Hubbis Partners with Independent Reserve to Bring You Weekly Crypto News and Market Trends - How Macroeconomic and Geopolitical Trends Are Reshaping Risk Asset Valuations
Last week, it was noted that despite rising bond yields and persistent inflation, many risk assets traded independently of macroeconomic factors. However, there has been a shift in the current landscape, with macroeconomic and geopolitical factors now impacting the pricing of risk assets, including cryptocurrencies.
The catalyst for change was triggered by last week's US inflation report, revealing a rise from 3.2% in February to 3.5% in March. Of particular concern was the 'Super Core' measure, defined by the Federal Open Market Committee (FOMC), which excludes food, energy, and housing. This measure surged to 4.8% YoY in March, casting doubt on the likelihood of FOMC's anticipated interest rate cuts. Initially, by the end of 2023, short-term interest rate futures anticipated seven 25bp cuts in 2024, in contrast to FOMC's latest forecast of three such cuts.
The rise in US bond yields, currently at 4.6% for the US 10-year treasury yield, has strengthened the USD index and placed downward pressure on commodity currencies. Notably, AUDUSD has depreciated nearly 3% over the week. Additionally, cryptocurrencies have witnessed notable price swings, particularly affecting those at higher risk levels, leading to substantial declines. This volatility has been further amplified by geopolitical tensions in the Middle East, especially the escalating conflict between Israel and Iran.
On the OTC desk, risk aversion has led to a surge in stablecoin demand. The focus on stablecoins has diverted attention away from the upcoming Bitcoin halving event, which is expected to occur in about four days. However, it's anticipated that the market will eventually evaluate the importance of the halving event on its own merits. Trading activities currently focus on risk reduction, with significant interest in USDC and USDT. Enquiries for longer tail assets have slowed temporarily, while major trades seem more opportunistic than conviction-driven. The pricing differentials between cryptocurrency assets reveal relative differences in creditworthiness, with ETH/BTC notably below 0.05 at 0.0486, indicating a flight to quality even among major assets.
Read this week's full market update here.
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