May 23, 2022 - 5 min

Market Wrap

  • The broad market U.S. indices continued their rally from Friday. The Dow, S&P500, and the Nasdaq 100 gained 1.98%, 1.87%, and 1.66% respectively.
  • In the Crypto Market, BTC is down over 2% and trading at ~$29,300 while ETH is trading close to $2,000. The S&P500 and Nasdaq 100 have been heavily correlated with BTC over the last year, and this is the first time in weeks that a positive move in equity markets has not translated into gains for BTC.
  • In contrast, ETH, the leading altcoin is down less than 0.8% on the day and is usually a much more volatile asset compared to BTC. In a surprising move, altcoins, which have seen high-growth equity-like corrections in recent months, seem to be holding up better than Bitcoin today. Investors may potentially be allocating their reserves to more volatile assets in hopes of outsized returns from a possible relief rally.

Macro Overview

  • In a rare note of optimism for equity markets, Atlanta Fed President Raphael Bostic said today that it may be prudent to pause rate hikes in September, which have recently dampened equity markets, whose forecasted cash flows are discounted to present values based on prevailing interest rates. Higher interest rates result in lower present values of future cash flows and result in lower equity prices.
  • President Biden is considering cutting tariffs on Chinese goods in a move to stem inflation, and any progress on this front may ferment a wave of optimism for investors over the coming summer months. However, it is possible that tariff reductions may be tied to a tougher Chinese stance on Russia’s invasion of Ukraine, and it remains to be seen whether an agreement can be reached in short order.
  • JPMorgan Chase’s Investor Day presentation on Monday where it forecasted that it may still hit its goal of a 17% return on tangible equity provided some bullish momentum for the banking sector. JPM had recently triggered investor concerns due to its disappointing Q4 ‘21 earnings release. The banking sector has also generally remained depressed due to recession fears subduing any momentum from higher anticipated net interest income on the back of Fed rate hikes.
  • Nvidia, which makes GPUs often used for mining Proof-of-Work cryptocurrencies such as BTC and ETH will report earnings on May 25. Earlier this month, it was announced that Nvidia would be fined $5.5 million by the SEC for failing to disclose that crypto mining was a significant source of its revenue in 2018. While some have speculated that the current decline in BTC and ETH prices and ETH’s move to a Proof-of-Stake system may reduce demand for its chips, the growth of metaverse projects that require video and 3D graphics processing may indicate a flood of long-term demand.
  • Retailers such as Macy’s, Dollar General, and Costco are scheduled to release earnings on May 26 which will provide further information on the impact of inflation on consumer spending.

Daily News 🚨

  • Gamestop (GME) launched a self-custodial Ethereum wallet for cryptocurrencies and nonfungible tokens that will allow gamers and others to store, send, receive and use cryptocurrencies and NFTs across decentralized apps without having to leave their web browsers. The wallet will also enable transactions on GameStop’s forthcoming NFT marketplace which is expected to launch by July 2022. Gamestop’s NFT marketplace will be powered by Loopring (LRC), an Ethereum Layer 2 zkRollup protocol that allows for cheaper transaction costs.
  • Ethereum core developer Preston Van Loon and Ethereum Foundation’s Justin Drake told a panel at the Permissionless conference that the highly anticipated Ethereum “Merge” will happen by the end of August if everything goes to plan. “The Merge” refers to the transition of the Ethereum blockchain from its current Proof-of-Work system to the Proof-of-Stake Beacon chain. This means that the network will shift from mining—where people run powerful computers for the chance to earn ETH—to staking, in which Ethereum holders can deposit their ETH in exchange for rewards. “The Merge” is expected to cut the issuance of ETH by about 90%, and help transition ETH to a deflationary asset with higher staking APRs.
  • Terraform Labs’ algorithmic stablecoin UST’s collapse triggered high trading volumes on FTX, which led to increased burning of the exchange’s token - FTT. At the same time, FTX’s share of fiat exchange volumes increased by almost 10% this month and now stands at 27%. For both Bitcoin and Ethereum, FTX consistently holds around 15% open interest in the futures market.

Web 3.0: DeFi and GameFi 🎮

  • OpenSea has announced a new web3 marketplace protocol, Seaport, for buying and selling NFTs. Seaport is designed for all NFT builders, creators, and collectors. It allows people to make offers with ETH, ERC20, ERC721, or ERC1155 items and have more control over NFT sales. The protocol will decentralize the buying, selling, and trading of NFTs and allow anyone to transfer their accounts between marketplaces. Anyone can use Seaport to create their own NFT marketplace.
  • Sony, one of the world’s largest gaming companies, announced that it intends to create “new entertainment experiences in the area of the metaverse,” in its annual strategy meeting last week. Sony’s CEO Kenichiro Yoshida added that the company’s game division already has the proficiency to generate realistic graphics, animations, and sound, and the technologies in their Gran Turismo car game can easily be reused for the metaverse. Oppenheimer analyst Martin Yang agrees Sony has big advantages over traditional technology companies and “identified Sony as one of the most unique metaverse stocks due to its vertical reach from hardware-based production tools and solutions to content/IP ownership and generation.” Sony is developing a new virtual reality headset for its videogame console called PlayStationVR2. Sony’s partnership with Unreal game engine-maker Epic Games, which enables some of the most successful gaming titles in the industry, may also prove to be a massive strategic coup as it seeks to gain metaverse dominance.

Regulatory Updates 👮‍♀️

  • On Friday, House Republicans introduced a bill that would “protect” investors’ ability to add Bitcoin to 401(k) retirement plans. Passage of the bill would enable Fidelity’s recent plan to allow 401(k) account holders to hold Bitcoin, which had thus far received pushback from regulators.
  • In light of the UST stablecoin collapse, U.S. Securities and Exchange Commission (SEC) Commissioner Hester Peirce, urged Congress to speed up the formulation of rules defining the use of cryptocurrencies, including stablecoins.
  • Sarah Pritchard, executive director for markets at the United Kingdom Financial Conduct Authority (FCA), said that the FCA “will absolutely need to take into account,” the Terra’s UST stablecoin collapse in upcoming regulations. Pritchard also cited an Opinium survey published by the FCA last October, which claims that as much as 69% of adults below 40 years who invested in cryptocurrencies incorrectly believed that they were regulated by the FCA.

Deals and Investments 💸💰💸

  • Over the past week, Coinbase Co-Founder Fred Ehrsam purchased more than one million shares of Coinbase (COIN) worth roughly $75 million, through Paradigm, the venture capital firm he co-founded. The crypto exchange’s stock price plunged following the company’s weak earnings report.
  • Protego Trust Bank, a chartered crypto bank advised by Brian Brooks, raised $70 million from a host of crypto heavyweights last year and is now in the early stages of another funding round that would value the company at nearly $2 billion. Investors in the $70 million Series A fundraise — which closed quietly in 2021 — included the investment arms of FTX, Coinbase, Algorand, Avalanche, Cardano, Ripple, and Solana, as well as Digital Currency Group, NYCA Partners and Reciprocal Ventures, according to people familiar with the matter.