First Mover Americas: Bitcoin Bounces Back From ‘Hurricane’ Though Miners Are Selling

Good morning, and welcome to First Mover. I’m Bradley Keoun, here to take you through the latest in crypto markets, news and insights. (Lyllah Ledesma is off for a holiday in the U.K.)

Bitcoin (BTC) bounced back above $30,000 in early trading, hours after a 6.2% dump on Wednesday.

Solana’s SOL tokens were also finding support after tumbling 12% on Wednesday, when the network was halted by a bug linked to certain cold-storage transactions.

In traditional markets, crude oil fell after reports that U.S. President Joe Biden might visit Saudi Arabia this month. European stocks gained and U.S. stock futures were higher on speculation that lower energy prices might help to slow inflation.

ICYMI: CoinDesk’s Eliza Gkritsi and Aoyon Ashraf reported that a squeeze on bitcoin-mining profit margins – think lower crypto prices and higher energy costs – might be forcing miners to sell some down some of their bitcoin inventories to pay for the extra operating costs. The miners also might want to set aside more (fiat currency) liquidity reserves for what could be an extended crypto bear market.

An economic ‘hurricane’ on the way?

Warnings of a coming economic “hurricane” on Wednesday by Jamie Dimon, CEO of JPMorgan Chase, the biggest U.S. bank, rattled traditional investors.

But the note of caution may have resonated with many crypto traders who have been speculating for years that economic and financial conditions looked unsustainable.

One bet is that the U.S. Federal Reserve might be sufficiently unnerved by downward-sloping stock prices to ease off its campaign to tighten monetary conditions, which it has said is necessary to tame inflation. But this thread of market logic was somewhat undermined this week when President Joe Biden held a meeting with Fed Chair Jerome Powell and essentially pledged to let the Fed do what it needs to do.

That means ongoing fears of further Federal Reserve monetary tightening could put a lid on any immediate rally for bitcoin. Arthur Hayes wrote in the latest post for his “Crypto Trader Digest” blog on the BitMEX website that a bull market in risky assets probably wouldn’t begin anew until “the Fed and its sycophantic cadre of other central bankers reverse course.”

“There are no easy outs when you combine the most levered domestic U.S. and global economy in history, interest rates that are already at their lowest in recorded human history, the disruption of the world’s largest energy and food exporters (Russia + Ukraine), and inflation that was already at its highest in 40 years even before the Russia/Ukraine war,” Hayes wrote.

CoinDesk’s Helene Braun spoke with FTX US President Brett Harrison at last week’s World Economic Forum in Davos, Switzerland. Here are some highlights:

I want to talk a little bit about the correlation between the crypto market and the equities market. Do you see that correlation breaking anytime in the future and if so, what do you think could break it?

Right now, we’re in a global environment where assets are going down. That’s true across equities, bonds, broad-based futures of various kinds, crypto, and there’s a lot of macroeconomic factors going into these down moves. There’s also specific things to crypto, for example, in everything that happened with the Terra ecosystem. What we’re finding now is, as crypto gains more mainstream adoption, that means that more institutions are allocating percentage of their portfolios of crypto, which means in a down move when they’re looking for things to sell, crypto is going to be in the line of fire just like everything else. And so in a doubt, in a sort of violent downturn, all correlations go to one, everything is going down. And so right now, as prices are decreasing across the board, of course, there’s going to be high correlation between these assets. As the market starts to turn around, I think we’re going to see more growth, idiosyncratic moves between crypto and the traditional equity markets.

Do you see more institutional investors exiting or entering this phase right now during the current market sell-off?

That’s a good question. I think it’s really going to be a mix. We’re going to see some institutions that think this could be a perfect time to reenter the market at favorable prices. We’re going to see some that feel that even though the sort of contagion of the Terra meltdown was sort of contained, they might see that as a reason to be more skeptical of crypto as a whole asset class and might cool off on investment, whether that’s public or private investments. So we are going to see a mix for that over time. But in general, so much capital has moved into the private equity space in crypto. There’s a lot of teams that are building and creating new infrastructure, building out new projects that we’re probably going to see a lot of that investment come back over time.

For the full Q&A (and a video of the interview) please see: FTX’s Harrison Says Stablecoin Demand Will Survive Terra’s Collapse

Today’s newsletter was edited by Bradley Keoun and produced by Parikshit Mishra and Stephen Alpher.

UPDATE (June 2 16:05 UTC) – Corrects that Brett Harrison is president of FTX US.