June 19 REX Wire Market Outlook

News of BlackRock's Bitcoin ETF may have given the crypto markets a new narrative for the next leg of the cycle.

June 19 REX Wire Market Outlook

In the markets, sentiment and price can change in a heartbeat. In the right circumstances, so can trend (albeit that requires hindsight for confirmation). Was last week one of those times for crypto?

Change is definitely in the air. Inflation is cooling. Last week's CPI print came in at 4% (just below forecasts), with core at the expected 5.3%. The FOMC paused in its rate hikes for the first time in 15 months. Against that, the Fed discussed the possibility not just of one final rate increase down the line, but "rate increases". Still, the direction of travel is promising—at least in the US.

In the UK, the Bank of England is struggling to bring persistently sticky inflation under control. The BoE is expected to raise interest rate to 5% this week, with the markets currently pricing in a peak of 5.75% later in the year. The average mortgage rate for a two-year fixed deal in the UK has risen above 6%, with the average five-year fixed deal rising to 5.67%. A serious problem is coming down the track for over 1 million homeowners, whose fixed-rate (around 2%) deals will come to an end and revert to market rates in the coming months, causing their mortgage payments to triple.

In Turkey, things are much worse. A series of factors—including foreign-currency denominated debt, lack of confidence in President Erdogan's economic policy and authoritarian rule, and reluctance to raise interest rates—has caused the Turkish Lira (TRY) to plunge in value and inflation to run rampant.

Chart of USD/TRY
The Turkish Lira has lost 80% of its value against the dollar in the last five years

Inflation in Turkey is running at 40%, down from 80% just eight months ago. Interest rates are only 8.5%.

Crypto Finds A Narrative

With inflation, and hyperinflation, an ongoing problem for parts of the world, the stage may be set for a return of interest to BTC. Crypto has lacked a market narrative for the past few months, since concerns about a banking crisis moved into the background (even if they are still very much present, given rising interest rates). After two months of falling prices, we may have reached an inflection point.

Bitcoin found demand at the $25,000 level.

Following the SEC's enforcement actions against Coinbase and Binance last week, BTC dropped sharply, but found buyers around the $25,000 level—an important support/resistance zone as well as a key psychological area. It closed last week at $26,300, just below the 200-week moving average.

News that BlackRock intends to launch a Bitcoin ETF appears to have provided a bullish catalyst. It also fills the narrative gap for the crypto markets—or, at least, for bitcoin, which is currently seen by the US authorities as the only "legitimate" (non-security) crypto. An ETF would provide a route into crypto for trillions of dollars of institutional capital, proving a potential game-changer for the industry. Needless to say, there was plenty of excitement on Crypto Twitter.

BlackRock plans to partner with Coinbase to custody BTC held by the ETF. The filing raises numerous questions about how the SEC might respond, given BlackRock's track record and clout, and the enforcement action the SEC is currently taking against Coinbase.

In other positive news, Hong Kong is positioning as a crypto hub, apparently in direct response to the US seeking to push out crypto businesses. In a stark contrast to the US authorities, Hong Kong’s central bank has apparently been putting pressure on major banks including HSBC, Standard Chartered, and Bank of China, to work with crypto companies.

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