Weekly Market Update - Friday, May 5, 2023

Takeaways

• BTC stayed the course this week, trading above $29k USD as of Friday morning. The ETHBTC pair has seen some consolidation as the post-Shapella high begins to wear off.
• The Fed raised interest rates by a further 25 basis points on Wednesday and signaled a potential coming pause in rate hikes. That narrative was complicated on Friday as the job market showed continued strength.
• First Republic Bank was seized by regulators and sold to JPMorgan Chase early in the week, as banking concerns continue to simmer.
• The Sui mainnet went live on Wednesday, quickly overtaking established blockchains like Solana, Avalanche and Aptos in market capitalization.

Bitcoin Remains Range Bound

Bitcoin (BTC) continued to trade within its recent range this week, changing hands at ~$29.2k USD as of Friday morning. BTC had fallen below $28k USD on Monday after some weekend weakness, but pared its losses as the week progressed. Its recovery could be attributed to more doubts on the structural stability in the banking sector following the collapse of First Republic Bank and falling share prices across regional banks.

BTC saw further gains in the hours after this week’s Federal Open Market Committee (FOMC) meeting, breaking back above the $29k USD level. Ether (ETH) has traded in line with BTC, with the ETHBTC pair seeing some consolidation around the 0.065 level for the first time since the Shapella upgrade when it hit a high of 0.071.

After 10 Rate Hikes Fed Signals a Pause

On Wednesday, the Federal Reserve raised interest rates by another 25 basis points (bps), as expected, as it continues its fight against inflation. The latest increase marks the Fed’s tenth consecutive rate hike since March 2022 and brings the target range for the federal funds rate to its highest level since 2007.

Notably, this time around, the Fed omitted a section from its previous statement that said “some additional firming may be appropriate” and replaced it with “determining the extent to which additional policy firming may be appropriate.” This change in language may suggest a coming pause in interest rate hikes as the Fed assesses how current interest rates are impacting growth and inflation. Turmoil in the banking sector and an economy showing signs of a slowdown further indicate that a pause in rates is expected at the next FOMC in June.

This narrative was quickly put to the test on Friday as non-farm payrolls for April came in well above expectations at 253,000. Wages also increased at a rate above expectations. Combined, these numbers complicate the Fed’s decision-making process in possibly pausing interest rate hikes as it balances the growth of the economy vs. economic data that may further contribute to inflation.

Banking Crisis Fears Continue With Another Failure

On Monday, after months of struggles and depleting deposits, First Republic Bank was seized by regulators and sold to JPMorgan Chase. First Republic’s potential vulnerability had been in focus since the collapse of Silicon Valley Bank and others in March.

The seizure of First Republic had minimal impact on major U.S. indices as they opened on Monday. However, as the week progressed share prices across major U.S. regional banks saw steep declines as fears around a confidence crisis grew and the impact of the impending rate hike further weighed down prices. Regional banks saw declines steepen after the release of FOMC minutes on Wednesday.

PacWest Bank appears to be the latest bank in trouble as it confirmed on Thursday that it is exploring all strategic options, including a potential sale following a greater than 50% fall in share price during after-hours trading. Indicative of the volatility in regional bank stocks, PacWest shares recovered on Friday and recorded its highest intraday gain ever. Nevertheless, the stock is still down over 45% this week.

SEC Given 10 Days to Respond to Coinbase’s Regulatory Clarity Suit

Coinbase said on Thursday that a U.S. federal court has compelled the Securities and Exchange Commission (SEC) to respond to a suit lodged by Coinbase seeking regulatory clarity around crypto, potentially setting the case on a fast track. The order requires the SEC to respond to Coinbase within 10 days, and grants Coinbase seven days after the response for its reply.

The court action comes after Coinbase sued the SEC last week in federal court seeking an answer on whether the rule-making process governing securities applied to the crypto industry. The suit sets up the potential for Coinbase to challenge that the SEC has failed to provide a well-defined regulatory framework for U.S.-based crypto companies.

Sui Mainnet Launches

The highly-anticipated launch of the Sui mainnet went live on Wednesday. Sui is a Layer-1 blockchain platform developed by ex-Meta engineers that promises fast transaction speeds.

Immediately after launch, its SUI token experienced notable price volatility and has consolidated around the $1.35 USD level. At current prices, its fully diluted market cap sits at ~$13.5bn USD surpassing that of some of its main L1 competitors such as Aptos (APT) ~$10bn USD, Solana (SOL) ~$12bn USD, and Avalanche (AVAX) ~$12bn USD.

-From the Gemini Trading Desk