Macro and Bitcoin Dynamics

In the first quarter of this year, the U.S. economy exhibited its slowest growth since Q2 2022, with the Gross Domestic Product (GDP) rising by 1.3% year-over-year. The primary driver for this slowdown was a decline in consumer spending. Additionally, the Federal Reserve's preferred inflation measure, the Personal Consumption Expenditure (PCE) index, increased by 2.8% in April from the previous year, maintaining a steady range for five months. This persistence poses challenges for the Fed, which is hesitant to lower the historically high interest rates without further significant evidence of cooling inflation.

The labor market indicators released this month will test economic stability, as less competition for talent could benefit the economy by reducing the need for companies to raise prices to support payroll increases. April saw a 175,000 job increase, marking the slowest job gains in six months and leading to a slight decrease in the Consumer Price Index (CPI).

employment data may 2024 — Source: IntotheCryptoverse

The upcoming Job Openings and Labor Turnover Survey, along with unemployment claims and rates, will influence the Fed's interest rate decision on June 12. Despite cooling consumer spending, which has lowered GDP and manufacturing PMI, inflation trends suggest a positive direction. According to the CME FedWatch tool, the market anticipates a rate cut as early as September, which could reduce borrowing costs and stimulate investment in risk-on assets like stocks and cryptoassets.

Political Dynamics and Crypto Regulations

The Biden administration recently vetoed a bill that aimed to nullify the 121st Staff Accounting Bulletin (SAB121) of the Securities and Exchange Commission (SEC). Despite the veto, President Biden expressed a willingness to collaborate with Congress to develop a comprehensive regulatory framework for digital assets, which was met with skepticism from many in the crypto space.

The bill, H.J.Res. 109, will return to the House for further consideration on July 10, 2024. While it is unlikely that Congress will override the veto, if the bill achieves a two-thirds majority vote, SAB121 could still be overturned. The purpose of nullifying SAB121 is to diversify crypto custodians, as currently, only four custodians serve the 11 Bitcoin spot ETFs, a significant concern for Congress. Although Bitcoin remained unaffected by the veto, SAB121's potential repeal could impact financial firms hesitant to hold crypto due to capital expenses mandated by current regulations. Nullifying the bulletin would benefit investors discouraged from holding crypto outside traditional frameworks.

Bitcoin's role in politics is growing. Presidential candidate Robert F. Kennedy Jr. recently announced his purchase of 21 BTC, including three for each of his children. In April, Kennedy also revealed plans to integrate the entire U.S. budget on-chain if elected. Additionally, Senator Ted Cruz invested in three Bitcoin miners in Texas, and Donald Trump became the first presidential nominee to accept campaign donations via the Lightning network.

This political engagement with crypto reflects a shift in perception, viewing Bitcoin and its technology as integral to the economy rather than as a competitor. This change suggests that crypto is becoming a permanent fixture, with Bitcoin potentially serving as a stabilizing asset amid persistent inflation and public debt.

ETH ETF

On May 23, 2024, the Securities and Exchange Commission (SEC) approved Form 19b-4 filings from several issuers for spot Ethereum ETFs, marking a significant milestone for these products on U.S. exchanges. This approval was unexpected, as estimates from the decentralized prediction platform Polymarket implied only about a 10% chance of approval just one week earlier. When Bloomberg analysts first reported the potential approval on May 20, the price of Ethereum (ETH) surged approximately 20% within five hour.

Grayscale Research suggests that spot Ethereum ETFs could capture about 20%-30% of the demand seen by spot Bitcoin ETFs, based on international trends. In the long term, Ethereum’s market capitalization will likely be influenced by the network’s fee revenue and other fundamentals. However, in the short term, the increased demand from the new ETFs could significantly impact the token’s price.

ETH ETF flow prediction and price — Source

Although the initial ETF offerings will not include staking options, this is not expected to deter investor interest significantly. Ethereum's staking yield stands at 3.6%, and the network’s base transaction fees are burned, effectively reducing the total supply and benefiting all token holders. Thus, the introduction of these ETFs is poised to influence Ethereum's market dynamics positively.

Corporate Bitcoin Allocation Strategies: A Diversified Approach

In the past three months, a notable trend has emerged as publicly traded companies globally have declared their decision to allocate bitcoin as their corporate treasury asset (also known as the MicroStrategy playbook). The variety of acquisition strategies—ranging from mining bitcoin using excess energy to dollar-cost averaging—highlights the flexibility and appeal of bitcoin as a corporate asset.

Block, formerly known as Square, has been at the forefront of integrating bitcoin into its corporate strategy since 2017, when it enabled Cash App users to buy and sell bitcoin. Over the years, Block has made several significant bitcoin purchases for its corporate treasury. However, in early May, the company announced a shift to a dollar-cost averaging approach, committing 10% of profits from its bitcoin product lines to bitcoin holdings. By open-sourcing their strategy, Block offers a straightforward path for other corporations looking to include bitcoin on their balance sheets, emphasizing a calculated and consistent accumulation method.

bitcoin treasuries may 2024 — Top 10 bitcoin treasuries. Source

Another intriguing development comes from Metaplanet, a small-cap company in Japan. Following in MicroStrategy’s footsteps, Metaplanet has declared its intention to maximize bitcoin holdings by leveraging available financing options. This move is reportedly part of a broader strategy within BTC Inc., the parent company of Bitcoin Magazine, to acquire and revitalize struggling publicly traded companies by adopting an aggressive bitcoin accumulation strategy.

Alliance Resources, a Nasdaq-listed coal mining company with a market capitalization of $2.8 billion, exemplifies this trend. As of late April, corporate financial filings revealed that Alliance Resources had been mining bitcoin since late 2020. Utilizing excess electricity capacity from their coal mining sites, the company has accumulated 425 bitcoin held on its balance sheet.

Lastly, Semler Scientific has announced a $40 million bitcoin purchase, positioning bitcoin as its preferred corporate treasury asset. The company cited bitcoin's unique characteristics as a scarce and finite asset, suitable as an inflation hedge and a safe haven amid global instability. This statement from a relatively unknown medical technology company signals that the appeal of bitcoin is extending beyond energy companies, financial institutions, and fintech firms. Various companies across different sectors are recognizing the need for a robust store of value to preserve their purchasing power.

Chainlink Continues Wall St. Integrations

With its innovative Cross-Chain Interoperability Protocol (CCIP), Chainlink enables seamless integration of external data across various blockchain networks securely. CCIP has facilitated over $10 trillion in transactions across 22 blockchain networks, showcasing its significant impact on the industry.

In a recent milestone collaboration, the Depository Trust and Clearing Corporation (DTCC), in partnership with Chainlink and major financial institutions like BNY Mellon and JP Morgan, successfully completed a pilot project to enhance the dissemination of fund information across different blockchains. This project, building upon the existing DTCC Mutual Funds Profile Service I (MFPS I), aims to standardize the transmission of NAV data for mutual fund securities, paving the way for accelerated real-world asset tokenization.

The introduction of Smart NAV extends the capabilities of MFPS I by transforming data into a modern JSON-based structure and routing it through Chainlink's CCIP. This streamlined process enables the dissemination of fund data across various blockchain networks, benefiting both traditional and on-chain funds.

The collaboration between DTCC and Chainlink signifies a significant advancement in the tokenization landscape, offering a glimpse into a future where data distribution is hosted on-chain for quicker, dynamic, and historical dissemination. This project sets the stage for potential automation of workflows, such as automatic rebalancing of model portfolios through smart contracts. As the project evolves, its impact on the growing industry segment of tokenization will be closely monitored for further developments.

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