Market Commentary - July 27th, 2023

CryptoAt the time of writing Bitcoin is trading at $29,650, Ethereum is at $1,885 and XRP is at $0.728. As we near the halfway point of summer, when we look back at this period of crypto, it will be easy to say that price action was boring and volumes were low. But when you peel back the the onion and begin to dissect the crypto market as a whole, we might be able to say that this was the period when everything changed. While retail interest in crypto has fallen, institutions are taking crypto more serious now than ever before. The biggest players in traditional financial markets are preparing to go toe-to-toe with the SEC for a spot Bitcoin ETF. A Judge has ruled that XRP is not a security and we now have a legitimate presidential candidate that is pro-Bitcoin (has even mentioned backing the USD with BTC). Add into the mix that Congress has more pressure now than ever to provide regulatory framework for crypto and the halving is right around the corner, all signs are pointing towards a bull market with fresh institutional money itching to make a move.Bullish momentum aside, investors are increasingly becoming more worried about a US recession and interest rate environment that hasn't been this tight since 2007. Should we be worried about never seeing new all time highs? A dive into on-chain analytics and you'll quickly realize that the Bitcoin holder base is stronger than ever. Plus, with BlackRock and others interested in a Spot ETF, the market is telling you something about where money wants to flow. How much demand could these ETFs bring is anyone's guess, but Greg Foss, a well known Bitcoiner with years of experience in Fixed Income thinks that the ETFs could bring in $50 billion seemly overnight into Bitcoin. He derives this number from comparing the inflow into the Canadian Bitcoin ETFs (about 1/10 of the size of the US financial markets) which brought in about $5 billion. Such an inflow would not be supported at current market prices. Supply and demand economics tells us what happens next.All of this talk about Bitcoin is great, but how will this affect the rest of the market. If we start with ETH, a low hanging fruit would be an eventual US spot ETF. This is precisely what happened in Canada and the US will likely follow suit, but the timeline remains very unclear. We will likely need to see some legislation passed in the US determining how exchanges can register as broker dealers and how the SEC and CFTC will work together to regulate the industry. An ETH ETF sounds appealing because there is a good chance that the Ethereum will be staked in the ETF wrapper, offering investors a yield that they wouldn't otherwise get with a Bitcoin ETF.XRP is a coin that has seen a lot of interest lately, especially after the latest ruling in the SEC case. Although it seems likely the SEC may appeal the ruling, there is now precedent being made for the rest of the industry. It's also a blow to the SEC's crypto crackdown and may signal that the SEC needs to back off and work more closely with industry players. Although in the long run, it's unclear as to how the XRP token will fit into the bigger picture, there seems to be a lot of positive momentum building behind the project.MacroYesterday, the Fed raised interest rates again by 25 basis points, now bringing the benchmark rate to 5.5%, a 22 year high. This was no shock to the market as this had been pricing this in for quite some time. This rate increase comes after CPI reported better than expected earlier this month at 3%. Jerome Powell left the door open for more hikes in September, but said they will be evaluating CPI, Employment conditions and growth on a monthly basis to determine future decisions. Key signals to watch out for in the Macro environment continue to be the DXY index, the VIX, and the Reverse Repo Market. Any sign of weakness in the DXY and risk assets will get more attention. As for the Reverse Repo Market, continued declines in overnight balances will be a sign that the Fed may need to begin easing financial conditions.In Canada, after pausing rate hikes for a few months, interest rates were raised by 25 basis points on July 12th, bringing rates to 5%. About a week later, CPI in Canada was reported at 2.8%, a sign that the interest rate hikes have been working and inflation is cooling. The housing market in Canada remains an area of focus as mortgage rates are at the highest level since 2008.Equities, Fixed Income, FX and CommoditiesEquitiesIn Equities, rate hikes have done little to hold back Trad-Fi thus far as the S&P, Nasdaq and Dow Jones have continued their melt up and are back near all time highs. Regional banking stocks have seen some volatility recently, but have shown signs of recovery. AI and tech stocks continue to be a hot market with Nvidia holding above the $400 range for more than a month now.Fixed Income, FX & CommoditiesIn Fixed income, treasurys have remained relatively stable in the 5% range. In FX, the MXN has continued to be a strong currency with continued appreciation against both CAD and USD. the JPY has seen some volatility appreciating 2.9% month to date against the USD, now at 140. Crude Oil has shown strength after production cuts last month and is now trading at $83.25/barrel. Gold and Silver have seen some attention lately being up 2.8% and 9.5% respectively.News we've been readingElon Musk's Twitter Overhaul Could Be Huge for DOGE and Crypto Generally: Twitters rebranding into X might be a big opportunity for crypto as Elon Musk aims to make X "the everything app"- link - @CoindeskCryptoverse: Ripple effect as explosive XRP leads market charge: The latest XRP ruling sets a friendly precedent for the rest of the crypto market. What comes next could see more money flow into the ecosystem link - @ReutersWhat do I think about biometric proof of personhood?: Vitalik had some comments on the hot topic of Worldcoin and privacy- link - @Vitalik.ETHBitcoin Spot ETFs Could Bring $30B in New Demand, Crypto Trader NYDIG Says: "A spot Bitcoin ETF can help with drumming up more interest into Bitcoin and will undoubtedly attract some fresh money into the space. But that won't make one Bitcoin worth $100k single-handedly."- link -@CoindeskThe fine printClickherefor the fine print.