Weekly Market Update - Friday, May 26, 2023

Takeaways

• Ongoing U.S. debt ceiling negotiations have put investors on edge as markets brace for a potential default. Fitch put the U.S.’ AAA credit rating on negative watch and stocks moved lower.
• Bitcoin (BTC)'s and ether (ETH)'s performances have been lackluster as they trade near the bottom of their recent range, with ETH outperforming BTC as the ETHBTC ratio sits above the 0.068 level.
• Nvidia, the world’s largest GPU manufacturer, saw its stock price surge over 25% after beating earnings and raising Q2 revenue guidance an astonishing 50% higher than Wall Street estimates, citing demand from AI customers. Other semiconductor companies and AI-focused crypto protocols rallied in sympathy.
• Hong Kong’s securities and futures regulator said it plans to allow retail traders to invest in crypto as soon as June 1, under a set of formalized rules. Under the rules, stablecoins would not be permitted for trading until further regulations are put in place.

Debt Ceiling Impasse Clouds Investor Outlook Across Markets

The U.S. debt ceiling standoff continued this week, as the Treasury department once again warned that the federal government could breach the debt ceiling as early as June 1st. Any agreement could take days to pass through Congress, and the lack of progress has started to weigh on investors.

Until earlier this week, Wall Street remained optimistic about a deal being reached, but signs of concern are showing as U.S. stock markets closed lower on Wednesday. As of Friday morning, reports said that negotiators were closing in on a deal, but were “not there yet.” Ratings agency Fitch also put the United States' AAA rating on negative watch, further highlighting the increased risks should the debt ceiling not be raised in time.

The U.S debt ceiling concerns appear to have affected momentum in the crypto markets too, as token prices dropped lower across the board on Wednesday, with prices rebounding slightly by Friday morning. After struggling to make a decisive break above $27k USD last week, bitcoin (BTC) had another unsuccessful attempt at remaining above that level this week before seeing a sudden drop to around $26k USD.

Ether (ETH) prices held up slightly better throughout the week, rising above the 0.068 level on the ETHBTC pair, although ETH price did drop below the $1,800 USD level which has provided good support since the start of April, before moving above that level once again on Friday.

AI Boom Bolsters Nvidia Q2 Revenue, and Boosts AI-related Cryptos

On Wednesday, Nvidia reported second-quarter revenue forecasts that were 50% higher than Wall Street estimates. The graphics processing unit (GPU) manufacturer cited the increasing demand for its artificial intelligence chips as a leading catalyst, with the company planning to boost its supply as a result. Nvidia (NVDA) shares surged almost 30% after hours following the announcement to reach a new all-time high. NVDA has gained ~170% since the start of the year and is the top performer in the S&P 500 year-to-date.

With the AI sector in focus as a next major growth driver, a number of AI-related crypto protocols have also seen outsized returns this week. Render (RNDR), a provider of decentralized GPU rendering, added another 18%+ to its token price over the past seven days. The increased demand and supply shortage in GPUs has helped to position RNDR as one of the best performers of the year so far, trading up over 550%.

Hong Kong to Allow Retail Crypto Trading

On Tuesday, Hong Kong's Securities and Futures Commission (SFC) announced finalized rules allowing retail traders to buy and sell crypto from June 1. Licensed exchanges will be permitted to sell cryptocurrencies which meet certain capitalisation and liquidity requirements, which would likely include bitcoin (BTC) and ether (ETH).

As part of the rules, the SFC has proposed that stablecoins not be offered for retail trading until planned future regulations for the asset class are brought in. Hong Kong appears to be taking advantage of prohibitions on crypto activities in other jurisdictions as they push ahead with developing a crypto hub.

Some observers have speculated that the framework Hong Kong has set forth for investing in crypto will be a “testing ground” for China to lift its ban on crypto trading. This would reopen investor access for digital assets for the world’s second largest economy after the Chinese government banned trading and mining activities in 2021.

Multichain Experiences Upgrade Delays as MULTI Price Plummets

Users of the cross-chain protocol Multichain experienced long delays in receiving their funds this week following a backend upgrade which took “longer than expected.” However, more confusion arose on Wednesday when the team tweeted that some of its cross-chain routes were unavailable due to “force majeure.” MULTI, the protocol's native token, has dropped over 40% this week as a result.

-From the Gemini Trading Desk