July 3 REX Wire Market Outlook

Stronger-than expected economic data makes rate rises more likely, but BTC held its gains and opened the week strong.

July 3 REX Wire Market Outlook

Bitcoin opens the week looking strong, having held the gains from last week and closed at $30,650.

4h BTC chart, TradingView
Despite SEC-induced volatility, bitcoin held last week's gains.

Friday's multi-billion-dollar options expiry passed without note. BTC ground higher, then promptly crashed $1,500 in a matter of minutes. The trigger was the news that the SEC had returned all of the recent ETF applications.

This turned out to be an extreme knee-jerk reaction. In fact, "The SEC told the exchanges that it returned the filings because they didn’t name the spot bitcoin exchange with which they are expected to have a 'surveillance-sharing agreement' or provide enough information about the details of those surveillance arrangements. Asset managers can update the language and refile."

The refilings have already started. This has had the effect of reshuffling the order in which applicants have filed, and therefore potentially putting Fidelity (who submitted their updated application almost immediately) at the front of the line.

So why did this happen? It's possible that Gary was just playing for time, filibustering as the end of his career at the SEC approaches. Another school of thought says that Gensler is actually helping his mates in these TradFi giants get the ETF over the line; no Bitcoin ETFs have ever been returned like this before.

On the subject of Gensler, rumors of his demise have been greatly exaggerated; an article claiming he was on the point of resigning, which was widely shared over the weekend, was fake news. However, momentum is clearly building against him. Coinbase has filed to dismiss the SEC's lawsuit, which it describes as "Neither prudent nor lawful". Former SEC Chairman Jay Clayton has criticized Gensler's scattergun approach to litigation as an abuse of state power.

Either way, all eyes are still on BTC—and, right or wrong, Gensler holds a huge amount of influence over the crypto space.

US Employment Good, Prospects For Inflation Bad?

In the US, Q1 GDP came in at 2%, vs the expected 1.4%, causing a few economists to squirm.

With the economy proving more healthy than forecast, but inflation still way above the Fed's 2% target, there's now an even stronger case for more interest rate rises in the coming months. Jerome Powell recently commented that most FOMC committee members see two further rate hikes occurring this year, which would bring the headline interest rate to at least 550-575 bps.

The market does not (yet) believe him, with the expectation that there will be just one more increase, on July 26. Rates will then be held at 525-550 until Q2 2024. Of course, this forecast is subject to change at a moment's notice. Still, it's interesting that the market does not trust what the Fed is openly saying.

In the UK, figures show consumers withdrew more than £4.6 billion from their bank and building society accounts in May, indicating the cost of living crisis is really starting to bite and interest rates and mortgage payments soar. Meanwhile in the Eurozone, inflation rates range from around 2% to almost 10%, giving policymakers a headache for how to set a one-size-fits-all interest rates for the entire bloc.

FedNow Goes Live

If the Fed (among other central banks) seems to be losing its grip on the economy and inflation, it's about to start exerting a whole lot more control over the payments system. The controversial FedNow service is now being rolled out, and the first companies have already been approved.

While FedNow will enable instant payments, 24/7/365, there are concerns about the scope for financial surveillance and ultimately social control it could enable. It is also widely seen as the precursor for a central bank digital currency (CBDC), an idea that has gained widespread opposition in the US.

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