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WEEKLY MARKET UPDATE
MAY 16, 2024
Bitcoin Price Rallies on Cooling Inflation Data, Meme Stock Frenzy Returns, and State of Wisconsin Invests in Spot BTC ETFs
Welcome to our Weekly Market Update.* Explore weekly crypto price movements, read a quick digest of notable market news, and dive into a crypto topic — this week we look back at the history of the GameStop short squeeze. *
Crypto Movers
Crypto News
BitcoinBuzz Indicator
Topic of the Week
*Percentages reflect trends over the past seven days.
**Crypto prices as of Thursday, May 16, 2024, at 11:20am ET. Check out the latest crypto prices here. All prices in USD.
Takeaways
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BTC, ETH jump after inflation eases: The Consumer Price Index jumped 0.3% in April, ending three consecutive months of elevated inflation readings and lifting hopes of a rate cut later this year. Bitcoin and ether prices rallied 7.6% and 5.3% Wednesday.
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Roaring Kitty returns, sending meme coin soaring: Vince Gill, the meme stock leader who rose to fame in 2021 under the pseudonym “Roaring Kitty,” announced his return on Twitter/X on Monday. Shares of Gamestop and AMC soared the next two days before retreating. But one meme coin reaped the benefits.
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US Senate overrules SEC: The US Senate voted 60-38 on Thursday to override an SEC rule that requires crypto custodians to treat customer assets as liabilities. But President Joe Biden is expected to veto the measure, and the US House has work to do to get the two-thirds majority needed to override the veto.
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Wisconsin becomes BTC Bull: The State of Wisconsin Investment Board revealed in a filing Tuesday that it had amassed roughly $162 million worth of shares in spot BTC ETFs with BlackRock and Grayscale. It marked the first time a state pension fund publicly declared an ownership stake in spot BTC ETFs.
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US Senators upset over crypto mixer treatment: US Senators Cynthia Lummis (R-Wyo.) and Ron Wyden (D-Ore.) have sent a letter to the US DOJ contesting a recent decision from FinCEN that said it would treat crypto mixers as money transmitters, opening up software developers to potential charges.
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New Vanguard CEO not rushing into crypto ETFs: Vanguard named Salim Ramji as its new CEO on Tuesday, raising speculation that the former BlackRock executive would introduce a Vanguard spot BTC ETF after Ramji oversaw the launch of iShares Bitcoin Trust at BlackRock. However, Ramji in an interview with Barron’s cast doubt on launching a Vanguard spot BTC ETF.
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BTC Price Jumps After Inflation Eases in US
The Consumer Price Index (CPI) increased 0.3% from March to April and 3.4% year-over-year, according to the US Bureau of Labor and Statistics. The data comes after the monthly CPI had jumped 0.4% in March, raising concerns that the Federal Reserve will keep interest rates at the current levels that may be restrictive for the economy. Federal Reserve Chairman Jerome Powell has said he wants CPI, which gauges the difference in how much consumers pay for goods and services, to return to 2%.
The latest CPI readings were enough to spark crypto markets. The price of BTC increased more than 7% on Wednesday, settling at $66,240.60. The price of ETH jumped 5.3%, settling at $3,033.20. Both were welcome developments for crypto bulls after spot BTC ETFs had seen a drop in inflows and a general post-halving malaise. In equity markets, all three major US stock indices closed at all time highs on Wednesday after the inflation data.
While the price of BTC and ETH are not tied directly to interest rates, those assets typically do better when federal policy is not restrictive. The Federal Reserve has held the federal funds rate at 5.25%-5.5% since July 2023, the highest level in 23 years.
Powell didn’t tip his hand Tuesday when asked when the next rate cut would take place, adding that previous inflation data had stayed higher for longer than he anticipated.
“I don’t think that it’s likely, based on the data that we have, that the next move that we make would be a rate hike,” he said. “I think it’s more likely that we’ll be at a place where we hold the policy rate where it is.”
GME Meme Coin Surges, Then Pulls Back, After ‘Roaring Kitty’ Returns
Vince Gill, the meme stock leader who rose to fame in late 2020 under the pseudonym “Roaring Kitty,” announced his return on Twitter/X on Monday after almost three years of silence, causing GameStop and AMC shares to surge.
The meme stock frenzy leaked into the crypto space, with a Gamestop meme coin (GME) on the Solana network surging as high as 460% on Tuesday before retreating. The GME meme coin mimics Gamestop’s ticker symbol, “GME,” but it isn’t affiliated with the company. As of Thursday, the coin’s market capitalization had settled at roughly $45 million.
US Senate Opts To Pull SEC Accounting Bulletin, But Veto Likely
The US Senate voted 60-38 on Thursday to override bulletin SAB 121, which requires crypto custodians to treat customer assets as liabilities. But President Joe Biden is expected to veto the measure, and the US House has work to do to get the two-thirds majority needed to override the veto.
Since the US Securities and Exchange Commission (SEC) instituted SAB 121 in 2022, crypto lobbyists have maintained that the rule makes it more difficult for banks to work with crypto assets. The Government Accountability Office ruled that SAB 121 should have gone through Congress rather than the SEC.
Last week, the US House of Representatives voted 228-182 to overturn the accounting rule, with 21 Democrats joining an overwhelming Republican majority. But the White House has remained steadfast in its support of the SEC.
“Limiting the SEC’s ability to maintain a comprehensive and effective financial regulatory framework for crypto assets would introduce substantial financial instability and market uncertainty,” the White House said in a statement.
Wisconsin Adds $162M Worth of Spot BTC ETFs to Portfolio
The State of Wisconsin Investment Board has purchased almost $100 million worth of BlackRock’s iShares Bitcoin Trust (IBIT) and $63 million worth of spot BTC ETF Grayscale Bitcoin Trust (GBTC), according to a filing with the Securities and Exchange Commission. As of March 31, the Board owned 2,450,000 shares of IBIT, 1,013,000 shares of GBTC, and had stakes in a range of cryptocurrency companies, including Coinbase, Marathon Digital, Riot Platforms, Block, and others.
The State of Wisconsin Investment Board manages approximately $156B in assets for the Wisconsin Retirement System, the State Investment Fund, and other state trust funds. The Board has previously made a range of crypto investments, though it is the first state pension fund to declare an ownership stake in spot BTC ETFs.
US Senators Write to DOJ over Crypto Mixer Treatment
“Non-custodial crypto service providers cannot be classified as money transmitter businesses because users of such services retain sole possession and control of their crypto assets,” the letter stated. “At no point when operating or providing non-custodial services do such service providers accept crypto assets from their users.”
FinCEN in recent weeks has pursued charges against crypto mixer software developers because they view mixers as money transmitters, reversing a previous decision. The news comes after five founders of TornadoCash and Samourai Wallet were either arrested or charged with a range of federal securities violations. On Tuesday, Dutch authorities sentenced Tornado Cash founder Alexey Pertsev to 64 months in prison for money laundering charges.
Said Wyden: "I’m concerned the DOJ’s interpretation would treat software developers as criminals for merely writing and publishing code used by others – a dangerous precedent that contradicts decades of settled law and raises serious First Amendment concerns.”
New Vanguard CEO Shoots Down Launching Spot BTC ETF
Vanguard announced Tuesday the hiring of former Blackrock executive Samil Ramji as its new CEO, raising speculation that the historically anti-crypto investment management giant would soon offer a spot BTC ETF. Ramji ran Blackrock’s ETF business and oversaw the launch of their spot BTC ETF in January.
But spot BTC ETFs don’t appear to be a priority for Ramji at Vanguard.
“I think it’s important for firms to have consistency in terms of what they stand for and the products and services they offer," Ramji told Barron's. "I have heard (CIO) Greg Davis’ explanation and I think it is entirely consistent with Vanguard’s investment philosophy. It is a logical and consistent point of view."
Vanguard has around $7.2 trillion in assets under management. Historically, the registered investment advisor has not offered any crypto investments to clients, including the 11 spot BTC ETFs launched in January.
-From Team Gemini
BitcoinBuzz data as of 3:15 pm ET on May 16, 2024.
To learn more about the BitcoinBuzz Indicator and its components, read our introduction here. Check back every week for an updated score!
What Is a Short Squeeze? A Deep Dive Into the Gamestop Saga
In late 2020, crypto markets took off just as retail investors piled into meme stocks, even though there was no tangential connection between the two. Retail traders' risk appetite was at an all-time high, thanks to ultra-low interest rates and a Covid Stimulus program that injected $5 trillion into the US economy.
Now, market conditions are vastly different. Inflation is persistent. Interest rates are high. It begs the question: If Roaring Kitty leads another short squeeze against overleveraged hedge funds, will it spark another meme coin frenzy? So far, it hasn't happened.
As the next few weeks unfold, it's worth taking a closer look at how short squeezes work and how the GameStop frenzy transpired in 2020.
Going Short vs. Going Long
In the same way that you can potentially profit when a stock rises in value, you also could profit by betting that a stock will go down in value. Short selling entails borrowing stock from a broker, then selling the borrowed shares with the hope that the price goes down. If the price does drop, you can potentially profit by buying the same shares at a price lower than what you paid initially. In this case, you would return the borrowed shares to your broker — plus interest — and pocket any difference.
For example, if you borrowed 10 shares from your broker at $100 USD per share, then sold them for $1,000 when the share price had dropped to $60, you could buy them back for $600, return them to your broker, and pocket $400 in profit (minus the interest the broker charged).
Though it’s possible to profit by shorting shares that decline in value, if the opposite happens and the shares rise, then you're responsible for covering the difference. So, if you short sell 10 shares at $100 for $1,000 and the price of those shares rises to $140, you’d need to buy back the shares at $1,400, return them to your broker, and lose $400 (plus the interest your broker charged for lending those shares in the first place). When the price of a short-sold stock rises dramatically, you could end up owing far more than your initial investment.
Importantly, when a short position rises in value, you must have enough margin in your account to cover the rising value of the shorted stock — in the example above: $1,400 plus the interest you owe. If you don’t have enough margin in your account, your broker can close out your position, which would result in losing your total initial investment. This is true even if the stock later goes below the price you shorted it at. A short squeeze can happen organically when a stock’s price rises based on market conditions, such as good financial news. It can also happen purposefully, when investors target a heavily shorted stock to drive up its price knowing that short sellers must cover their positions before the stock’s price gets too high.
Take a look back at the original GameStop short squeeze:
Onward and Upward,
Team Gemini
*This material is for informational purposes only and is not (i) an offer, or solicitation of an offer, to invest in, or to buy or sell, any interests or shares, or to participate in any investment or trading strategy, (ii) intended to provide accounting, legal, or tax advice, or investment recommendations, or (iii) an official statement of Gemini. Gemini, its affiliates and its employees do not make any representation or warranty, expressed or implied, as to accuracy or completeness of the information or any other information transmitted or made available. Buying, selling, and trading cryptocurrency involves risks, including the risk of losing all of the invested amount. Recipients should consult their advisors before making any investment decision. Any use, review, retransmission, distribution, or reproduction of these materials, in whole or in part, is strictly prohibited in any form without the express written approval of Gemini.
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