Weekly Pulse #19: July 8th – 14th

The Week for Crypto

Trump’s Republican Party Adopts Pro-Crypto Stances

This week brought major developments regarding the Republican party’s embrace of cryptocurrencies. Notably, former President Donald Trump announced he will speak at the upcoming Bitcoin 2024 Conference in Nashville for 30 minutes on the event’s final day.

The Republican National Committee formally adopted Trump’s pro-crypto platform as the party’s official position. This endorsement encompasses opposition to central bank digital currencies (CBDCs), support for Bitcoin mining, and protecting rights for self-custody of crypto assets. With Trump addressing Bitcoin 2024 and the party rallying behind his crypto-friendly views, the past week marked a significant political win for the digital asset industry.

Germany Liquidates National Bitcoin Reserves

In a move that removed heavy selling pressure from the market, the German government liquidated the last of its national Bitcoin reserves this past week. Over the previous seven days, Germany sold 42,000 BTC through major exchanges like Coinbase, Kraken, and Bitstamp. They also offloaded holdings to institutional trading firms such as Flow Traders and B2C2 Group.

With Germany concluding its BTC sell-off, a major source of downward price action has subsided. This development, combined with the Federal Reserve weighing interest rate cuts and FTX’s ongoing creditor repayments, has sparked glimmers of optimism. However, the shadow of potential sales still looms, whether from Mt. Gox creditors or other parties. Assessing the impact of these impending inflows will be critical in the months ahead.

SEC Backs Down in Paxos and Stacks Probes

In a rare regulatory reversal, the SEC concluded investigations into two major crypto companies without taking enforcement action. Specifically, the agency declined to bring charges against Paxos for issuing Binance USD (BUSD) and was unable to prove that the Stacks (STX) token still constitutes a security.

The Paxos decision marks a major boon for stablecoins, as regulators chose not to punish one of the sector’s largest issuers. Meanwhile, the SEC’s apparent defeat in the Stacks case could influence future token classifications if decentralization efforts sway the security designation. For an agency accustomed to handing out heavy penalties, this past week was a major setback.

USDC Volume Surges 155% in EU After MiCA Compliance

As Circle became the first stablecoin issuer to achieve regulatory approval under the EU’s Market in Crypto-Assets (MiCA) framework, USDC saw its European trading volume skyrocket 155% year-over-year. The company earned registration as an electronic money institution (EMI) in France, making USDC and Euro Coin fully compliant across the region.

According to Kaiko Research, “USDC saw its weekly trading volume surge to $23 billion” in 2024, up from $9 billion in 2023. Consequently, “USDC’s market share recently reached a record high, nearing FDUSD’s 14%.” While non-compliant stablecoins still dominate with 88% market share, Circle’s MiCA compliance dramatically strengthened USDC’s footing in Europe. If regulators crack down on unapproved offerings, USDC could be poised for massive EU growth.

The Week for Legacy Markets

Markets Rebound on CPI Data, Rotation into Value Stocks

Major U.S. stock indexes rebounded last week after consumer price index (CPI) data showed a slight cooling in inflation. The rally was led by small-cap and value stocks, while tech stocks lagged. Investors are rotating out of expensive growth stocks and into more reasonably valued cyclical sectors in anticipation of slower inflation and an economic slowdown.

Earnings Season Kicks Off with Big Banks

Second-quarter earnings season is kicking into high gear this week with reports from several major banks including JPMorgan Chase, Wells Fargo, and Citigroup. Earnings from the financial sector will provide critical insights into the health of consumers and businesses as higher interest rates and inflation take their toll. Investors will be listening closely to executives’ commentary around lending activity, credit quality, and outlook for the economy.

Assassination Attempt on Trump Rocks Politics

An assassination attempt on former President Donald Trump at a campaign event in Pennsylvania dominated headlines over the weekend. The failed attack led to a rally in prediction market odds for a Trump reelection in 2024. Stocks are likely to initially benefit if polls continue to show Trump gaining momentum, as his administration favored low capital gains taxes, domestic energy production, and defense spending. However, volatility may rise given the unprecedented nature of the event.

Bitcoin Surges Past $60K on Macro Tailwinds

Bitcoin regained the psychologically important $60,000 level last week thanks to broader risk asset tailwinds. The inflation data stoked hopes of a less aggressive Fed, while the Trump assassination attempt raised the prospect of crypto-friendly policies if Republicans return to power. Other digital assets like Ethereum rode Bitcoin’s coattails higher, continuing the recent momentum in the crypto sector.

Oil Prices Climb on Stronger Demand

Oil prices rallied for a third consecutive week as falling gasoline inventories and resilient economic data suggest energy demand remains robust despite recessionary fears. Brent crude is approaching $100 per barrel, which could add to inflationary pressures. However, if prices rise too quickly, it may accelerate demand destruction globally. The oil market remains caught between fears of a slowdown and still-tight supply/demand fundamentals.

Is Value Rotation the Real Deal?

Last week’s powerful value stock breakout begs the question of whether this is a false start or the early stages of a longer-term trend reversal. Previous rotations out of mega-cap tech fizzled out rapidly. However, many Wall Street strategists believe this time may be different if the economy tips into recession. Value and small-cap stocks tend to be more resilient in downturns given their lower valuations and leverage. The strength of the move also caught many investors offsides, which could fuel a short-squeeze.

Upcoming Events

• Eurozone CPI data and ECB rate decision (Thursday)
• U.S. retail sales, industrial production (Tuesday)
• U.S. building permits, housing starts (Wednesday)
• Bank of America, Goldman Sachs, Tesla earnings (Monday-Wednesday)

With last week’s fireworks, all eyes will remain on market volatility, the growth/value rotation, crypto price action and political developments. Earnings warnings could also ignite the next leg in the ongoing bear market rally or reversal.