Connecting the Dots

Episode 34 - Sticking to the Script

Welcome to the new subscribers that have joined us over the last week.  The aim of this newsletter is to help you navigate the world of crypto. There’s an incredible amount of information out there so we try to distil it into the things you MUST know this week. 

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Onto the newsletter.  Here’s what you’re getting this week:

Macro Update: Fed and ECB in line but a small surprise from the BOJ. China still the one to watch.
Crypto Native News:  Worldcoin is launched, Crypto.com receives its Dutch regulatory license and Binance/CZ requests the dismissal of CFTC lawsuit.
Institutional News: A new framework for crypto regulation is passed through the US House of Representatives, CME bitcoin and ether futures see record participation, the Bank of Italy dips its feet into DeFi and tokenised assets.
Chart of the Week: Bitcoin and Ethereum vol hovering near 2 year lows.
Top Jobs in Crypto: Featuring Coinbase, Alphachain Traders, Quant Capital, Ripple and Binance.

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Want to be a guest writer for London Crypto Club ?

To help educate our readers further, were looking for people to write a guest slot on specific topics. If you have an idea and you would like to be featured in an upcoming episode of this newsletter, please reply to this email with your suggestion. I’m thinking crypto market microstructure, data analytics, DeFi, etc but totally open to suggestions. Thanks.

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Macro Update

This is where we connect the dots between macro and crypto.

Sticking to the Script

Big week for Macro with the Fed, ECB and BoJ all starring.

The Fed and ECB stuck to the script, delivering the expected 25bps of hikes and maintaining a data dependent stance for future hikes. With the European data rapidly declining, the ECB increasingly looks “one and done” whilst Powell’s characterisation of current policy as being “restrictive” see’s the market pricing a less than 20% chance of a Sep hike.

The biggest “surprise” came from the BoJ who made a somewhat confusing tweak to the YCC policy, describing the current 0.5% yield cap now as a reference point rather than a rigid limit, with a firm cap and unlimited bond buying at 1% with flexibility in between. The accompanying language was also dovish, with inflation projections for 2024 revised lower and the move from the BoJ was less hawkish than feared after the Nikkei news leaked the coming change to YCC.

Little then, to really interrupt the on-going stock market rally as markets position for the end of the global hike cycle and inflation continues its move lower. Indeed, the Fed’s preferred inflation measure, core PCE slowed from 4.6% to 4.1% in June (cooler than the 4.2% expected) whilst headline PCE fell back to 3% from 3.8% prior.

Elsewhere, as China battles a slowing, deflationary economy, leaders at the Politburo meeting pledged to step up policy support, with a focus on boosting domestic demand and signalling more stimulus steps. The meeting statement also omitted the phrase “housing is for living not for speculating” suggesting more forceful measures to stabilize the housing market lie ahead. President Xi also made comments in a separate meeting “urging” China to meet annual economic targets. Local governments are also rushing once again to build rapport with Big Tech as it hopes the “platform economy” can help deliver jobs and growth.

USDCNH might be the biggest macro input to watch over the coming weeks. If the currency can stabilize and even strengthen on expected fiscal measures, with capital returning, suspicions that China is sitting on BTC to warn off capital flight and maintain this “veil of stability” might fade. This would free BTC to catch up with its high beta friends in the equity world, breaking us out of this range-bound lethargy. Certainly, it feels like sentiment has given up on a break above BTC 31k, resigned for a grind lower. That’s the sort of sentiment to mark a local low.

Native News

Key news from the crypto native space this week.

The launch of a new coin called Worldcoin hit the headlines this week. It was one of the most unique and controversial coin launches in recent years. Much of the controversy stems from the understandable skittishness with Worldcoin’s goal (creating a global identity network) and sci-fi-like methods of achieving this goal (via eye scans). Worldcoin is unfortunately not unique in the fact that its tokenomics could be deemed confusing, with distinctions between “circulating” and “unlocked” supply (unlocked is the upper bound on circulating; governance decides how quickly unlocked tokens move into circulating supply), various inflation and vesting rates, and unclear language. MIT wrote a summary HERE.

Crypto.com received approval from the Dutch central bank to offer its services in the country. The exchange announced that it had registered as a cryptocurrency service provider with De Nederlandsche Bank (DNB) following a comprehensive review of Crypto.com’s business and compliance with the country’s Anti-Money Laundering and counter financing of terrorism requirements. At present, 36 cryptocurrency-related businesses are currently registered with the Dutch central bank, including Coinbase Europe, eToro and Bitstamp. Read the full press release from Crypto .com HERE. 

Crypto exchange Binance and its CEO Changpeng “CZ” Zhao requested the dismissal of a lawsuit filed by the United States Commodity Futures Trading Commission (CFTC). Thursdays court filing shows that attorneys for Binance and CZ accused the CFTC of exceeding its regulatory authority and engaging in regulatory overreach. The filing states that the CFTC is attempting to regulate foreign individuals and corporations operating outside the United States, which goes beyond the limits of its statutory jurisdiction and interferes with well-established principles of comity with foreign sovereigns. As a reminder, in March, the CFTC initiated a lawsuit against Binance, alleging that the company offered unregistered derivatives products in the U.S., including cryptocurrency trading services, futures and options products. The regulator also accused Binance of inadequate supervision, lacking a reliable Know Your Customer or Anti-Money Laundering program, and failing to register as a futures commissions merchant, designated contract market or swap execution facility.

Institutional Corner

Top stories from the big institutions.

This week a draft law for crypto market structure passed a House of Representatives committee vote. The 212-page bill titled the Financial Innovation and Technology for the 21st Century Act seeks to establish a “much-needed regulatory framework” for the digital asset space. If passed, the bill will make the Commodity Futures Trading Commission the leading regulator for crypto. The bill seeks to establish new definitions, covers digital asset exemptions, and outlines a path for digital asset intermediaries like cryptocurrency exchanges to register with both the Securities and Exchange Commission (SEC) and the Commodities Futures Trading Commission (CFTC). However, the bill has been criticised for giving the CFTC more responsibilities without ensuring that it will have the additional funding to live up to them. CFTC chair Rostin Behnam has said his agency needs $120 million over the next three years to meet extra obligations related to crypto. Read the full bill HERE.

Chicago Mercantile Exchange's (CME) regulated bitcoin (BTC) and ether (ETH) futures saw record participation from large traders in Q2. The number of large open interest holders, or entities holding at least 25 bitcoin futures contracts, averaged a record 107 in the second quarter. Ether's so-called large open interest holders averaged 62 through the second quarter. as a reminder, the standard bitcoin futures contract is equivalent to 5 BTC, while the micro contract is sized at one-tenth of 1 BTC. The standard ether futures have a contract size of 50 ETH, while micro futures are equivalent to one-tenth of 1 ETH.

The Bank of Italy, is backing a platform looking to get institutions started on DeFi and tokenising assets. The Milano Hub, the Italian central bank’s center for developing innovative ideas in finance, will support the development of the so-called Institutional DeFi for Security Token ecosystem for six months. The platform aims to help traditional financial institutions to experiment with security tokens and execute transactions using DeFi rails in a safe, regulated manner. Cetif Advisory, a consultancy spinoff of the Università Cattolica del Sacro Cuore of Milan’s Cetif Research Centre, will lead the platform’s development, which will see support from Polygon Labs, crypto infrastructure provider Fireblocks, tech developer Reply, legal and tax consultant Linklaters and Web3 studio DVRS. Read more from the Milano Hub HERE.

Finally a nice piece of analysis from CoinGecko on the banks that support crypto trading. According to the report, 37 of the 50 (74%) biggest global banks by assets under management in 2023 support crypto trading through connecting to regulated crypto exchanges. Chinese banks are the least “crypto friendly”, with none allowing connections to crypto exchanges. Read the full report from CoinGecko HERE.

Chart of the Week

Because charts are just as important as macro.

Both bitcoin and ethereum have seen a decline in 90-day realised volatility this year.

Currently, their volatility levels are hovering around two-year lows.

Hat tip to Kaiko Data for the chart.

Top jobs in Crypto

Well, we all want to work in Crypto don’t we. Here’s a bit of help on your job search!

International Derivative Exchange Lead at Coinbase

Junior Trader at Alphachain Traders

Trading Operations Specialist at Quant Capital

Senior Product Manager, Blockchain Data at Ripple

Counterparty and Credit Risk Manager at Coinbase

Listed Business Development Manager at Binance

DISCLAIMER: The content in this newsletter is not financial advice. This newsletter is strictly educational and is not investment advice or a recommendation to buy or sell any assets or to make any financial decisions. Crypto markets are volatile, please be careful and do your own research.