US regulators bare their teeth on crypto

This Daily Digest will cover:

• 🇺🇸 US regulators bare their teeth on crypto
• 🪙 Big test for BTC and ETH ahead
• 💵 USD firm heading into a massive inflation data week
• 👀 CPI tomorrow the main focus

The markets are opening the week with an interesting, if concerning set up.

The USD is firm heading into a week that is jam-packed with data, starting with CPI tomorrow and including 10% of the S/P 500 companies reporting earnings. Yields have finally taken note of the hawkish rhetoric out of the FED and expectations of rate cuts this year are showing signs of waning. We need a soft inflation print tomorrow to change the mood and undercut the bid tone to the USD. In the absence of this it feels likely to me that we can see GBP slip away sub 1.2000 and the Yen may find itself testing 135 and above rather than sub 130.

I have significant worries about the rally in risk assets that we have seen to start the year. If we don’t see a significant fall in inflation tomorrow I can see the rug being pulled on a lot of the buying. The rally has been driven by high beta assets with Crypto and Tech stocks leading the way. To me these markets (specific news aside) need a high-growth/low-rate environment to continue to surge and there are growing signs this setup is being pushed further back than the markets have been pricing in.

Talking of specific news, the raft of negative news for Crypto has ratcheted up over the last few days. I have long been an advocate of regulation in the industry but it needs to be “light touch” to enable us not to lose our identity and purpose. The absence of such steps has seen the type of intervention we have seen out of the states over the last few days. The fines and forcing the removal of staking at Kraken has been followed by Paxos stopping the issuance of BUSD. The spillover is that Crypto is a sea of red this weekend with ETH leading the charge moving sub 1500. BTC has held up relatively well and is displaying some safe haven characteristics which makes sense in the current situation.

Good luck as always!