Weekly Market Update - Friday, June 2, 2023

Takeaways

• Debt Ceiling: An agreement to raise the U.S. debt ceiling passed the U.S. House and Senate this week. President Biden is expected to sign the bill into law, ending the impasse that has weighed on investors over the past month.
• Interest Rates: Further interest rate hike expectations have shifted once again as a Fed governor suggested more hikes could be on the horizon. Nevertheless, investors expect the Fed to keep rates steady at its next meeting in two weeks.
• Hong Kong: Hong Kong announced it would begin accepting applications for crypto exchanges and trading platforms for retail customers, ending restrictions in place since 2018.
• BTC and ETH: Bitcoin (BTC) and ether (ETH) prices continued to trade within their recent ranges after seeing a bump following positive news out of the debt ceiling negotiations.
• Optimism and Multichain: Optimism (OP) token prices notably slid this week after a token unlock, and Multichain (MULTI)’s issues persisted with the company tweeting that employees were unable to contact their CEO.

U.S. Debt Ceiling Agreement Heads to President Biden’s Desk

The U.S. debt ceiling debate, which has been clouding markets for the past month, appears to be drawing to a close. Reports emerged over the weekend that a deal had been reached between the Biden Administration and Congressional Republicans, which helped push equities higher as the markets opened again on Tuesday following the long Memorial Day weekend.

By Thursday evening, the U.S. House and Senate approved a bill that would raise the debt ceiling for more than two years. The bill now moves to President Biden’s desk for his signature and will allow the U.S. Treasury to continue servicing its debts.

Interest Rate Hike Expectations Creep Up Again

With the next meeting of the U.S. Federal Reserve fast approaching, the market expectations around rate hikes fluctuated throughout the week. Current expectations are that the Fed will pause interest rate hikes at the June meeting, but future rate hikes could resume later this year.

Earlier in the week, odds briefly rose for another 25 bps hike coming on June 14th, the next Federal Open Market Committee (FOMC) meeting.

However, comments on Wednesday from Federal Reserve Governor Philip Jefferson and Philadelphia Federal Reserve President Patrick Harker suggested a rate pause at the next FOMC meeting, resulting in equities climbing slightly higher on Thursday morning. Jefferson did note that a pause at the next meeting does not mean that we have reached the peak rate for this cycle.

A very strong jobs report released Friday, and consumer price index (CPI) data on June 13th could play an important role in future rate decisions.

BTC and ETH Fail to Muster Momentum

Bitcoin (BTC) price rallied from the bottom of its short-term range to over $28k USD at the start of the week on positive news relating to the debt ceiling deal. The rally was short-lived as BTC slid lower throughout the week back to the $27k USD level, which has acted as a key level of support over the past few months.

Ether (ETH) has managed to push higher from its $1,800 USD support level, reaching a high of above $1,900 before consolidating around the $1,860 USD level. Similar to previous weeks, ETH has shown greater strength in comparison to BTC with the ETHBTC pair now trading near 0.070, up from 0.064 a month earlier.

Liquidity and activity on centralized exchanges continue to fall as the month of May brought the lowest monthly spot exchange volumes in the past 12 months. The total volume across exchanges has fallen from ~$1.4t USD in May last year to ~$440b USD this May.

Hong Kong Accepting Applications for Retail Crypto Trading

On Thursday, Hong Kong announced it would accept applications for crypto exchanges and trading platforms for retail customers, curbing restrictions in place since 2018. Since 2018, only institutional investors and other professionals have been permitted to trade crypto. The regulations could allow retail trading as soon as the second half of this year.

Some observers have pointed to the relaxing of Hong Kong's regulations as a potential precursor to a more crypto-friendly regulatory framework in mainland China, which would open up access to crypto for the world’s second largest economy.

Optimism (OP) Slides Following Token Unlock

Optimism (OP) has seen a notable price decline this week, sliding ~12%. The Ethereum scaling protocol executed a planned token unlock on Wednesday, which resulted in around 386 million OP tokens being released.

This represents the first unlock for core contributors and investors and is a relatively large proportion of the total supply at 9%, worth ~$550m USD at current prices. Some investors may have taken profit given the price appreciation of OP since its launch, driven higher earlier this year by the announcement that Coinbase will use Optimism’s technology.

OP price is currently trading at ~$1.43 USD, down over 50% from its peak back in February when it traded ~$3.28 USD. In other Optimism-related news, the protocol is scheduled to complete its Bedrock upgrade on June 6, offering reduced transaction fees, greater network security, and better compatibility with Ethereum.

Multichain’s Issues Persist

Last week saw cross-chain protocol Multichain (MULTI) encounter a number of issues including backend upgrade problems and unavailable cross-chain routes.

The problems for Multichain have persisted this week with the team tweeting that they had experienced more issues and are unable to contact their CEO Zhaojun. This has caused major problems as team members appear to not have the required permissions or ability to access the necessary servers for maintenance, resulting in some cross-chain services being suspended. The price of MULTI is currently down ~50% over the last 14 days.

-From the Gemini Trading Desk