Finance giants are making crypto moves
Wall Street continued its investment in crypto infrastructure this week. [Sirisvisual via Unsplash]
There’s never a dull moment on the blockchain. Here’s what you need to know this week:
Bitcoin crossed $27K as the Fed holds rates steady. The Fed also signaled one more hike in 2023 — what it all means for crypto markets.
Wall Street is making more crypto moves. Inside blockchain initiatives from CitiGroup, Nomura, and more.
This week in numbers. The amount of Americans that own crypto, the size of India’s crypto market, and other stats you need to know.
MARKET UPDATE
BTC climbed slightly in advance of the Federal Reserve’s September interest rate pause
For most of 2023, crypto markets have been in something of a holding pattern, with bitcoin experiencing historically low volatility — partly due to the Federal Reserve’s strategy for battling inflation, which has seen interest rates ramp up to 22-year highs.
This week, the central bank’s Federal Open Markets Committee held its first meeting since July. Responding to data showing inflation is slowing and growth and job market numbers remain relatively strong, the Fed chose to keep interest rates at their current level. Crypto markets had widely anticipated the move, with BTC prices ticking upward nearly 4% for the week, before most of the gains were reversed on Thursday morning.
What happened with BTC prices this week?
In the runup to the Fed announcement, markets anticipated little major news would emerge from the Fed Meeting, although BTC broke the $27,000 mark for the first time in a month and notched its first weekly gain in the same period. BTC climbed slightly following the actual announcement before dipping back below $27,000, with analysts noting the widely anticipated news had already been “priced in.” The biggest cryptocurrency by market cap also saw its dominance — or its percentage of the total crypto market — rise back above 50% for the first time in a month.
What do inflation and interest rates have to do with crypto prices?
This is a complicated topic! But in very basic terms, rising inflation means that the prices people pay for goods and services go up, and the spending power of the fiat currency they earn goes down. This can lead to higher crypto adoption, as it has in countries including Turkey and Argentina — where inflation has severely devalued the local currencies and made crypto a popular alternative.
In the U.S., where the Federal Reserve has responded to rising inflation by gradually increasing interest rates to the current 5.25% level, some investors may have chosen to sell riskier assets like tech stocks and crypto in favor of a safer yield on their dollars in some banks’ savings accounts. Conversely, falling interest rates would make borrowing money for individuals and businesses cheaper and could influence some investors to shift back into crypto as they did during the bull market that peaked in late 2021.
What is the Fed watching for? And when could rates go down?
The Fed’s goal is to bring inflation to 2% without causing a big spike in unemployment — a scenario widely referred to as a “soft landing.” According to Reuters, many market watchers anticipate that the central bank could increase rates one more time this year: “Should it occur, that next rate increase may indeed be the last of a tightening cycle that began in March 2022, but projections for next year and beyond will indicate how long the period of high interest rates is expected to be, how fast inflation returns to target, and how much the economy slows and unemployment rises along the way.”
The bottom line…
The Fed has been pretty consistent in telegraphing its next moves, which has meant that interest-rate announcements have tended to have fairly muted impacts on markets this year. But statements from Fed chair Jerome Powell always have the potential to move markets, which is why all eyes were on the central bank this week — and will be again at the next meeting at the end of October. As a CoinShares analyst told Blockworks: “If the Fed is seen to express more dovish rhetoric, then bitcoin prices could rally. Conversely, overly hawkish comments are likely to weigh on prices.”
WHALE STREET
Inside Wall Street’s latest crypto moves, from Citi’s blockchain payments plan to new venture fundraises
Ever since June, when a wave of Wall Street’s biggest names applied for spot bitcoin ETFs, many of the world’s biggest banks and investment firms have continued to invest in new blockchain and crypto-related services. This week Citigroup and Japanese investment giant Nomura are among the major players making moves. Let's take a closer look:
Citigroup is launching instantaneous blockchain payments
Citi Token Services, a new product from the third-biggest U.S. bank, allows institutional clients to convert their deposits into digital tokens that can be sent anywhere in the world — and because they’re processed via blockchain, the transfers settle instantaneously.
Citi’s pilot for the program, which focused on the shipping industry, found that the use of digital tokens and smart contracts could significantly reduce payment-processing times for an industry that’s heavily reliant on letters of credit from banks, which can take days to process. Instead, shipping companies could use smart contracts that would automatically transfer funds once the conditions of a transaction have been met.
Citi predicts the tokenization of real-world assets will bring trillions in value to blockchains within 10 years.
Japanese finance giant Nomura is launching a “Bitcoin Adoption Fund”
Via a subsidiary called Laser, Japanese investment bank Nomura (which has $500 billion under management) is launching the Bitcoin Adoption Fund, the first in a new range of digital-asset investment products aimed at institutional clients. The Bitcoin Adoption Fund will rely on Komainu — a crypto-custody firm formed by Nomura, Ledger, and CoinShares — to hold clients’ assets.
The fund offers only “long” exposure to BTC, meaning that investors won’t be able to bet against BTC through the fund. Sebastien Guglietta, head of Laser Digital Asset Management, called bitcoin “one of the enablers of this long-lasting transformational change,” and said that “long-term exposure to bitcoin offers a solution to investors to capture this macro trend."
Crypto-focused VC firm Blockchain Capital raised a record $580 million
Blockchain Capital has raised nearly $600 million across two new funds that will focus on decentralized finance, gaming, and crypto infrastructure. Investors in the funds include Visa, PayPal, and the Teacher Retirement System of Texas. The new funding round, which is the largest in Blockchain Capital’s 10-year history, adds to the firm’s existing $2 billion in assets under management.
What’s next?
The really big Wall Street news crypto markets have been waiting for is the SEC’s response to a wave of “spot” bitcoin ETF applications from earlier this summer — including one from the world’s biggest asset manager, BlackRock. At least ten major firms are pursuing such products, which would buy BTC and sell shares via conventional brokerages. Bitcoin prices spiked in June when the applications were announced, and again last month when a federal court sided with crypto-asset manager Grayscale in a related case. Meanwhile, the first European spot BTC ETF began trading in Amsterdam this week.
NUMBERS TO KNOW
$269 billion
Total volume of India’s crypto market from July 2022 to June 2023, making it the second-largest crypto market in the world, behind only the United States. According to a new global adoption report from on-chain research firm Chainalysis, India “leads the world in grassroots adoption,” despite its 30% tax on crypto gains.
52 million
Number of Americans who own crypto, according to research by Coinbase. That's about one in five adults in the United States, or roughly 2 times greater than the number of American families who directly hold stock, per the Federal Reserve’s latest survey. This week, Coinbase announced efforts to help mobilize crypto advocates ahead of the 2024 election by making it simple to call their elected representatives.
3
Number of central banks that are testing a Central Bank Digital Currency (CBDC) interoperability project with Swift, the global financial messaging network. The Hong Kong Monetary Authority, the National Bank of Kazakhstan, and another unnamed participant are testing CBDCs for cross-border payments.
TOKEN TRIVIA
Which crypto blockchain is currently proof-of-stake?
A
Bitcoin
B
Ethereum
C
Litecoin
D
Ripple
Find the answer below.
Trivia Answer
B
Ethereum
