Weekly Market Update - Friday, April 21, 2023

Crypto News: What Happened This Week?

Takeaways

Following a month-long rally, crypto prices dipped this week as bitcoin (BTC) fell below $30k USD. The U.S. banking system showed signs of stability with several large U.S. banks beating earnings expectations despite a drop in overall bank deposits.

Stablecoins were discussed in Congress as draft legislation was introduced that would put non-bank stablecoins under the purview of the U.S. Federal Reserve. The European Union approved MiCA, a law that will implement a regulatory framework for crypto companies. In the altcoin world, a new meme token surged as it took over crypto Twitter.

Crypto Prices Move Lower as Banking System Stabilizes

Bitcoin (BTC) prices fell below the psychological $30k USD level, accompanied by a broader move lower across the crypto markets. The dip came after the BTC-as-a-safe-haven narrative gained traction over the past month and helped push prices higher following the collapse of Silicon Valley Bank, Signature, and Silvergate.

Following the Shapella upgrade last week, ether (ETH) prices showed resilience and outperformed amidst the broader crypto market downturn. Although ETH dropped below the $2,000 USD level on Wednesday morning, the ETHBTC pair continues to hold above the 50-day moving average of ~0.067, which it broke through following the Shapella upgrade.

Bank Q1 Results Ease Financial System Concerns

Concerns over potential further banking collapses have eased over the last few weeks, bolstered by strong bank Q1 results. Over the past 10 days, some of the largest U.S. banks, JPMorgan Chase, Citigroup, and Wells Fargo appeared to emerge from the crisis unscathed, comfortably beating earnings expectations.

First quarter results from a number of smaller U.S. banks including Charles Schwab, State Street, BNY Mellon, and Western Alliance all showed an exodus of deposits, although those numbers did rise again for some banks toward the end of March, showing signs of stabilization and supporting a rally in stock prices.

Stablecoin Bill Proposed in U.S. Congress

The U.S. House of Representatives released a discussion draft that would regulate stablecoins. The proposed legislation would place non-bank stablecoins under the purview of the U.S. Federal Reserve and require them to gain approval before being issued.

Stablecoin issuers would have to hold reserves on a one-to-one basis and provide proof of reserves to the Fed to get approval. Those reserves would need to be composed of U.S. Treasury bills, U.S. dollars, repurchase agreements backed by Treasury bills, and central bank reserve deposits, according to the draft bill’s text.

The draft also imposes a two-year moratorium on algorithmic stablecoins (“endogenously collateralized”), while grandfathering in those already in existence. The discussion draft was debated during a U.S. House Financial Services Committee hearing on Wednesday, where Rep. Maxine Waters (D-CA) suggested that lawmakers should disregard the current bill and start from scratch on stablecoin regulation.

UK Inflation Continues to Soar

In the UK, inflation data came in higher than expected on Wednesday, remaining in double digits at 10.1% as food prices and energy bills continued to soar, suggesting the Bank of England will further hike interest rates.

European Union Lays Framework for Crypto Regulation

On Thursday, European lawmakers overwhelmingly approved the EU’s Markets in Cryptoassets, or MiCA, regulation that lays out an explicit framework to regulate crypto companies. Under the law, which is expected to be enacted in July, crypto asset service providers that serve clients in the EU must obtain licenses from the relevant national authorities. There will also be additional governance and liquidity requirements.

The law provides explicit and standardized guidelines for crypto companies in the EU that some industry members have long sought, potentially creating a more predictable regulatory environment.

Meme Coins Return to the Spotlight

Altcoin prices had an up-and-down week, with some tokens posting double-digit declines while others rallied. Pepe token (PEPE) took over crypto Twitter, resulting in the new meme coin branded after the internet meme “Pepe the Frog” gaining thousands of percent in a matter of days. Its market capitalization skyrocketed to above $100m USD earlier in the week and currently has over 30,000 individual holders according to Etherscan.

Other popular meme coins received a boost as a result, with Dogecoin (DOGE) +10% and Baby Doge Coin (BABYDOGE) +35% earlier in the week before pairing the gains by Friday.

-From the Gemini Trading Desk