Week Ahead: Cryptocurrencies weakness continued as higher than expected US inflation triggered risk aversion.
Cryptocurrencies fell as risk appetite dried up following a hotter-than-expected US inflation data. US CPI hit a 40-year high and raised concerns that the Fed will turn even more hawkish and increase policy mistake probabilities that could end up in a recession. The USD attracted safe-haven flows, with gold also up for the week. BTC and ETH had been rangebound most of the week, but Friday’s inflation data put forth the narrative of more Fed rate hikes to tame rising prices and sinking stocks and digital assets. The Fed is expected to lift interest rates by 50 basis points on Wednesday, with some probability of an even more outsized 75 basis points hike.
BTC sell-off attracted new inflows with reports of at least $100M inflows for digital assets last week, most of that going to the most popular cryptocurrency. Reports of a whale purchasing $31.6M in DOGE with other large investors taking positions in the cryptocurrency. The Merge was deployed on Ropsten testnet midweek, with months before PoS is activated as concerns grow on further delays by developers.
US regulation in focus after Senators Kirsten Gillibrand and Cynthia Lummis sponsored a bill to regulate the crypto industry under the CFTC and the SEC. New York issued stablecoin guidance and a new bill to limit crypto miners using fossil-fuel power, but unclear NY Governor will sign the bill. SEC launched an investigation into Terraform labs with a judge calling Do Kwon to comply with the subpoena.
Some firms estimate crypto can gain as much as 10% adoption by 2030. Deloitte published a report showing that 75% of all US retailers want to enable crypto payments in the next two years. Crypto hedge funds up as total AUM rose 8% despite the 24% drop in total crypto market capitalization. Traditional hedge funds are also upping their stake, with more than 38% now invested in crypto assets. Galaxy Digital CEO was pessimistic and said two-thirds of crypto hedge funds could fail.
Citadel, Virtu Financial, Fidelity, and Charles Schwab are teaming up for a cryptocurrency trading platform to launch later this year or early 2023. Cathay Innovations and Ledged to launch a $110M fund to invest in Series A companies in the crypto space.