Crypto Market Forecast: Week of May 22nd 2023

The price of Bitcoin (BTC) fell by 0.7% this week, to ~US$26.9K. Ether (ETH) dropped by 0.7% to ~US$1.8K. Binance-coin (BNB) similarly dropped by 1.4% to ~$312.

As Washington debates a potential sovereign debt default, Bitcoin could stand to gain – at least for a time. The idea of the American government defaulting on its debt is a contentious one that divides across party lines.

Treasury Secretary Janet Yellen warned just last week that a default could trigger a recession and that it “could cause widespread suffering as Americans lose the income that they need to get by”.

Of course, once debt ceilings come up every few years, the first thing that politicians threaten to de-fund (in order to regain public support for a ceiling increase) are public parks and firefighters.

As a matter of historical perspective, the US government already defaulted on its debts a number of times in the past, most notably when Nixon closed the gold window and when Franklin Delano Roosevelt (FDR) dictated a change in the exchange rate between the US dollar and gold. Economist Peter St. Onge makes the case that with each US debt default, the government “[takes] all dollars out with them: every bank account, every fixed pension, every dollar saved up in a coffee can”.

In the present inflationary context, a default could manifest itself in the form of capital controls.

As for Bitcoin, at least in the short-term, if the economy suffers as a result of a debt default, the short-term effect could be a drop in stock market prices. If Bitcoin is going to continue, as it has in recent years, to be relatively correlated with tech stocks, we might see Bitcoin’s price impacted in a similar way.

A sovereign debt default, however, could just as easily go the other direction: more closely aligning Bitcoin’s price behavior to that of gold. In times of crisis, the harder money tends to do well, and Bitcoin’s monetary policy being an algorithmic one (not discretionary, as is fiat money), it is positioned to potentially thrive… at least until its thriving instigates a regulatory crackdown against it as governments struggle to save their failing fiat currencies.

The regulatory environment around the world remains uncertain, and crypto asset prices, no doubt, take this into account – with pushes and pulls in different directions.

In the case of the United States, despite the regulatory environment looking grim – with Coinbase threatening to expand outside the USA and with Bittrex closing shop in the country entirely – it is interesting to still observe high-level support for Bitcoin. This year’s Bitcoin 2023 conference in Miami hosts speakers such as presidential candidate Robert F. Kennedy Jr., former House Representative Tulsi Gabbard, and Senator Cynthia Lummis.

Across the pond, we see French regulators inviting American companies to do business there – under the MiCA regulatory framework. Yet in Britain, we see lawmakers dismissing the whole industry as “gambling”.

Crypto news for the weeks ahead

May 26

The US Bureau of Economic Analysis’ (BEA’s) release of March’s Personal Consumption Expenditures (PCE) numbers will be released. This is one of the primary indicators used by the FOMC when considering interest rate levels.

June 13

The Consumer Price Index data for May 2023 will be released – one of the indicators the Federal Open Market Committee (FOMC) watches when considering interest rate hikes.

June 14

The FOMC will be meeting. Futures markets are strongly leaning towards a prediction that no further rate hikes will be announced on that date.

Top 10 Crypto Summary

BNC’s top 10 digital assets by market cap finished the week off flat, with Bitcoin’s price trading between $26.6K to $27.6K during the week. The industry continues with ongoing regulatory uncertainty, and Bitcoin still suffers from high transaction fees due in large part to the network being used for ordinals and BRC-20 tokens – although those transaction fees have come down significantly since the outlier high point on May 8th.

Bitcoin Price Chart

GLASSNODE’s report this week noted that due to text-based inscriptions to mint so-called ERC-20 tokens onto the Bitcoin blockchain, there has been a huge spike in demand for block space, and as such, the transaction count reached new all-time highs, and average transaction fees have, for only the 5^th time in Bitcoin’s history, surpassed the BTC block reward (currently at 6.25 BTC), making those fees a more significant source of revenue for Bitcoin miners.