Connecting the Dots
Episode 127 - Fading Geopolitical Risks
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 each week, covering both macro and crypto.
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Onto the newsletter. Here’s what you’re getting this week:
Macro Update: Our latest view on the macro and its impact on crypto markets.
Crypto Native News: Shopify teams up with Coinbase and Stripe, Stripe acquires Privy, Stablecoin infrastructure platform Noah raises $22 million.
Institutional Corner: Bessent says U.S. dollar-backed stablecoin market has the potential to surpass $2 trillion in the next three years, the SEC formally withdraws several proposed rules set by Gensler, Soc Gen launches a dollar backed stablecoin.
Charts of the Week: DeFi TVL on Solana fell 64% QoQ, stablecoin supply surpassed $250bn, ETH ETF inflows nearly in line with BTC adjusting for market cap.
Top Jobs in Crypto: Featuring Anthropic, Fidelity, World of Women, Kraken, LMAX and Revolut.
Macro Update
This is where we connect the dots between macro and crypto.
Fading Geopolitical Risk
Geopolitical tensions dented an otherwise positive week for risk, with the data flow continuing to underscore the “goldilocks” thematic. Benign inflation with a slowing, not collapsing US economy.
The disinflationary trend, which markets have overlooked given the uncertainty surrounding tariffs, continued with the BLS reporting that CPI for May rose just 0.1% on the month, down from 0.2% and against expectations of 0.3%. Core inflation held steady at 2.8% although headline inflation ticked up to 2.4%. Little sign however of tariffs materially impacting prices and this was further supported by the Producer Price Index (PPI) which points to, as described by Bloomberg, companies “eating” the tariff costs.
The labour market is also showing signs of softness with continuing unemployment claims grinding ever higher. The risks as it relates to the Fed is now leaning on the “growth downside” and so markets moved to price back to back cuts in September and October (from Sep and Dec prior.) Wednesday’s FOMC meeting will be interesting given the softer inflation pulse since the last projections which will necessarily require a lowering of inflation forecasts.
A preliminary agreement in trade talks between US and China further added to the earlier, positive risk mood, alongside comments from Treasury Sec Scott Bessent which indicated that the 90 day tariff pause could be extended for countries negotiating in “good faith.”
Global liquidity rising…
Elsewhere, weak employment and GDP numbers out of the UK saw odds for rate cuts from the BoE rise, whilst China continues to be in deflation, with YoY CPI contracting in May for the 4th straight month and producer prices falling the most in nearly 2 years.
With China exporting deflation, major global economies, including the US, slowing and cutting rates, global liquidity is set to continue to rise and will continue to drive equities and crypto higher over the coming months.
Additionally, geopolitical risks such as the latest Israeli strikes on Iran are also a “fade” from a risk perspective given that war leads to more debt, more deficits and more liquidity as those deficits are monetised.
Meanwhile, the US dollar continues to break down, touching its lowest levels since March 2022. Increasingly it feels like some form of “Shanghai Accord” has been struck with China, agreeing to weaken the dollar as a “win win” for both the US wanting to reduce its trade deficits and providing cover for China to stimulate to try and arrest their deflationary spiral. The dollar is also the lubricant for global trade and represents a significant easing in global financial conditions.
For a market that is under-weight risk, this remains a very constructive backdrop and we suspect “pain” remains higher and we will see forced performance chasing into quarter end. The knee jerk dip on Israel/Iran tensions will consequently be short lived as funds are forced to “gross up” exposures.
Oil disruption…
One concern would be a sustained increase in oil prices. Oil prices spiked over 13% on Friday on fears that Iran could decide to shut the Strait of Hormuz where 20% of the world’s oil flows through. That seems a low probability, given that China, the number one importer of Iranian oil, would be negatively impacted, but also given logistical difficulties in shutting it. Meanwhile, with OPEC members looking to ramp up oil production, we still have a benign outlook for oil prices.
Nonetheless, lower oil prices have been a contributing factor to the easier financial conditions alongside the weaker dollar and a sustained increase would dent the otherwise constructive risk backdrop.
As for Bitcoin, despite its recent out-performance as a hedge against global instability, the short term, knee-jerk reaction from traders remains to sell BTC as the high beta risk proxy. Shoot first, ask questions later 🔫
BTC fell on the headlines over 5% to lows around $102,700. However, as the team at FRNT Financial point out, in April 2024 when Israel/Iran hostilities broke out, BTC fell 13% and so, as with the “liberation day” risk sell off, BTC is increasingly showing more resilience. Previous periods of geopolitical tensions have also seen Bitcoin reverse and trade higher than the levels prior to the conflict which to us makes sense as the “real money” position into the non-sovereign, borderless, bearer asset safety of gold and Bitcoin.
All in all, little to change our constructive view of the world. A benign risk backdrop from a macro point of view amidst rising global liquidity. Geopolitical stress tends to quickly unwind and the market remains under positioned risk. A dovish Fed on Wednesday may fire the starting gun on the quarter-end performance chase.
Native News
Key news from the crypto native space this week.
According to announcements made on Thursday, Shopify has teamed up with Coinbase and Stripe to make it easier for merchants to accept payments made in Circles stablecoin. Stripe said the service will be available to Shopify merchants in 34 countries. Stripe said in its release "Shoppers will be able to pay with USDC on Base using their preferred crypto wallet. By default, Stripe will allow merchants to receive stablecoin payments in their preferred local currency, to be deposited in their bank account just like any other payment they receive." Coinbase said along with Shopify it is launching the Commerce Payments Protocol "to address a major gap in crypto: enabling real-world commerce." The company added that "while most onchain payments today work well for peer-to-peer transfers, they fall short of handling the complexity of commercial purchases, which require a multi-stage payment commitment process."
Payments provider Stripe is set to acquire crypto infrastructure firm Privy. The acquisition, which is expected to close in the coming weeks, will bring Privy under the Stripe umbrella, but allow it to continue operating as an independent product. Patrick Collison, CEO for Stripe said “Money has to reside somewhere, and Privy builds the world's best programmable vaults. Alongside our other stablecoin work, we're looking forward to enabling a new generation of global, internet-native financial services.” Active crypto users participating with consumer applications have likely already interacted with Privy, without even knowing it. Best known for its embedded wallet technology, Privy allows developers to build simpler onboarding experiences, like letting users create crypto wallets without the complexity of memorising or recording seed phrases.
Stablecoin infrastructure platform Noah has raised $22 million in a seed funding round led by London-based venture capital firm LocalGlobe. Noah plans to use the capital to build out its global stablecoin payment network — a regulated fintech service that provides a bridge between fiat and stablecoins via web and mobile apps. Noah claims to have processed more than $1 billion in transaction volumes so far, enabling users to convert between 50 currencies and transfer money across 70 countries in real-time. The announcement coincides with confirmation of previously undisclosed news that Thijn Lamers, another former executive at fintech giant Adyen, has joined Noah as co-founder and president. See the full release from Noah HERE.
Institutional Corner
Top stories from the big institutions
U.S. Treasury Secretary Scott Bessent said at a Senate hearing on Wednesday that the U.S. dollar-backed stablecoin market has the potential to surpass $2 trillion in the next three years. Bessent's comment came as he affirmed a remark from the Senate Appropriations Committee, which mentioned an estimate that the GENIUS Act would expand the USD stablecoin market to $2 trillion by the end of 2028. Bessent said "I believe that stablecoin legislation backed by U.S. treasuries or T-bills will create a market that will expand U.S. dollar usage via these stablecoins all around the world. I think that $2 trillion is a very reasonable number, and I could see it greatly exceeding that."
On the topic of stablecoins, the Wall Street Journal reported this week that Walmart and Amazon are exploring plans to issue their own dollar backed stablecoins to reduce payment friction, speed settlement, and lower costs tied to traditional financial rails.
The U.S. SEC formally withdrew several proposed rules on Thursday that would’ve imposed stricter regulations on DeFi and crypto custody. The proposals were made under former Chair Gary Gensler, as he sought to restrict crypto related activities. The withdrawn rules included proposed amendments to Exchange Act Rule 3b-16, issued in April 2023. The proposal sought to broaden the definition of an exchange, specifically to bring decentralised finance platforms under the regulation of national securities exchanges. Another rescinded proposal aimed to expand the current custody rule by requiring investment advisors to keep crypto with qualified custodians and by adding more protections for those assets. As the rule would have extended stricter custody rules to advisors with crypto assets, it raised concerns about whether it would further limit the number of banks willing to do business with the sector. Other withdrawals made public Thursday included mandating stronger cybersecurity risk management and ESG requirements for investment firms. Read more details from the SEC HERE.
French bank Societe Generale will launch a dollar-backed stablecoin via its crypto subsidiary SG-FORGE, becoming the first major European lender to launch a dollar-pegged cryptocurrency. The cryptocurrency, called "USD CoinVertible", will exist on the Ethereum and Solana blockchains and is expected to be publicly tradable from July, SG-FORGE said in a statement on Tuesday. BNY Mellon will be the custodian for its reserves. SocGen's crypto arm had already launched a euro-based stablecoin, in 2023 but it has not been widely adopted, with just 41.8 million euros ($47.62 million) worth of the token in circulation.
Charts of the Week
Because charts are just as important as macro.
DeFi TVL (USD) on Solana fell 64% QoQ to $6.6 billion. Still, it ranked second among networks after surpassing TRON in November 2024.
Total stablecoin supply recently surpassed $250bn. Hat tip to The Block for the chart.
Adjusting for respective market caps, ETH's inflows are nearly in line with BTC's large inflows.
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!
Applied AI, Startups at Anthropic
Blockchain Developer at Fidelity International
Web3 brand Development Manager at World of Women
Product Manager - B2B - Payments & Blockchain at Kraken
Junior Product Manager at LMAX
Head of Operations (Wealth & Trading UK) at Revolut
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.