Bitfinex Alpha | Bitcoin Stays Calm Despite CEX Lawsuits

The US economy continues to face a mixed economic landscape as more key indicators roll in. Wholesale prices, as measured by the Producer Price Index (PPI), experienced a larger-than-expected decline in May, pointing towards a potential slowdown in inflation. This trend suggests that supply chain bottlenecks are easing and that demand for goods is slowing in response to higher borrowing costs. This vindicates the Fed’s decision last week to keep interest rates unchanged for now (although it has indicated the possibility of increasing borrowing costs later in the fiscal year.) These policy adjustments come, though as other measures of the economy display unexpected resilience and a slower deceleration in inflation than initially anticipated.

The latest data from the US Department of Labor reveals minimal growth in consumer prices in May, and the smallest annual increase in inflation seen in over two years. However, underlying price pressures remain robust, with cost reductions in energy and services being the primary cause of the headline inflation slowdown. Excluding this volatile category, persistent inflation remains well above the Federal Reserve’s target of two percent. As the US grapples with these inflation dynamics, another significant concern emerges: the surging budget deficit. May witnessed a fourfold increase in the deficit compared to the previous year, primarily due to increased government spending and decreased tax collections. Additional contributing factors include heightened spending by the Federal Deposit Insurance Corporation, in response to recent bank failures and takeovers. The FDIC anticipates recovering most of the funds it is spending through the sale of bank assets and higher industry fees. Nevertheless, the growing budget deficit underscores the ongoing fiscal challenges and the need for concerted efforts to address and manage the escalating deficit.

Amidst these economic fluctuations, small businesses in the US report mixed sentiment. While small business confidence rebounded in May, concerns about the economic outlook and inflation remained prevalent among business owners. The National Federation of Independent Business survey, however, also highlights the continued eagerness of businesses to hire more workers, indicating positive developments in the labour market recovery.

A Resilient Crypto Market Amid Regulatory Turbulence and Bitcoin’s Bounce Back from $25,000 Level

Despite the SEC lawsuits against  Binance and Coinbase, the crypto market remains remarkably stable. On-chain movements show in fact an intriguing divergence in investor behaviour: on the one hand, substantial withdrawals for transactions below $10M in size; on the other, consistent deposits for transactions above this threshold. 

The outflows suggest a shift towards accumulation, despite the murmurings of regulatory scrutiny, with long-term Bitcoin holders appearing unfazed, keeping their faith in the asset’s long-term value intact.

The outflows being seen suggest a shift towards accumulation, despite the murmurings of regulatory scrutiny, with long-term Bitcoin holders appearing unfazed, keeping their faith in the asset’s long-term value intact.

Furthermore, Bitcoin’s swift rebound last week from the significant $25,000 barrier did not spawn a short squeeze, indicating that the price appreciation was not a consequence of short liquidations but perhaps, the result of sizable futures long positions holding up the price.

Market News

These bullish signals come against a backdrop of an eventful news agenda, led by the SEC pausing its decision to respond to Coinbase’s earlier petition requesting the regulator to bring greater clarity to rules governing crypto assets. This continues to be a source of frustration at Coinbase.

In contrast, Binance.US breathed a sigh of relief last week, as a federal judge denied the SEC’s request to freeze its assets. This decision, which allows the cryptocurrency exchange to remain operational while negotiations continue, has been hailed positively by the crypto community.

In further good news, BlockFi, the crypto lending firm that suspended withdrawals following the collapse of FTX, has signalled the resumption of withdrawals in the coming months.

The Hong Kong Monetary Authority (HKMA) is also pushing major banks to embrace crypto exchanges as clients, attempting to solidify Hong Kong’s position as a global cryptocurrency hub. The move comes amidst intense global regulatory scrutiny and reflects Hong Kong’s ongoing enthusiasm for the burgeoning crypto industry.

In a significant legal development, Bittrex, a US-based crypto exchange undergoing bankruptcy proceedings, has also been given the green light to allow customer withdrawals. The decision, however, doesn’t clarify the precedence of customer claims over government claims, hinting at potential legal challenges in the future.

This whirlwind week of regulatory battles and strategic shifts in the crypto-sphere provides a snapshot of the volatile dynamics shaping the future of digital asset trading and regulation. As exchanges, regulators, and stakeholders juggle varying interests and navigate the intricate landscape, the crypto world watches, anticipating a new chapter in the evolution of digital finance.

Happy Trading!

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