First Mover Asia: Bitcoin Holds Its $17K Perch Amid Rate Hike Concerns

Good morning. Here’s what’s happening:

Prices: Bitcoin, ether and other major cryptos traded sideways, albeit slightly to the green.

Insights: Asia is ready for a scaled-up, crypto-friendly bank.

Bitcoin Watches and Waits From Its $17K Perch

By James Rubin

Bitcoin spent another day watching and waiting.

The largest cryptocurrency by market value was recently trading just above $17,000, up a smidgen of a percentage point over the past 24 hours and roughly around its level of the past two weeks as investors continued to weigh economic indicators suggesting the U.S. central bank still had work to do on the inflation front. BTC has remained tethered to the $17,000 handhold it grabbed eight days ago when signs pointed to the Federal Reserve retreating from its ultra monetary hawkishness.

But in a speech at the Brookings Institute on Dec. 1, Fed Chair Jerome Powell indicated that the bank might raise interest rates higher than expected in 2023 even as it contemplated lowering its next rate hike later this month from its current fare of 75 basis point (bps) increases to 50 bps. “The positive market response to the Powell speech suggests that macro conditions will still play a substantial part in BTC’s price discovery onwards,” Arcane Research, which provides analysis of digital asset trends, wrote in a newsletter on Tuesday.

Arcane added, however that separate from reaction to Powell’s remarks, markets have stayed “directionless…as BTC has spent the first 6 days of December floating in a narrow trading range near $17,000. The market slowdown is reflected in severely reduced trading volumes in spot and derivatives markets, and the last month seems to have caused market participants to shy [away from] the crypto market.”

Ether was recently changing hands at about $1,260, up slightly since Monday, same time. Most other major altcoins were recently in the green with AXS, the token of gaming platform Axie Infinity, rising more than 4.5% to continue a recent surge. SUSHI, the token of decentralized exchange Sushiswap was off more than 10%. The CoinDesk Market Index (CDI), an index measuring cryptos’ performance, climbed 0.33%.

In an increasingly common pattern, crypto prices veered from U.S. equity indexes, which sank amid inflationary worries and macroeconomic uncertainties that have plagued 2022. The tech-heavy Nasdaq plunged 2% and the S&P 500 with its strong technology component tumbled 1.4%.

Arcane wrote that the crypto market’s more than week-long calm has stemmed from “a trader exodus” following the collapse of crypto exchange giant FTX. “The crypto market has mostly traded as one coordinated organism in the last week evident by all indexes trading ina. very flat environment,” Arcane wrote.

In an emailed market analysis, Mark Conners, head of research at digital asset manager 3iQ, noted encouragingly that institutions have been “doubling down on the promise of blockchain and digital assets, despite the FTX filing for Chapter 11 bankruptcy protection and other contagion. On Tuesday, Reuters reported that Goldman Sachs (GS), one of the world’s largest investment banks, was looking to spend tens of millions of dollars on crypto firms whose valuations have been hit hard by FTX’s implosion.

3iQ’s Connors also highlighted Fidelity’s new retail-focused digital asset offering and BlackRock CEO Larry Fink’s comments on DeFi’s potential and a Financial Times op-ed by BNY Mellon CEO Robin Vince who called for an “embrace digital asset innovation” and wrote that “a comprehensive regulatory framework is needed, but much of the underpinning already exists and can be extended from the regulation of traditional assets. There is a path to be found.”

Asia Ready for a Crypto Friendly Bank

By Sam Reynolds

The short sellers are circling around Silvergate Bank, concerned about its exposure to FTX and falling digital asset prices. But while the bank’s exposure to the FTX exchange is limited, its problem is that it is wholly reliant on U.S. regulations.

While Silvergate doesn’t have any outstanding loans to FTX, the failed crypto exchange represents just under 10% of the bank’s total deposits. It’s not a worst-case scenario, but the concentration of deposits is alarming to some short sellers: Coinbase, Paxos, Crypto.com and Kraken are the bank’s next largest customers.

And all of them are based in the U.S. For a bank that specializes in an asset class that is, in theory, decentralized, the bank’s book is heavily centralized around the U.S. regulatory regime.

The exact regulatory response to FTX’s collapse hasn’t been written yet. But lawmakers are eager to understand what happened, and there’s been talk of establishing significant guardrails to ensure that what occurred doesn’t happen again.

We can all agree that the FTX-Alameda structure was problematic, but lawmakers are bound to look beyond that and do what they can to heavily restrict future crypto trading in the U.S. Onshore crypto trading isn’t going to look the same in the U.S. in 2023 and beyond – and Silvergate is going to be stuck dealing with this much-more-regulated reality.

But the U.S. isn’t the only regulatory regime in town. Around Asia there are countries and territories with much more industry-friendly rulebooks that provide regulatory clarity, an absence about which many U.S. stakeholders have complained.

Sure, some such as Singapore discourage retail trading, but make up for it with a high concentration of institutions and family offices that trade. Then there’s Thailand, which bans meme coins and some non-fungible tokens (NFT), citing a lack of substance, but doesn’t discourage retail crypto trading if rules can be followed.

“…To protect consumers, we need regulatory guidance for companies that ensures trust and transparency. There’s a reason why most crypto trading is offshore – companies have 0 guidance on how to comply here in the U.S.,” Ripple CEO Brad Garlinghouse tweeted in mid-November.

“Compare that with Singapore, which has a licensing framework, token taxonomy laid out, and much more. They can appropriately regulate crypto b/c they’ve done the work to define what ‘good’ looks like, and know all tokens aren’t securities (despite what [SEC Chair Gary Gensler] insists),” he added in a follow-up tweet.

If crypto gradually moves offshore because of reactionary overregulation in the U.S., Silvergate will have no exposure to this.

Instead, crypto-friendly banks abroad, like Thailand’s SCB (which is actively investing in crypto infrastructure) or DBS will take up this niche. It’s not hard to replicate, after all: Silvergate developed its position in the market by not being outwardly crypto-hostile like other banks. There have already been a few competitors pop up, like Hong Kong’s First Digital Trust (FDT), which directly names Silvergate as a competitor.

The market is ready for this to scale, reproducing Silvergate in an environment that is more conducive to crypto trading.

12:00 p.m. HKT/SGT(4:00 UTC) Australia’s Gross Domestic Product (QoQ)

9:30 p.m. HKT/SGT(13:30 UTC) European Union Gross Domestic Product s.a. (YoY)

2:30 a.m. HKT/SGT(18:30 UTC) Bank of Canada Interest Rate Decision

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