flatten out around the $60,000 area. The Relative Strength Index (RSI) has remained neutral, hovering around the mid-range for more than a month, which supports the notion of a sideways trend. Additionally, a decrease in volume during this downward movement may hint at a potential end to the short-term decline we have witnessed over the last week.

As this pattern continues to develop in a manner similar to past weeks, it remains to be seen whether another touch of the support line will ignite a significant upward trajectory. This upcoming period could prove pivotal for Bitcoin's near-term price direction. I look forward to revisiting the Bitcoin chart next week.

TOTAL 2 (Excluding Bitcoin & Including Stablecoins)

For this week's second chart analysis, I've turned my attention to the Total 2 chart, which excludes Bitcoin and encompasses all major altcoins and stablecoins. My intention was to capture a comprehensive view of the entire altcoin market. The Total 2 chart exhibits similarities to the Bitcoin chart, particularly with the price structure breaking to the downside and recording its first lower low since October of last year. This occurred when it undercut the 3rd April swing low at $1.073 trillion.

Last Wednesday, the market managed to retest the previously broken support area, which has now transformed into a resistance zone. If the price were to climb back above this resistance line, it could signal a highly bullish scenario for altcoins, possibly leading to a revisit of the March 14th highs at $1.271 trillion. I will revisit this part of our analysis soon.

Currently, the price is navigating below the slightly downward-sloping 50-day Exponential Moving Average (EMA) while successfully staying above the stabilising 100-day EMA, which could be interpreted as a positive sign. The trading volume remains average, showing no clear trend and the Relative Strength Index (RSI) is mid-ranging, which further supports the idea that we are in a consolidatory phase.

A move toward full bearish development would likely occur if there were a further breach of the black horizontal support line at around $950 billion and a solid move below the 100-day EMA. Such a move would indicate a significant breakdown of the primary trend, potentially directing the market towards the critical 200-day EMA currently at about $885.61B, which is projected to align with the black support line If such a break would occur. This scenario would necessitate close monitoring for signs of either stabilisation or further declines.

Returning to the scenario where there is a potential break of the March 14th swing high with a confluence of resistance marked by the green arrows and horizontal green shaded area: if the market were to break and sustain a close above this critical level, it would significantly increase the likelihood of a movement toward the 0.618 Fibonacci retracement level. This level, calculated from the March swing high to the April 13th significant swing low, is approximately $1.19 trillion, as depicted on the 8-hour chart.

Currently, there appears to be little confluence of resistance around this Fibonacci level, suggesting that a push towards this area could feasibly lead to a retest of the March highs. A daily close above the $1.19 trillion mark, accompanied by strong price action and robust volume, would likely strengthen the bullish case further.

Such a move would indicate not only a significant bullish momentum but could also alter the broader market sentiment, potentially setting the stage for sustained upward movements in the altcoin market. Investors and traders should monitor these developments closely, as a confirmed break above these levels could present substantial trading opportunities.

Stablecoin Chart (All major Stablecoins) & Bitcoin Dominance (BTC.D)

Taking a brief overview of major stablecoins provides insight into whether capital remains within the cryptocurrency ecosystem or if it's transitioning towards traditional cash holdings. This analysis is crucial as it helps determine if there is latent capital that might potentially flow into the broader cryptocurrency market soon.

A key indicator of capital retention within the crypto space is the price action of stablecoins breaking above established resistance levels. For example, a significant break above the blue horizontal line, marked at approximately 6.20%, as indicated by the green and blue arrows on the chart, suggests a healthy influx of capital. This breakout has led to a formation of successive higher highs and higher lows, which is a bullish signal. Additionally, the price has consistently stayed above the 50-day Exponential Moving Average (EMA), reinforcing the strength of this upward trend.

However, it's important to remain vigilant for any potential shifts. A break below this crucial support line, represented by the 50-day EMA, could signal a negative turn in market sentiment, possibly indicating that capital is moving away from cryptocurrencies and thus could impact the general market adversely. Such movements require close monitoring to gauge the ongoing sentiment and liquidity conditions within the cryptocurrency market.

Now, let’s take a look at Bitcoin's Dominance, an essential metric in assessing the relative strength of Bitcoin compared to the broader cryptocurrency market. Since October of last year, Bitcoin's Dominance has fluctuated within a significant consolidation range, spanning from 55% to 60%. This range has marked a series of push-and-pull dynamics, where every attempt to break out of this range has resulted in a reversion back into its confines. Currently, Bitcoin's Dominance stands squarely in the middle of this range.

Recent trends indicate that altcoins have been outperforming Bitcoin, as seen through Bitcoin's Dominance's strong downward movement over the past week. However, the overall lack of a clear directional bias makes it challenging to predict whether this out performance by altcoins will persist. The historical pattern suggests that Bitcoin's Dominance is likely to continue oscillating within this established range until a significant and sustained shift occurs, where one segment—either Bitcoin or altcoins—begins to consistently outperform the other.

Interestingly, we have not observed a weekly close that definitively breaks above or below this 55% to 60% range since it was established seven months ago. This ongoing stability within the range underscores the current equilibrium between Bitcoin and altcoins, with neither gaining a decisive upper hand for an extended period. Market participants should keep a close eye on this metric, as a breakout or breakdown from this range could signal a major shift in market dynamics and investor sentiment.

In Summary

Bitcoin and altcoins are currently experiencing a phase of sideways movement, while an increase in stablecoins suggests that capital is not exiting the cryptocurrency space but rather staying on the sidelines, potentially preparing to re-enter the market. This scenario underscores the ongoing uncertainty within the markets, where psychological factors play a significant role. Investors' sentiment, driven by fear and uncertainty, influences price action, causing fluctuations in multiple directions—up, down, and sideways. As observed, we typically see a push towards support mid-week followed by a recovery towards the end of the week.

Currently, Bitcoin is encountering the same support level it has faced for the past six weeks. A key point of consideration is whether this pattern represents accumulation or distribution. Based on the analysis, it appears more likely to be accumulation. With Bitcoin and altcoins moving sideways and stablecoins on the rise, this could be interpreted as a positive signal for the cryptocurrency market. If stablecoins were in decline, it would suggest that capital is leaving the ecosystem, which is not the current trend.

The critical threshold in this situation would be a breach of the recent swing lows across cryptocurrency charts, as identified. Should this occur, it would necessitate a thorough reevaluation of market conditions.

As we continue to navigate these uncertain times, I wish everyone a happy and successful week ahead in their trading and investment endeavours. Keep a close watch on the market trends and be ready to adapt to any significant changes.

Macro News & Analysis

Despite hot inflation prints, US equities recovered some of the prior weeks’ losses with the S&P 500 closing the week up +2.67%, helped by strong earnings from Microsoft and Google. Tesla rallied after missing estimates by less than expected but shareholders punished Meta for guiding increased spending on AI. Gold was down -2.25% on the week and the US 10 year yield was up +0.95% after a volatile weekly range of 169bp.

Republic First Becomes First US Bank Failure of 2024

Republic First Bank (trading as Republic Bank) became the first FDIC insured lender to fail in 2024 after the market closed Friday 26th. Fulton Bank acquired most of Republic First’s assets and liabilities. The last bank failure was Iowa based Citizens Bank in November 2023.

According to Bloomberg, the FDIC said in a statement that “Republic First’s 32 locations in New Jersey, Pennsylvania and New York will reopen Saturday as branches of Fulton Bank”. Republic First was a small regional bank, with around $6bn assets and $4bn deposits at the end of January.

Republic First has been struggling for some time with similar issues that brought on the closure of Silicon Valley Bank and others in March 2023 – unrealised losses on assets due to interest rate hikes. The FDIC had initially tried to sell Republic First in 2023 but the bank was able to continue operating after striking a $35mn cash injection deal with investors. However, this attempt to reassure shareholders of the bank’s financial stability failed earlier this year which prompted the FDIC to restart the sale of the bank.

Is Japan Losing Control of the Yen?

The yen dropped to a 34 year low against the US dollar on Friday, closing the day at 158.283 yen to the dollar, after Bank of Japan (BOJ) governor Kazuo Ueda surprised markets by not hiking interest rates. Ueda justified holding rates, saying the weakening currency was having “no major impact” on Japans inflation trend.

This was the biggest daily move the USDJPY pair has seen since December 2023. During Monday afternoon trading in Asia the yen broke 160, causing a sharp rebound back to 155. Given Monday is a holiday in Japan, the move has prompted speculation of intervention by Japanese authorities to keep the yen from falling even further.

Large speculative positions in futures markets have built up over recent weeks so much of this volume could have been buying yen to cover short trades. However, Japan expert Weston Nakamura thinks this likely was intervention, and Weston said in an post on X today he’s “not one to jump on every JPY rally” and call it “yentervention”.

OK but that’s Japan, why should I care? I hear you ask. The BOJ has been trying to stimulate inflation for nearly 2 decades by maintaining a low/zero interest rate policy and artificially capping the 10 year Japanese Government Bond (JGB) yield around 0.1%. This encouraged traders to borrow yen for next to zero cost to fund trades in higher yielding currencies: the cheaply borrowed yen is sold for USD/EUR/etc and invested in markets that return a yield. This is known as a carry trade and the Japanese yen has been one of the biggest and longest standing carry trade funding currencies in recent history.

Much of what's invested in is US Treasuries as their yield has been significantly higher than Japan's ~0%. But then covid and inflation happened, causing the US Federal Reserve to hike rates at the fastest pace in history. Rate hikes mean higher yields on bonds, which have an inverse relationship to bond prices. So as yields on US Treasuries (USTs) rise, their market prices fall.

As mentioned above, the BOJ have been trying to create inflation for decades. Since covid, they got their inflation, and while it’s fallen through 2023 it does appear to be durably higher than anything seen over the last 30 years and last month, the BOJ finally hiked rates for the first time in 17 years. This is a significant shift in Japan’s monetary policy and is a significant factor for carry trades. If the BOJ are now in, albeit at glacial speed, a rate hiking cycle, and the Fed are to start cutting rates this year, yen-funded trades will start to be unwound as they become less profitable.

The catch is, with so much leverage, FX and rate volatility can cause forced unwinds if margin calls can’t be fulfilled. This brings us back to US Treasuries. Remember if a bond’s yield rises, its market value falls. We saw the effect this has following Liz Truss’s mini-budget fiasco in 2022. If volatility creates forced UST selling to repay yen-funded carry trade, but the USTs are underwater because of the Fed’s rate hikes… well then you sell something else – anything else – to cover your positions.

The potential for a systemic risk event caused by forced selling is real, but in my opinion unlikely. Central banks are acutely aware of these risks and, as the covid response demonstrated, would do whatever it takes to prevent a systemic failure in financial markets.

Whilst I don’t see authorities allowing a systemic failure to happen, I very much do expect to see increased volatility which threatens anyone using leverage to trade.

Fed Rate Decision and Treasury Refunding Announcement

Wednesday 1st sees both the FOMC rate decision and US Treasury’s quarterly refunding announcement (QRA). Market expectations of no cut from the Fed is at 97.1% so it’s highly unlikely Powell will want to surprise markets with a cut – imagine how equities and crypto would react!

However, given the failure of Republic First Bank and increased volatility in JPY markets, my conspiracy theory side (tinfoil hats at the ready!) makes me wonder if these events are the excuse needed for Jerome Powell to start the cutting cycle. Unlikely, but more likely than this time last week I think.

Wednesday also sees the Treasury’s QRA which outlines how much, and in what form, the Treasury will fund its asset sales over the coming quarter. The US tax deadline was 2 weeks ago today and given the very strong performance of both the US economy and stock market, tax revenue may offset some of Treasury’s issuance needs to fund the government’s Q2 fiscal obligations. I suspect that, unless the FOMC actually do cut rates, the QRA will once again be what decides the direction of markets for the coming months: heavy Treasury note (2-7 year) and Treasury bond (10-30 year) issuance would be a headwind whilst heavy bill (up to 1 year) issuance would be a tailwind, as it was in November 2023.

Things I’m Watching

• Trump Allies Draft Plans to Curtail Fed Independence – WSJ

• NYSE Mulls 24/7 Trading – The Banker

• FTSE 100 Extends Gains After Best Week Since September – Bloomberg

• TSLA Continues Post-Earnings Gains As Musk Progresses on Baidu Partnership – Bloomberg

The Week Ahead

Events This Week

Monday

• Eurozone economic confidence, consumer confidence

• Germany inflation rate

• Dallas Fed manufacturing indexing

• US Treasury refunding estimates

Tuesday

• Japan unemployment, industrial production, retail sales

• Australia housing credit, retail sales

• China Caixin manufacturing PMI, non-manufacturing PMI, manufacturing PMI

• Eurozone CPI, GDP

• UK mortgage approvals, mortgage lending, BOE consumer credit

• Canada, Mexico GDP

• US employment cost index, Case-Shiller home prices, Chicago PMI, consumer confidence

Wednesday

• New Zealand unemployment

• Australia, Japan manufacturing PMI

• UK S&P Global / CIPS Manufacturing PMI

• US FOMC rate decision, ADP employment change, Treasury Refunding Announcement, ISM manufacturing PMI, JOLTs job openings

Thursday

• South Korea CPI, S&P Global Manufacturing PMI

• Japan monetary policy meeting minutes, consumer confidence

• Indonesia CPI

• Australia balance of trade, building permits

• Eurozone S&P Global Manufacturing PMI

• US balance of trade, imports, exports, initial jobless claims, factory orders

• Apple earnings

Friday

• Eurozone unemployment

• Norway rate decision

• US non-farm payrolls, unemployment, average hourly earnings, participation rate, ISM Services

Saturday

• Fed Goolsbee, Williams speak

Earnings Calendar

Big tech earnings continue this week with Apple (AAPL), Amazon (AMZN), AMD (AMD) and Super Micro Computer (SMCI). Other major reports this week include Coca-Cola (KO), Eli Lilly (LLY), McDonald's (MCD), Novo Nordisk (NVO) and Starbucks (SBUX). With potential headwinds coming this week, will this be enough to continue last week’s reversal?