Good Morning. The DX is up 30. Bonds are flat. Stocks are down between 30 and 60 bps. Gold is up $1.00. Silver is down 3c. Oil is down 35c. Grains are weak down between 1.3 and 2.3%. Crypto is weak after yesterday’s selloff: down 40bps. Tomorrow is CPI
The last 5 days have seen a marked uptick in Crypto analysis. We don’t know what the motivation is yet, and do not think the reports themselves moved BTC lower, but their existence is not a coincidence. Compared to Gold, which has a lot of this type behavior, BTC and ETH can be much fuzzier. Less regulation, new product, nations positioning themselves as lovers or haters…..make markets react in ways seemingly contradictory.
Morgan Stanley Likes CBDC
Morgan Stanley wrote about CBDC for Payments last week.From Crypto is Out, CBDCs are In:
Consumers aren't widely using crypto for payments as fees are high and merchant acceptance low.
The prospect of crypto being a competitor payment network caused central banks to start work on digital currencies (CBDCs), cross border transactions and faster settlement (e.g. FedNow).
And yet CBDC uses various crypto backbones…..
Goldman Likes ETH.. But Also BTC?
Goldman came out today (more at bottom) saying they like BTC’s transactional growth, commenting the asset is more than a Store of Value now.
Bitcoin ecosystem is seeing renewed growth, signaling departure from pure ‘store of value’ thesis. Bitcoin blockchain settles historical transactional volume on the back of market interest in Ordinal Inscriptions. Further growth of Bitcoin as a settlement layer is expected with industry push for layer-2s
The Bank also noted: The Bitcoin network achieved an all-time high in single-day transaction count, settling 685,711 transactions on 1 May. This was significantly higher than its previous historical peak of 498,142 transactions in Dec’17 (Figure 1 above).
One potential driver of ETH's regained popularity is its appeal as a deflationary asset, a topic Goldman's Crypto desk recently explained:
Ether, as an asset, is the fuel powering and securing the Ethereum protocol.
To use the Ethereum network, users pay fees in ETH to execute transactions and use applications built on Ethereum.
That report goes on to add: In return, this fee and staking rewards (denominated in ETH) incentivize validators to secure the network. ETH’s value is a function of multiple factors, depending on one’s view of ETH as an asset – a store of value, means of exchange or a financial asset.
FedNow Launch, so buy Ethereum?
None of what the Banks report above is new. What is new is the banks talking about it months before the FedNow Pilot launch. There is focus on the asset class in recent weeks. It is also relevant in context that some CBDCs are using already existing Blockchain assets for backbones.
Traders currently report BTC selling and mixed but net buying ETH activity But- and this is key- it is*not* predictive for price activity the day after the launchTwo things identified right now are:
Weaker long bank clients are selling all crypto due to the FedNow Launch to get out, or perhaps to buy it back after everyone else pukes
Some clients are selling BTC and buying ETH.
Israel, for example just announced their digital Shekel (SHAKED) is ready for launch. It is important to note this is after testing it since 2021 using an Ethereum backbone. Who knows what is next, but the front-runner on the next news item is ..some big CBDC type announcement may cause crypto volatility related to Fed Now pilot program launch.
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