Connecting the Dots
Episode 119 - All Roads Lead to Financial Repression
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: Kraken to launch FX perps, OKX to return to the US market, Hidden Road secures a broker dealer license, Bybit shuts some of its Web3 services, Spa supermarket implements Bitcoin payments in Zug.
Institutional Corner: JP Morgan adds pound- denominated accounts to its payment network, Slovenia proposes a 25% tax on capital gains from cryptocurrencies.
Charts of the Week: Altcoin market depth, Stablecoin payments outpace Visa payments in 2024, ETH gas fees less than $0.01.
Top Jobs in Crypto: Featuring KuCoin, Blockchain.com, Kraken, MoonPay, Twinstake and Nickel Digital Asset Management.
Macro Update
This is where we connect the dots between macro and crypto.
All Roads Lead to Financial Repression
Another choppy week ahead of the long Easter weekend saw a mixed performance for equities, with small cap indices posting gains, whilst the S&P 500 and Nasdaq closed lower. Bitcoin traded a relatively narrow range, establishing itself above 83k and reinforcing our view that the lows are in for “digital gold” with risk similarly chasing out a bottom here.
We outlined last week a potential turning point for risk, with the Trump administration “blinking” on trade wars whilst the Fed’s Collins reminded markets that the “Fed put” remains alive and kicking, saying the “Fed is absolutely ready to help stabilise the market if needed.”
Fed governor Chris Waller further backed up this view and also a view we’ve held here post JPow’s “dovish pivot” at the last FOMC when he said inflation emanating from tariffs would be considered “transitory.” The Fed picks its words carefully and JPow’s use of the word transitory was a BIG signal to us that the Fed will place heavier weight on the downside tariff related risks to growth.
Waller this week re-emphasising the point, saying that in a higher tariff scenario, “even if inflation is running above 2%, I expect the risk of recession would outweigh the risk of escalating inflation, especially if the effects of tariffs are expected to be short lived.” In this scenario, Waller would favour “cutting sooner and faster than previously thought.”
JPow himself, under increasing attacks from Trump to cut rates (as well as speculation Trump may look to fire Powell before his term ends next year) dampened some of the rate cut expectations, treading his usual line that the economic effects from the larger than expected tariffs will include higher inflation and slower growth, yet the Fed “remains well positioned to wait for greater clarity before considering any adjustments.”
Financial repression…
Expectations for a May cut were consequently revised lower and risk sentiment hit into the long weekend. Nonetheless, the cat is out of the bag and we know the Fed’s sensitivity remains skewed to the downside risks to growth, with the tariff related inflation risks deemed as transitory. Indeed, as we have outlined throughout Q1, the current “pulse” of inflation in the US and globally has been disinflationary and will likely give some short term cover to restart the cutting cycle in June.
A dovish ECB seemingly got the disinflationary memo, cutting rates 25bps as expected and dropping the language that “policy is becoming meaningfully less restrictive” whilst highlighting that although the “disinflation process is well on track,” the outlook for growth has deteriorated due to trade policy uncertainty. Mooooar cuts from the ECB are coming ✂️
Meanwhile, Treasury Sec Bessent highlighted the toolkit the Treasury has to stabilise bond markets, saying the Treasury could boost treasury buybacks (this is when the treasury buy the “off-the run” treasuries which are the older, previously issued treasuries and not the most recently issued treasuries for the respective maturities and are consequently less liquid). The Treasury’s Faulkender also said this week that “conversations are being had on the SLR.” As a reminder, the SLR (Supplementary Leverage Ratio) determines the amount of capital banks must hold in relation to the assets held on the balance sheet. The conversation Faulkender refers to are those of excluding treasuries from being part of this calculation, thus incentivising banks to purchase and hold a lot more treasuries.
Ultimately, all roads are leading to financial repression, keeping yields artificially low and debasing currency, which continues to underpin our bullish outlook for Bitcoin.
“Not QE QE” is coming…
The ultimate catalyst for Bitcoin of course will be when the Fed is forced to perform some form of “not QE QE” monetary operations to support the front end of the rates market. The QT taper announced last month was the first step towards this, but with the Fed’s Reverse Repo Facility (RRP) now at just $58bn (down from $399bn at the end of March - this cash injection into markets will have helped provide some stability in April) the point of the Fed needing to provide liquidity is drawing nearer 👀
We can expect some volatility ahead of that of course, although compared to 2019 when it took the September repo funding crisis to spark the Fed into action, the Fed has been explicit in acknowledging the need to proactively ensure sufficient liquidity and levels of reserves in the banking system as the RRP moves towards zero.
So whilst short term, broad risk will continue to be dominated by Trump tariff headlines (some signs this week that both China and the US are now open to negotiations) major central banks and governments have reminded markets of both their ability and willingness to act to stabilise markets and limit the downside risks.
For markets which are pricing Covid or Global Financial Crisis level stress alongside equity market positioning at record lows, probabilities suggest the equity market lows are in. Bitcoin has been relatively stable in recent weeks, caught between the broad risk sell off and its safe haven characteristics as a non sovereign, borderless asset. With equity markets in the bottoming out process, the risk anchor being raised should free Bitcoin to catch up with the positive, evolving fundamentals.
Native News
Key news from the crypto native space this week.
Crypto exchange Kraken has launched FX perpetual futures, expanding into traditional markets with round-the-clock trading for major forex pairs, the company said in a blog post Friday. The first contracts, EUR/USD and GBP/USD, are now live on Kraken Pro, with more to come. Unlike standard forex products, FX perps have no expiry and operate 24/7, mirroring crypto futures. Alexia Theodorou, head of derivatives at Kraken said "Investors increasingly expect a unified trading experience that spans crypto, FX, and equities. With our recent U.S. equities launch and the addition of FX perpetuals, Kraken is delivering a comprehensive platform designed for today’s multi-asset trader.”
OKX will return to the United States market along with the appointment of former Barclays director Roshan Robert as its US CEO. Robert said in the post: “Today, I’m thrilled to announce the launch of OKX’s centralized crypto exchange and OKX Wallet in the United States, alongside the establishment of our regional headquarters in San Jose, California.” All existing Okcoin users will be migrated to the new platform, which Robert said will lead to a better overall experience. The promised improvements include deeper liquidity, lower fees and advanced trading tools. OKX will not roll out the upgrade in one shot. Instead, the new platform will take a phased approach to onboard new customers. The exchange plans to follow the cautious approach with a nationwide launch later in 2025. “We’re beginning with a phased rollout for new customers to ensure a smooth and secure onboarding process, with a broader nationwide launch planned later this year,“ Robert said. OKX also promised integrations with local banks and support for major assets, including Bitcoin, Ether, USDT and USDC. Read the full release from OKX HERE.
Prime brokerage Hidden Road, which was recently acquired by Ripple for $1.25 billion, has secured a broker-dealer license from the Financial Industry Regulatory Authority (FINRA) — a move that enhances its capacity in the fixed-income markets. As a FINRA broker-dealer, Hidden Road can further develop its fixed-income prime brokerage services and extend its capabilities in traditional markets, the company said this week. This includes offering institutional clients regulatory-compliant clearing and financing services across fixed-income securities. Hidden Road operates a prime brokerage and credit network, clearing more than $10 billion in daily transactions on behalf of more than 300 institutional clients. When it was founded in 2018, Hidden Road focused mainly on foreign exchange markets before expanding into digital assets. Read the full press release HERE.
Bybit is shutting down more of its Web3 services after axing its non-fungible token (NFT) marketplace earlier in April. According to an announcement this week, the exchange is shutting down its Cloud Wallet (a hosted custodial wallet), Keyless Wallet (non‑custodial multiparty computation wallet with no seed phrase), NFT marketplace, multi‑chain decentralised exchange (DEX) DEX Pro and the Swap & Bridge cross‑chain swap widget on 31 May. On April 28, Bybit will also discontinue Web3 Points, its internal loyalty program that rewarded onchain activity with redeemable points for fee discounts, airdrop boosts and early-bird perk. Read the full press release HERE.
A Spar supermarket in Zug, Switzerland, has implemented Bitcoin payments via the Lightning Network. The store’s Bitcoin payments went live on BTC Mao, a community-driven project highlighting stores that accept BTC payments, DFX Swiss, a crypto-to-fiat payment solution firm. DFX said “This SPAR location is among the first supermarkets in Switzerland where you can pay directly at the checkout using Bitcoin (via LNURL), thanks to our new OpenCryptoPay solution, an open P2P standard for in-person crypto payments.”
Institutional Corner
Top stories from the big institutions
JPMorgan Chase & Co. expanded its blockchain-based payments service for corporate clients, adding pound-denominated accounts that will use its Kinexys Digital Payments network for commercial bank transactions. JPMorgan’s London branch launched blockchain-based deposit accounts supporting pound on the platform on Monday, according to Naveen Mallela, global co-head of the unit that runs the service. The bank is aiming to fill a gap left by the roughly $235 billion stablecoin market, where almost all the tokens in circulation are tied to the dollar. That’s left a void for corporate clients seeking access to low-cost transfers and access to liquidity in pounds. Kinexys, launched in 2019 and formerly known as JPM Coin, allows companies to move money to other JPMorgan accounts as well as settle foreign-exchange transactions around the clock. JPMorgan added support for euros last year. About 80% of Kinexys’s volume is in dollars currently. London Stock Exchange Group’s post-trade solutions business SwapAgent Ltd. and commodities trader Trafigura Group will join the Kinexys platform to use the pound-denominated accounts.
Slovenia’s finance ministry has proposed a 25% tax on capital gains from cryptocurrency starting in 2026, under a draft law aimed at closing a gap in the country’s tax system. The tax will apply to profit made when individuals sell crypto for fiat currency or spend it on goods and services. However, swapping one cryptocurrency for another will remain tax-free, and any gains made before January 1, 2026, will not be taxed. Under the law, individuals would calculate their profit as the difference between the value at acquisition and at sale, adjusted for transaction fees. Losses can be carried forward to offset future gains. Taxpayers would need to file an annual return by March 31 and make payment within 15 days. Read the full release from the Slovenia government HERE.
Charts of the Week
Because charts are just as important as macro.
Altcoin market depth. Both XRP and SOL have the highest average 1% market depth on Kaiko Indices vetted exchanges, while Cardano’s ADA places third. XRP’s market depth soared since the end of 2024, flipping SOL and doubling ADA. Hat tip to Kaiko Data for the chart.
For the first time ever, Stablecoin transactions outpaced visa payments in 2024. Hat tip to rr2Capital for the chart.
At time of writing on Sunday night, ETH transaction fees are less than $0.01.
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!
Affiliate Manager at KuCoin Exchange
Sales Development Representative at Blockchain.com
Product Manager, Payments at Kraken
Blockchain Engineer at MoonPay
Senior Blockchain Analyst at Twinstake
Investor Relations Analyst at Nickel Digital Asset Management
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.