Weekly Crypto Wrap: 27th April 2023

TLDR

• Australian inflation figures cool off, coming in at 7%.
• Standard Chartered predicts Bitcoin could reach US$100k by 2024.
• Visa eyes plans for Ethereum-based stablecoins.
• Coinbase's battle with SEC may benefit Ripple.
• EU Parliament passes world's first comprehensive crypto regs.
• Crypto sector could double revenue in 2023.

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The week ahead

April 27th: The United States GDP Growth Rate report will be released.

April 28th: The United States will release several reports including the monthly Core PCE Price Index, Personal Income, and Personal Spending data. The Bank of Japan will also announce its Interest Rate Decision, while France, Germany, Italy, and the Euro Area will release their GDP and Inflation Rate reports.

April 30th: China will release its NBS Manufacturing PMI.

May 1st: Japan's Consumer Confidence report is due out.

May 2nd: The United States will release its ISM Purchasing Managers Index (PMI) while Australia, Euro Area, and Italy will release their respective Interest Rate and Inflation Rate data.

May 3rd: The United States will release its Job Openings report, and the Euro Area will release its Unemployment Rate.

May 4th: The United States will release its ISM Non-Manufacturing PMI and announce its Fed Funds Rate decision. Australia will also release its Balance of Trade data, while China's Caixin Manufacturing PMI will be announced.

Economic Calendar (tradingeconomics.com)

Market reflections

Australia

The latest inflation figures released by the Australian Bureau of Statistics (ABS) showed a slowdown in the pace of price growth in the March quarter. Australia's inflation rate dropped from 7.8% in the previous quarter to 7%, aligning with the analysis made by professional economists and the Reserve Bank of Australia (RBA) suggesting that Australia's inflation outbreak may have reached its peak.

While inflation has slowed in some parts of the consumer price index (CPI) basket, price pressures remain elevated in other key components. This includes the cost of renting a home, which is the second-largest item in the CPI basket. The acute shortage of properties has pushed rents 4.9% higher over the year - the fastest pace of rent inflation in more than a decade. Outside of Sydney and Melbourne, rents have surged by 6.5% over the past year, with further increases expected thanks in part to a strong increase in overseas migration.

The RBA's preferred measure of underlying inflation slowed to 6.6% which was slightly softer than expectations of 6.7%. Inflation in the cost of building a new dwelling, the largest item in the CPI basket, slowed to 13%, down from a peak of 21% last year, thanks to an easing in material cost pressures and softening demand. The slowdown in the housing market is expected to continue as the Reserve Bank's tightening cycle continues to take effect.

The RBA started hiking interest rates in May last year to bring down rising inflation, but it decided to hold steady at 3.6% last month. RBA Governor Philip Lowe has previously said the March quarter CPI will play a decisive role in determining whether the central bank's decision to keep rates on hold at 3.6% this month is repeated at the May 2nd board meeting.

Markets are forecasting a 25% chance of a 0.25 percentage point increase in the cash rate next month. The odds of a rate rise increased last week after the central bank revealed that it considered an 11th consecutive increase at its April meeting. The RBA's February economic forecasts show the central bank expects headline inflation to slow to 4.8% by the end of the year and to 3% by mid-2025, as the impact of higher energy prices dissipates and supply chain disruptions ease. However, the bank also warned that it could raise interest rates earlier than expected if inflationary pressures persist.

Global

US stock markets declined early in the week, led by Nasdaq, in anticipation of earnings reports from big tech companies like Alphabet and Microsoft. Despite this, US first quarter earnings season was in line with expectations, according to UBS. The banking sector was also impacted, with First Republic Bank and Credit Suisse reporting losses. European banks, including Deutsche Bank and Barclays, also experienced selloffs. Housing and consumer confidence data showed a decrease, and bond yields fell, while new orders for US durable goods increased in March, led by transportation equipment and orders for non-defence capital goods decreased slightly.

Consumer confidence in the UK exceeded market expectations in April 2023, attributed to households' positive views on finances and the economy, according to Joe Staton of GfK. However, the figure remained below zero, indicating an overall decline in confidence due to the cost-of-living crisis and rising interest rates. Despite this, the UK economy is expected to avoid recession, but double-digit inflation is a concern. Retail sales in the UK dropped in March 2023, particularly for non-food stores due to poor weather conditions.

Germany's Ifo Business Climate indicator increased in April 2023, marking the sixth consecutive rise, but slightly below market expectations, indicating a lack of momentum in the largest European economy. GfK Consumer Climate Indicator has also risen for seven consecutive months, attributed to increasing income and economic expectations, and higher propensity to buy, but remains below pre-pandemic levels. Whilst Japan's annual inflation rate edged down to 3.2% in March 2023, with transport costs rising the least in six months.

State of crypto

According to Standard Chartered, Bitcoin could reach US$100,000 by the end of 2024 due to several factors including recent turmoil in the banking sector, improved profitability of crypto mining, and a stabilisation of risk assets as the US Federal Reserve ends its interest rate-hiking cycle.

During the last trading week, the market experienced a correction across all assets. Bitcoin saw an 8.96% drop and ended the week at US$27,590, while Ethereum lost 12.11% and closed at US$1,862. XRP also suffered a loss of 10.79%, closing at US$0.4647. Cardano lost 13.89% and ended the week at $0.3886, while Litecoin lost 13.26% and closed at US$86.75.

Looking at the year-to-date performance, Bitcoin is up by 75.42% and currently trading at US$29,012. Cardano has gained 65.87% and is currently trading at US$0.4077. Ethereum is not far behind with a gain of 59.27% on the year, trading at US$1,902. XRP is holding strong, up by 36.44% on the year and currently trading at US$0.4625, while Litecoin has gained 26.99%, trading at US$89.04.

Bitcoin's market capitalisation increased by 0.27% during the last trading week, and its dominance is currently at 48.27%. However, the cryptocurrency market capitalisation lost the previous week's gains, losing 9.22% and currently valued at US$1.162 trillion.

(*source: Trading view, as of 27/04/2023 10:00am AEST).

Alt action

US mutual fund transacts on the Stellar blockchain.

Franklin Templeton, a global investment management organisation, announced that its Franklin OnChain U.S. Government Money Fund is now on the Stellar Blockchain. This makes it the first US-registered mutual fund to use a public blockchain to process transactions and record share ownership through the Stellar blockchain network. The Fund has currently surpassed $270 million in assets under management.

Roger Bayston, Head of Digital Assets at Franklin Templeton, believes that blockchain technology can lower operational costs and provide greater transparency in the financial world. He highlights that this Fund demonstrates the potential for increased interoperability in the financial system by integrating blockchain technology with traditional financial institutions.

Denelle Dixon, CEO and Executive Director of the Stellar Development Foundation (SDF) also commented that Stellar is built and optimised for asset tokenisation, and the Franklin Fund exemplifies the blockchain’s usability. SDF has also invested a multi-million-dollar sum in the Fund, recognising the functions and potential applications for the tokens in the digital ecosystem.

Franklin Templeton has been expanding its services since its inception, offering services to clients in over 155 countries with $1.4 trillion in assets under management as of March 31, 2023

At the time of writing, XLM was at trading at US$0.093.

Trade XLM now on BTC Markets

The Big 3

Understanding Bitcoin’s Lightning Network.

The Lightning Network is a layer-2 solution on the Bitcoin blockchain that enables instant, high-volume micropayments without the need for trusted intermediaries. It acts as its own ledger for users to pay for smaller goods and services and eliminates the drawbacks of the decentralised design of Bitcoin, such as slow confirmation times and high fees. This makes it ideal for retail point-of-sale transactions and device-to-device payments.

To create a payment channel, the payer must lock a certain amount of Bitcoin onto the network, and the recipient can invoice amounts of it as they see fit. By using a Lightning Network channel, both parties can transact with each other, and transactions are substantially faster than on the main blockchain, as all transactions on the layer-2 protocol do not need to be approved by all nodes.

The Lightning Network uses Bitcoin's built-in scripting to create a multi-party smart contract that allows for instant payments without block confirmations. This enables micropayments without custodial risk, making payments as low as 0.00000001 Bitcoin possible. The network is scalable and allows for unlimited transactions between devices without delegating trust and ownership. Payment speed is measured in milliseconds to seconds, and scalability is capable of millions to billions of transactions per second across the network.

The origins of the Lightning Network go back to February 2015 when Joseph Poon and Tadge Dryja began decreasing the transaction fees by taking cues from Satoshi Nakamoto's writings on payment channels. Within a couple of years, Lightning Labs released a beta version for developers to test, which attracted big names in the tech industry. In 2020, Lightning Labs saw marquee releases and the ecosystem now boasts an array of products, projects, solutions and experiments across verticals and functionality.

Trade BTC now on BTC Markets

Visa eyes plans for Ethereum-based crypto product.

Visa, the global payment giant, is exploring the benefits of the cryptocurrency industry with a new initiative focused on stablecoin payments. Cuy Sheffield, head of crypto at Visa, took to Twitter on April 25 to announce a new cryptocurrency-related project developed by the firm, designed to drive mainstream adoption of public blockchain networks and stablecoin payments.

Visa's interest in cryptocurrency is not new. In 2020, the company partnered with blockchain firm Circle to support the USD stablecoin on certain credit cards. Since then, Visa has been gradually expanding its cryptocurrency offerings.

The company's latest crypto product is aimed at facilitating the digital commerce of everyday life. To develop the product, Visa is looking to hire software engineers focused on programming, backend systems Web3 technologies. Specifically, Visa is looking for applicants with experience using Github Copilot and other AI assisted engineering tools to write and debug smart contracts.

The use of stablecoins for payments has the potential to revolutionise the way we conduct transactions, providing faster, cheaper, and more efficient ways of sending money. By harnessing the power of blockchain technology, Visa's upcoming crypto product aims to make stablecoin payments more accessible and user-friendly.

As one of the world's largest payments companies, Visa's move into the cryptocurrency industry is significant. It underscores the growing interest and adoption of cryptocurrencies and the potential they hold for the future of finance. With the continued development of blockchain technology and the increasing adoption of stablecoins, it is likely that we will see more traditional financial institutions following Visa's lead and embracing the world of cryptocurrencies.

Trade ETH now on BTC Markets

Coinbase's battle with SEC may benefit Ripple.

Coinbase has initiated legal action against the US Securities and Exchange Commission (SEC) by filing a lawsuit in the US Circuit Court. This lawsuit could have significant implications for the ongoing legal battle between Ripple and the SEC. The lawsuit relates to a petition submitted by Coinbase in July 2022, in which the exchange requested the SEC to provide guidance for the crypto industry through its formal rulemaking process.

Coinbase's lawsuit seeks to compel the SEC to respond to the petition with a "yes" or "no" as the SEC's lack of response deprives Coinbase of the opportunity for judicial review. If the SEC responds negatively, Coinbase can challenge the decision in court, but if it does not respond at all, then the public cannot exercise its right to challenge the agency's decision in court.

This legal action by Coinbase may also bring regulatory clarity to the crypto industry. Additionally, it could have a direct impact on Ripple's legal battle against the SEC. Attorney Bill Morgan argues that Coinbase and Ripple both relied on the Hinman speech, which made a ruling for the second-largest cryptocurrency, Ether (ETH). However, the SEC argues that the speech was about the personal views of the former department head and was not an official SEC statement.

Coinbase's lawsuit against the SEC is the second Writ of Mandamus filed in relation to crypto, according to XRP's community attorney, John E. Deaton. He noted that he filed the first Writ of Mandamus when he sued the SEC, asking a judge to order the SEC to do its job and amend the Ripple Complaint to include only direct sales by Ripple.

At the time of writing, the XRP price was at $0.4627.

Trade XRP now on BTC Markets!

Crypto news

Crypto sector could double revenue in 2023.

Market data provider Statista has revealed that the crypto industry revenue is expected to more than double in both the UK and US in 2023. According to the firm, the UK is predicted to grow its crypto revenue by 125%, while the US is projected to be the region with the highest crypto-driven revenue in 2023, with an expected $17.96 billion, up by 108% from 2022.

Globally, Statista predicts that the number of crypto users will reach 994.30 million by 2027. The growth is expected to come after the first-ever down year for crypto revenue expansion. Despite the optimism, regulatory pressures in the US may threaten the industry's future in the region, as the rules are currently unclear. Lawmakers and federal agencies are split on issues that impact the sector, such as how crypto tokens should be classified, how stablecoins should be treated, and what know-your-customer and anti-money laundering rules exchanges should follow.

In an interview with Blockworks, Ripple's Chief Legal Officer, Stuart Alderoty, advised against launching a crypto project in the US, urging firms to go to jurisdictions where the rules are clear. Subcommittee on Digital Assets Chair Rep. French Hill also expressed his concerns during a House hearing, stating that the ongoing turf war between the SEC and the CFTC over digital assets is unhelpful and unsustainable.

Regulation roundup

EU Parliament approves world's first crypto regulations.

The European Parliament has overwhelmingly approved the world's first comprehensive set of regulations for crypto assets, such as Bitcoin. This regulation will give the EU a competitive advantage as it brings regulatory clarity to the crypto-asset industry. The rules will be rolled out from mid-2024 and will require firms that issue and trade crypto assets to be licensed by a national regulator. This license will give them a "passport" to serve customers across the 27-member country block.

Additionally, major service providers will have to disclose their energy consumption, and there will be new rules for tracing transfers of crypto assets. The tracing rule applies the international "travel rule" used in traditional financial transactions, which means information on the source and recipient of the crypto asset will have to accompany and be stored on both sides of the transfer to help combat money laundering. This tracing rule also applies to transactions above 1,000 euros from the "self-hosted" wallet or crypto address of a private user.

The EU's financial services chief, Mairead McGuinness, hopes that these rules could become a model for other countries. This move is a significant step towards the regulation of the crypto market, providing clarity for investors and consumers and promoting transparency in the industry.

Scam watch

The provider withholds earnings ‘for tax purposes.’

The Australian Securities and Investments Commission (ASIC) has published a list of the top ten signs that indicate a potential cryptocurrency scam. Last week we talked about unknown tokens suddenly appearing in your digital wallet. This week, we look at what happens when a provider withholds investment earnings ‘for tax purposes.’

Individuals are enticed to invest in high-yield programs or other investment opportunities that offer above-average returns. The provider typically informs the investor that they need to withhold a portion of the earnings for tax purposes. The provider may claim that they will release the earnings once the taxes have been paid or that they will pay the taxes on the investor’s behalf. They may provide fake documentation, such as a tax invoice or a fake tax identification number, to appear legitimate.

The provider has no intention of paying any taxes and is simply keeping the earnings for themselves. They may continue to provide excuses as to why the earnings cannot be released, such as additional tax assessments or legal issues.

To avoid falling victim, it is important to thoroughly research any investment opportunity. Look for reviews and testimonials from other investors and check the credentials of the provider.

Additionally, be cautious of any provider that requires you to pay taxes directly to them or withholds earnings for tax purposes. By being vigilant and doing your research, you can avoid falling victim to this scam and other investment scams.

To learn more, visit ASIC’s website.

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Prices are accurate as of 10:00 AM AEST, on 27/04/2023.