Crypto Market Forecast: Week of August 7th 2023

The price of Bitcoin (BTC) fell by 1.3% to ~US$29.0K in the last week. Ether (ETH) dropped by ~2.7% to ~US$1.8K. Binance-coin (BNB) did likewise, dropping by by 0.1% to ~US$244.

Credit assessor Fitch Ratings downgraded the United States Long-Term Foreign-Currency Issuer Default Rating (IDR) from AAA to AA+. One reason cited by Fitch for the downgrade was the “erosion of governance” in the United States, notably the debt limit suspension until 2025. Two notable additional reasons stated were rising government deficits and government debt (“still well above the pre-pandemic 2019 level”). Fitch also projects an economic recession sometime between Q4 2023 and Q1 2024 and further Fed interest rate hikes before the end of the year.

Economist and former trader Peter Earle from the American Institute for Economic Research discussed the credit rating downgrade last week. He wrote that it was “overdue in light of the long and enthusiastic abandonment of fiscal soundness in Washington DC, recently abetted by monetary policy authorities. A nation simultaneously so dependent upon outside financing while so eager to throw its weight around globally would be wise to, at the very least, keep its books somewhat orderly”.

As the economic situation in the United States and around the world continues to look strained, investors are likely to increasingly look beyond U.S. securities as a store of value. Alternative asset of some sort with scarcity not subject to human discretion, like Bitcoin are being reviewed.

In response to the Securities and Exchange Commission’s (SEC) lawsuit against Coinbase in June, Coinbase requested a judge dismiss the case on Friday. The SEC asserted that Coinbase had been operating as an unlicensed broker, selling securities.

Coinbase’s filing challenged the assertions, stating that the SEC’s portrayal of “a simple asset sale as a security is an unprecedented stretch”, that the SEC “misreads” the Howey test (the criteria to qualify as a security in the United States), and that an investment contract “requires an expectation in the income, profits, or assets of a business”.

The filing also referenced the recent Ripple vs. SEC case (which ruled that XRP sales on exchanges were not securities but institutional XRP sales were), arguing that “The Ripple court found no investment contract based on facts substantially identical to those alleged here”. Elsewhere it provided quotes from past public statements made by SEC Chair Gary Gensler, stating that “there is not a market regulator around these crypto exchanges” and that (as Gensler argued in the past) naming an authority to regulate exchanges could only come from Congress.

Crypto news for the weeks ahead

August 10

The Consumer Price Index data for July will be released – one of the indicators the Federal Open Market Committee (FOMC) watches when considering interest rate hikes.

August 31

The US Bureau of Economic Analysis’ (BEA’s) release of July’s Personal Consumption Expenditures (PCE) numbers will be released. This is the primary indicator used by the FOMC to measure inflation and is considered carefully when considering interest rate levels.

September 20

The FOMC will be meeting. Futures markets are strongly leaning towards a prediction of no further rate hikes, thus leaving the federal funds rate target at 5.25 – 5.5%. Fed Governor Christopher Waller, however, hinted in mid-July of additional rate hikes.

Top 10 Crypto Summary

For the second week in a row, the majority of BNC’s top 10 assets by market cap finished mostly flat – with a slight 1.3% drop for the price of BTC, 2.7% for ETH. XRP was the outlier with a 12.7% drop after having benefitted in recent weeks from a (mostly) favorable court ruling for Ripple.

Bitcoin Price Chart

GLASSNODE’s weekly insight report, the firm looks at recent DeFi activity since a low point in June when the SEC asserted that 68 cryptocurrencies were unregistered securities. GLASSNODE notes that BlackRock’s Bitcoin spot ETF application as well as the (somewhat) victorious court ruling in favor of Ripple both helped renew market sentiment for DeFi.