Weekly Pulse #13: May 27th – June 2nd

Mark Vermeulen, 4 min read
Last Updated: 3 June, 2024

Crypto Market Overview

Grayscale’s Ethereum Outlook

Grayscale recently released a research report providing valuable insights into the current state of Ethereum. One interesting note is Grayscale’s lack of full confidence around the approval of an Ethereum ETF, suggesting potential price upside if/when full regulatory approval is achieved.

In the “Potential U.S. Spot Ethereum ETF Implications” section, Grayscale said: “While we have seen progress toward full regulatory approval of U.S. spot Ethereum ETFs, issuers still require their registration statements to be reviewed by the SEC’s Division of Corporation Finance and be declared effective. A full approval and the initiation of trading of these products could result in new demand, as the asset becomes available to a wider range of investors.”

Key highlights from the report include:

  • Grayscale expects U.S. spot Ethereum ETFs to see 25-30% of the demand of Bitcoin ETFs based on international precedent. Significant portions of Ethereum supply (e.g. staked ETH) will not likely be available to purchase for the ETFs.
  • Grayscale estimates $3.5-$4 billion in net inflows into U.S. spot Ethereum ETFs over the first 4 months, which is 25-30% of the $13.7 billion in net inflows into Bitcoin ETFs since January.
  • Ethereum ETFs could introduce smart contracts and decentralized applications to more mainstream investors, potentially accelerating public blockchain adoption.
  • Around 17% of ETH supply can be considered idle or illiquid. This portion will not likely be available for purchase by the ETFs.

Biden Vetoes Crypto Accounting Bill

President Biden vetoed a bill to overturn an SEC bulletin on crypto accounting standards for custodial firms. Biden stated that appropriate consumer and investor protections are necessary to realize the potential of crypto innovation.

This is not the first time Biden has vetoed bipartisan legislation. For example, he previously vetoed a joint employer rule that had passed Congress with bipartisan support.

The controversial SEC bulletin requires crypto custodial firms to record customer assets as liabilities. The crypto industry argues this could deter banks from safeguarding digital assets. However, the SEC defends the guidance as non-binding measures to strengthen investor disclosures and transparency around crypto custodians’ risks.

An SEC spokesperson stated: “Time and again, we have seen crypto firms fail and watched as their customers lined up at the bankruptcy court in hopes of getting what they thought was legally theirs. We’ve also seen the risks to investors in firms that safeguard these assets when they are hidden off balance sheet. These disclosures provide investors important line of sight into the level of risk taken by crypto custodians.”

The veto highlights the Biden administration’s cautious approach to crypto regulation amid calls for greater consumer protections. While the bipartisan vote signals desire for light-touch policies, Biden believes appropriate oversight is still needed to realize crypto’s potential while safeguarding financial stability.

Robinhood Expands Crypto Offering

Robinhood’s crypto platform is cementing itself as a major industry player. The trading app generated $126 million in crypto revenue last quarter – 20% of total revenue. Crypto also enables larger returns than equities.

Robinhood launched a Crypto API for U.S. customers to automate trading. The tool provides market data access, portfolio management, and automated order placement. Sophisticated traders can now execute advanced strategies and custom programs without the Robinhood app.

Legacy Market Overview

This week focused on a potential European Central Bank (ECB) rate cut and key economic releases like US payrolls and China PMIs. Earnings remained quiet aside from CrowdStrike, Lululemon, Hewlett Packard, and Dollar Tree.

Electric Vehicle Spotlight

Chinese electric vehicle (EV) maker NIO posted a 234% year-over-year jump in May deliveries to 20,544 vehicles. This significantly outpaced rivals XPeng (35% growth) and Li Auto (24% growth). NIO deliveries included 12,164 premium SUVs and 8,380 sedans. In contrast, XPeng’s year-to-date deliveries totaled 41,360 vehicles, while Li Auto reached 774,571 units.

Michael Dell Wealth Drop

Michael Dell’s fortune saw its largest single-day decline after Dell Technologies missed earnings expectations. His wealth dropped $11.7 billion to $107.1 billion as shares plunged 18%. While Dell reported its first revenue increase in two years, results failed to satisfy high hopes for its AI server segment.

Top Market Movers

Google’s cloud unit laid off employees across teams, affecting about 100 in the Asia-Pacific “Go To Market” group to align with opportunities. Alphabet shares dipped 1.1%.

Despite a post-earnings skid, analysts remain bullish on Dell’s promising AI growth. They recommend buying the dip.

Costco discussed potential membership fee hikes, store expansions, and a successful Uber partnership during its earnings call. It highlighted sales strength across sectors.

Shares of Trump Media & Technology Group, Truth Social’s parent, fell 5% Friday amid former President Donald Trump’s conviction.

Economic Indicators

US 2-, 10-, and 30-year yields saw their steepest monthly drops since December after April’s PCE data signaled slowing core inflation. The 2-year fell 15.2 basis points to 4.891%, the 10-year dropped 17.1 basis points to 4.512%, and the 30-year decreased 13.7 basis points to 4.652%.

US stocks climbed Friday, with the S&P 500 reversing losses just before closing. Despite a weekly decline, May saw gains across indexes, with the S&P 500 up 4.8%, the Nasdaq rising 6.9%, and the Dow increasing 2.3%.

The US dollar dropped Friday, posting its first monthly dip this year after April inflation met expectations, muddying Fed rate outlooks.

Amid weakening US gas demand, OPEC+ may extend supply cuts. Falling demand and high refinery outputs drove inventory builds, supporting prolonged cuts.

Looking Ahead

Key earnings reports this week include Lululemon, Dollar Tree, and solar firm SunPower.

May’s jobs report precedes the Fed meeting, making it pivotal. Despite cooling labor markets, strong job growth could maintain high rates. Economists expect 185,000 jobs added, 3.9% unemployment, and 3.9% wage growth. Healthcare, public sector, and wage growth may strengthen. BNP Paribas suggests recent slowdowns could be overstated. The Fed will scrutinize the data.

CrowdStrike will discuss its recent AWS partnership’s impact during its Tuesday earnings call.

Dollar Tree’s Wednesday earnings are expected to highlight growth driven by consumables, following strong Dollar General results.

Mark Vermeulen

A native of the Netherlands with a degree in finance, Mark has emerged as an avid crypto enthusiast and expert. His dedication to blockchain technology and bitcoin adoption has made him the driving force behind the Dutch content of Ecoinomy. Mark's adventure began during college, where his passion for decentralized finance quickly caught his eye. His ability to simplify complex concepts around crypto has earned him prestige among Dutch investors and far beyond.