Stagnant signals from major US retailers (Walmart and Home Depot also reported earnings this week) wiped out this week’s stronger-than-expected US retail sales report for April, and come on a backdrop of a still-committed Fed (and other major global central banks). on further aggressive tightening of monetary policy.
Traders will remember Fed Chair Jerome Powell’s comments on Tuesday, where he stressed that fighting inflation is the Fed’s top priority, even if that means slower growth, and the Fed will therefore “not hesitate” to raise interest rates to increase above the so-called “neutral” level (of about 2.5%), if necessary. Other Fed policymakers speaking this week have largely signaled the same message.
Expectations for slower growth (meaning weaker earnings) coupled with expectations for higher interest rates (meaning a higher discount rate) are pushing stock valuations in both directions. Many analysts are unsurprised that the rebound in US stocks earlier in the week proved short-lived.
In Thursday’s premarket session, US stock index futures extend Wednesday’s losses and are expected to break to fresh yearly lows before the end of the week. Crypto is holding up a bit better for now as the total market cap is currently consolidating around the $1.225 trillion mark and is slightly in the green on the day.
Tier 2 data out of the US in the form of the May Philadelphia Manufacturing survey, weekly initial jobless claims report and April existing home sales are unlikely to move markets much, with focus remaining on the broader themes of slowing growth, Inflation and central bank tightening.
Expect cryptocurrencies to continue to align with stocks, and if so, be prepared for further downside. A break below the $1.20 trillion support could see the crypto market cap fall back to yearly lows below $1.1 trillion.
Crypto Price Action
Bitcoin fell nearly 6.0% on Wednesday along with stocks’ move lower, falling from the top $30,000s to the mid-$28,000s. However, despite the continued downtrend in US stocks in premarket trading, bitcoin has stabilized in the $29,000 area and remains a good 14% above last week’s lows of under $26,000 (in contrast to the S&P 500 futures, which are only a touch above last week’s lows).
If Bitcoin can continue to consolidate around $30,000 despite a breakout to new yearly lows in US stocks, as it has over the past six sessions, that would be impressive. But the negative growth themes mentioned above and fears of central bank tightening suggest it’s still too early to bet on a significant Bitcoin recovery.
At current levels, Bitcoin has a market cap of around $550 billion, giving it around 45% market dominance (up from below 44.5% on Wednesday). In times of market turbulence, Bitcoin’s market dominance tends to increase given its status as the largest/most enduring cryptocurrency (many believe).
Ethereum, on the other hand, fell closer to 9.0% from around $2,100 per token to around $1,900 on Wednesday. Currently, the second largest cryptocurrency by market cap is trading slightly higher in the low $1900 area on the day but also remains vulnerable to further downside in the US stock market.
At current levels, Ethereum has a market cap of around $230 billion, giving it a crypto market dominance of around 19% (up from 19.4% on Wednesday).
Unsurprisingly, non-stablecoin altcoins performed versus Bitcoin on Wednesday.
Among the majors, Ripple’s XRP fell about 7.5% on Wednesday and another more than 1.0% on Thursday. Solana’s SOL fell 12.5% on Wednesday and another nearly 2.0% on Thursday.
Binance’s BNB fell 6.0% on Wednesday but has since recovered about 2.5% on Thursday. Cardano’s ADA lost about 12.5% on Wednesday and is flat on Thursday.
DeFi
The total locked value (TVL) of all decentralized finance fell by about $4.0 billion to about $98 billion on Wednesday, which really isn’t surprising given the consistently low-risk general market conditions.
Even though various DeFi protocols offer attractive yields on various stablecoins that are said to be immune to broader market conditions, investing in DeFi is still considered highly speculative. This is even more true after last week’s crash of UST (and LUNA).
At the beginning of 2022, the TVL of the entire DeFi space was well over $200 billion. Amid the broader risk aversion conditions in the crypto and financial markets, it’s hard to imagine flows returning any time soon.
In other notable DeFi news, the early vote shows majority support within the Terra community/validators for founder Do Kwon’s proposed fork. The fork, which could happen as early as May 27, would mean the creation of a new Terra blockchain alongside the original one.
The new blockchain will scrap the UST stablecoin. The legacy Terra blockchain will be called Terra Classic and will be driven by the native token LUNA classic. LUNA’s market cap has fallen back below $1.0 billion over the course of the vote. UST/USD, meanwhile, remains trading below the $0.10 level.
crypto flows
Exchange wallets recorded about $223 million worth of Bitcoin net inflows on Wednesday, data from Glassnode showed, in line with bearish market conditions. Crypto investors tend to move their investments back to exchange wallets, where they can then be sold in tough market conditions. During the same period, Ethereum exchange wallets saw a net inflow of just $7.1 million.
Elsewhere, there has been some hype in the crypto media landscape surrounding the recent accumulation of more bitcoin by the wealthiest non-exchange bitcoin wallet. The wallet has seemingly used the recent downturn as an opportunity to buy the drop, having net bought about 3,015 bitcoins over the past three weeks. That means the wallet now contains 127,067 bitcoins worth about $3.685 billion based on Thursday’s prices.
regulatory landscape
U.S. Securities and Exchange Commission (SEC) Chairman Gary Gensler said in a congressional hearing on Wednesday that the majority of initial coin offerings fall under the SEC’s securities law and that with the deployment of the existing SEC, those tokens will be brought into the regulatory framework securities laws. A very small number of tokens, including bitcoin, are considered commodity tokens, he added, and would therefore fall under the jurisdiction of the Commodity Futures Trading Commission (CFTC).
Russian Industry and Trade Minister Denis Manturov said Thursday that Russia will legalize cryptocurrencies as a means of payment “sooner or later”. In a forum, Manturov was asked about the legalization of crypto as a means of payment. “The question is, if that happens, how will it be regulated as the central bank and the government are actively working on it,” he said. “The general consensus is that … sooner or later this will be implemented in some form,” he said.
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