
Bitcoin & Crypto | Monetary Policy & Inflation | US
Bitcoin & Crypto | Monetary Policy & Inflation | US
Crypto markets have tracked lower this week as investors digested the potential of a US debt default as well as comments from the latest FOMC minutes.
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Crypto markets have tracked lower this week as investors digested the potential of a US debt default as well as comments from the latest FOMC minutes. Meanwhile, around $2.3bn (bitcoin) and $1.2bn (ethereum) worth of options issued by Deribit expired this morning with both cryptocurrencies holding their ground (bitcoin: c.$26,400, ethereum: c.$1,800).
Hitting the X-date will not lead to a US default, if the US stays on its debt service payments. Historically, the Treasury planned prioritised debt service payments during previous debt ceiling standoffs, and it is likely to do so this time around.
FOMC minutes revealed the door remains open for future rate increases. Our main takeaways from the minutes are that there has been limited progress on disinflation, lower GDP and employment growth are needed, and more tightening could be needed to bring about the economic slowdown required to ease rates.
Will the Fed hike or pause in June? Strong growth and inflation dynamics since the last FOMC meeting warrant a June rate hike based on economic grounds, supported by a 44% probability according to the latest 30-Day Fed Funds futures pricing. However, FOMC members face the challenge of reconciling tightening credit conditions with weakening credit demand, compounded by uncertainty surrounding the macroeconomic impact of the banking crisis. The ongoing debt ceiling standoff further complicates the situation. Absent a debt-ceiling crisis, we anticipate a June hike, otherwise, we would expect the Fed to pause until the crisis is resolved, and hike thereafter.
This week, all our indices are in the red with our Bitcoin Index down the least (-1.4% WoW) and our DeFi Index down the most (-5.1% WoW).
Our Smart Contract Index remains most correlated to our Bitcoin Index (+81%). Meanwhile, our DeFi and Metaverse indices are correlated +78% and +73% to our Bitcoin Index, respectively. Our Privacy Index is correlated the least (+63%; Chart 3).
Equity correlations rise. Our Bitcoin Index is +52% correlated to the NASDAQ and +40% correlated to the S&P 500, from +49% and +36% last month.Meanwhile, its correlation to 10Y yields (+33%, last month: +3%) also increased. Elsewhere its correlation to gold (-7%, last month: +42%) flipped to negative, while its correlation to oil (+7%, last month: -24%) flipped to positive.
Here are the indices in more detail:
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