Market View
A number of headlines have impacted altcoin liquidity in recent days, reflecting a significant bifurcation in trading volumes relative to large cap names:
- Robinhood delisted three cryptocurrencies previously offered on its platform with volumes down by US$2.1B
- Haru Invest, a South Korean crypto lending platform with less than $1B in AUM, halted withdrawals and deposits on June 13
- Delio, another South Korean crypto lending platform with KRW8B (US$6.3M) in altcoins, halted withdrawals on June 14
- Voyager will reopen its platform from June 20 to July 5 for creditors to withdraw 35% of their crypto holdings worth around $1.3B
- Celsius could allow creditors to swap their altcoins into BTC and ETH starting on July 1
Note that the liquidity contraction has been ongoing since early April, and that's not entirely specific to crypto. Near-term, we have seen a peak in global liquidity. Central bank balance sheets across the Federal Reserve, European Central Bank, People’s Bank of China, Bank of Japan, Bank of Canada and Bank of England increased by $920B in 1Q23 but have subsequently unwound this in 2Q23. Recall that market activity seemed to peak in late March 2023, which we believe was caused by (1) the resolution to the US regional banking turmoil, (2) increased regulatory pressure on the crypto sector (including greater uncertainty surrounding non-bitcoin tokens) and (3) the end of Binance’s zero-fee bitcoin trading program on March 22.
Meanwhile, the Federal Reserve kept rates unchanged as expected on June 14, but the new dot plot accompanying its statement suggested that another two 25bps hikes may be possible this year. However, this seems incongruent with the fact that Fed funds futures have reduced the implied probability of a rate hike in July from 80% to 62% while pricing in a cut in 4Q23. In our view, additional hikes would be a potential policy error that ignores the tightening impact of the recent US banking stress. Moreover, moderating aggregate demand should cyclically support a stronger disinflationary trend alongside structural forces like artificial intelligence, which can lead to greater automation and lower input costs. As it stands, we think the Fed’s position represents a lack of clarity that could contribute to market turbulence in the short term.
On the upside for crypto markets, BlackRock's iShares unit has filed documents with the U.S. Securities and Exchange Commission (SEC) to create a spot bitcoin exchange-traded fund (ETF) named the iShares Bitcoin Trust. The fund will primarily hold bitcoin assets through custody provided by Coinbase and will be benchmarked against the CME CF Bitcoin Reference Rate. In our view, this could help stabilize the market sentiment toward the US crypto market as BlackRock's size ($10T in AUM) and influence will be hard to ignore.
