Crypto Automated Trading

Legislators Unite

A few weeks of limited volatility and ranging between the $60k and $67k range for Bitcoin are keeping traders in suspense. This was well captured by a few days of relatively low inflows/outflows to the Bitcoin ETFs over the last week. The trend seems to have turned however as this week saw $726m of inflows so far. In times of little price action, crypto traders tend to become macro-economists and Federal Reserve lip-readers. One topic to catch attention was the growth of US M2 money supply turning positive for the first time since November 2022. This indicates a loosening of monetary conditions which has historically correlated with a strong performance for Bitcoin. US Equities markets forming all-time highs has further supported optimism. Markets are also further pricing in rate cuts due to weaker jobs and inflation numbers.

On the downside, growth across the US and worldwide is slowing. Indices like the US SM Manufacturing & Services Employment and the NFIB Hiring plans survey show weak numbers. Globally, Chinese monetary policy is continuing to tighten with M2 money supply shrinking and weak Chinese consumer demand. The question over a ‘hard economic landing’ preoccupied economists over the past year. So far, economic performance has surprised most to the upside. But a sudden turn in economic fortunes for both the US and the world at large would prove a major unexpected stumbling block in a year filled with important elections. We may soon be finding out if low rates and liquidity growth can drive Bitcoin higher in a weak economic environment.

In other news, a bill to strike down the Securities and Exchange Commission’s (SEC) staff accounting bulletin “SAB 121” has just become the first-ever crypto bill to be sent for signing off to a US President. After getting bi-partisan approval from both Congress and Senate, it is now under the threat of a presidential Veto. President Biden, for now, is following the line of anti-crypto senator Elizabeth Warren who is against the bill. SAB 121 makes it expensive for banks to offer cryptocurrency custody. The rule forces them to record customer crypto holdings as liability rather than asset on the balance sheet. This of course is an indirect way how the SEC tries to block crypto adoption. These crypto funds held by the bank are not a risk taken on by the bank but belong to customers. The rule is a straightforward power abuse by the SEC which was noted Legislators.

Whether President Biden ends up using his Veto power or not, this latest episode highlights that crypto can receive bi-partisan support. The thousands of crypto holders who were calling their legislators also show that crypto is no longer a niche topic. Both TradFi banks and crypto pushed for SAB 121 to go in a sign that interests are starting to align. The market structure bill, known as FIT21, will be the next major piece of crypto legislation to reach Congress. It introduces comprehensive regulation for the industry and will also finally clarify how cryptocurrencies can launch without being labelled securities. For now, most observers expect that it will not pass Senate.

In-between macro uncertainty, legislative and legal battles, it is hard to predict where prices will be going next. The trajectory is upwards but traders must expect a turbulent road ahead.