Weekly Market Update - Friday, July 28, 2023 - Crypto Bills Move to House Floor, the Fed Raises Rates, and US Beats Growth Expectations

Takeaways

• Fed raises rates once more: The US Federal Reserve increased its key interest rate another 25 basis points to between 5.25%-5.50%, the highest level since March 2001. Fed Chairman Powell played down the potential for a recession, but left the door open to future rate hikes. A day later, the European Central Bank (ECB) followed suit with its own interest rate 25 basis point hike.
• US economy continues to show strong growth despite slowdown fears: The US economy grew 2.4% annually in the second quarter of 2023, buoyed by business investment and consumer spending. The economic numbers were better than expected and shows continued economic activity in the US in the face of a higher interest rate environment.
• Bitcoin drops amid Binance wash trading report: Bitcoin (BTC) has struggled to hold its $30k USD support level since last week. Adding to the downward pressure was a Wall Street Journal report claiming that Binance CEO Changpeng Zhao revealed in an internal message that Binance affiliates may have engaged in wash trading.
• Crypto bills head to US House for first time: On Wednesday, the US House Financial Services Committee voted in favor of two crypto-related bills, sending standalone crypto legislation to the House floor for the first time.
• Twitter becomes 𝕏, and Dogecoin pops: Elon Musk followed through with a major rebrand of Twitter, with the blue bird replaced by the new 𝕏 logo. He also added the Dogecoin symbol to his profile, fueling speculation that he plans to incorporate crypto payments into the new ecosystem.
• Worldcoin launches with an eyeball scanner: Worldcoin (WLD), a crypto project founded by OpenAI CEO Sam Altman, launched on Monday. The company’s offerings include an eyeball scanner, a World ID to provide “proof of personhood,” as well as a new WLD crypto token.

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US and EU Raise Key Interest Rates, US GDP Stronger Than Expected

After a brief pause in June, the U.S. Federal Reserve raised interest rates by another 25 basis points on Wednesday, bringing the Fed’s key interest rate to 5.25%-5.5%, its highest level since March 2001. In a statement, Fed Chairman Jerome Powell signaled that there may be more rate hikes to come but is no longer expecting them to cause a recession. He reiterated that there is still a long way to go to get inflation back down to 2%, and that it is “likely to require a period of below-trend growth and some softening of labor market conditions."

The next day, the European Central Bank (ECB) followed suit with its own interest rate increase, bringing the European Union’s interest rate to its highest level since 2000. ECB President Christine Lagarde acknowledged the deteriorating eurozone economy, but indicated that a rate hike pause is possible. The euro (EUR) fell back below 1.10 vs. the dollar after the rate decision on Thursday.

Also announced Thursday, U.S. GDP grew 2.4% in the second quarter of 2023, indicating that the U.S. is still defying recession fears. Consumer spending grew at a slower pace (1.6% in 2Q vs. 4.2% in 1Q). Business investment, however, rose sharply to 7.7% annually vs. 0.6% annually last quarter. Overall, the GDP report demonstrates the U.S. economy continues to expand amid the ongoing rate hike cycle.

Bitcoin Hovers Below $30k Support as WSJ Reveals Binance Wash Trading Claims

Bitcoin (BTC) has struggled to hold its $30k USD support since last week, remaining below that level all week. It saw a decisive break lower on Monday morning as the price suddenly dropped below $29k USD. The decline followed a Wall Street Journal report claiming that Binance CEO Changpeng Zhao had said in an internal message that Binance affiliates may have engaged in wash trading on Binance.US several years ago.

The revelations are another blow to the exchange which is facing an SEC lawsuit alleging securities law violations, which include wash trading.

BTC had slowly recovered throughout the week, pushing back above $29.5k USD following the Fed meeting on Wednesday, before dipping again. Ether (ETH) has continued to trade in line with BTC with the ETHBTC pair range bound between 0.063-0.064.

Crypto Legislation Heads to Full House for First Time, With Some Bipartisan Support

On Wednesday, the U.S. House Financial Services Committee voted in favor of two crypto-related bills, sending standalone crypto legislation to the House floor for the first time.

The Financial Innovation and Technology for the 21st Century Act, H.R. 4763, passed committee with bipartisan support, and would clarify the crypto oversight remit of the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC), which has been a point of contention for some time. The bill also seeks to define the standards for when a crypto is a security or a commodity.

The Blockchain Regulatory Certainty Act, H.R. 1747, which passed along party lines, would exempt blockchain developers and blockchain service providers from specific financial reporting and licensing requirements, if they do not control customer funds, according to the bill description.

The two bills were proposed by the Republican majority. They now move to the House floor for approval, and would need subsequent approval from a Democrat-controlled Senate to become law.

Musk Rebrands Twitter to 𝕏, Foreshadows Potential Use of Dogecoin

Earlier this week, Elon Musk followed through with a major rebrand of his social media platform, Twitter. Twitter’s blue bird was replaced with the new 𝕏 logo on the company website, while x.com now points to the official site.

Along with the 𝕏 rebranding, Musk added “𝕏Д to his profile for a time, the symbol for the popular meme token Dogecoin (DOGE). The move fuelled speculation that Musk plans to incorporate crypto payments into the new 𝕏 ecosystem, with DOGE potentially playing a pivotal role. The news helped DOGE avoid the broader market declines this week, with the token posting gains over the past 7 days.

OpenAI Founder’s Worldcoin Crypto Project Launches

Worldcoin (WLD), the controversial crypto project founded by OpenAI CEO Sam Altman, launched on Monday. The new project’s main offering is the introduction of its World ID, described as a digital passport proving that the holder is a human and not an artificial intelligence robot.

The project uses a device called an Orb to scan users' eyeballs and generate a unique digital identity. This creates a World ID which then grants the holders “proof of personhood.”

The project has said it has 2 million users from beta testing but plans to scale up operations to 35 cities in 20 countries following launch, offering WLD tokens to entice people to sign up. After some initial volatility directly after launching on a number of exchanges, the price appears to be settling around the $2.20 USD level. The project has a total supply of 10 billion tokens. According to Kaiko, the maximum circulating supply at launch is 143 million tokens, with 100 million of those being loaned to liquidity providers for market making.

-From the Gemini Trading Desk