First Mover Asia: Bitcoin Trades Sideways, Investors Await Any Fed Interest Rate Signals; IMF Sees Growing Link Between Crypto and Asian Stocks

Good morning. Here’s what’s happening:

Prices: Bitcoin and ether rise, but the wait for Fed Chairman Jerome Powell’s next signals on interest rates continues.

Insights: The International Monetary Fund sees an increasing correlation between crypto and Asian equities and is concerned.

Catch the latest episodes of CoinDesk TV for insightful interviews with crypto industry leaders and analysis. And sign up for First Mover,our daily newsletter putting the latest moves in crypto markets in context.

Prices

●Bitcoin (BTC): $21,221 −0.5%

●Ether (ETH): $1,616 −0.6%

●S&P 500 daily close: 4,128.73 −0.2%

●Gold: $1,760 per troy ounce +0.7%

●Ten-year Treasury yield daily close: 3.05% +0.02

Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.

Cryptos Regain Ground but Investors Nervously Await Fed Chairman’s Signals

By James Rubin

Call this week’s cryptocurrency price saga, «Waiting for Jerome.»

Bitcoin and other major cryptos were mostly flat Tuesday even as investors maintained their anxious vigil ahead of Federal Reserve Chair Jerome Powell’s scheduled utterances on Friday about the central bank’s direction on monetary policy.

Bitcoin was recently trading at about $21,200, roughly where it stood 24 hours ago. The largest crypto by market value has lost about 10% over the past week amid a wider crypto sell-off that has dropped digital assets total capitalization below $1 trillion.

Ether Tuesday and was recently changing hands at about $1,600, about flat from the same time a day go. The second largest crypto by market value’s price has plunged approximately 12% during the past seven days. Other major cryptos were mixed after many of them spent a good portion of the day in the green.

AVAX and DOT were recently up over a percentage point. But EOS and YGG fell more than 6% and 4%, respectively. EOS’s decline follows a week-long surge after EOS Network Foundation (ENF) announced last week that Antelope would be used as the underlying protocol for EOSIO-based blockchains.

Still, the industry mood remained circumspect at best as Coinbase CEO Brian Armstrong reflected in a CNBC interview underlined. «We’ve been in a down cycle but it’s not unusual for us,» Armstrong said. «This one happens to coincide with the broader macro environment coming down. We all hope it will be 12-18 months and a nice recovery. You have to plan for it being longer.»

Equities are flat

Stocks traded sideways, with the tech-heavy Nasdaq, S&P 500 and Dow Jones Industrial Average closing down 0.1%, 0.2% and 0.5%, respectively amid tepid trading. Equity markets are also awaiting Powell’s signals at the annual Jackson Hole, Wyoming, economic symposium.

Is the Fed is still alarmed enough about inflation but comfortable with the pace of the current economic slowdown to maintain its aggressive monetary course of 75-basis point rate hikes? Or will it go dovish and announce a more moderate 50-point hike? Investor expectations have shifted back and forth in previous days.

Celsius’ challenges returned to at least a part of the crypto industry spotlight as it sued crypto custodian Prime Trust in an attempt to claw back $17 million in crypto that the bankrupt lender alleges its former business partner still holds. Filed in federal bankruptcy court, the 54-page suit stems from a dispute over assets tied to Celsius’ yield product customers in Washington and New York.

Meanwhile, debate continued about the Ethereum Merge that will shift the blockchain platform’s protocol from proof-of-work to faster, more environmentally friendly proof-of-stake. Some observers believe the change will have little impact on crypto pricing, despite Ether’s dramatic gains earlier this month.

But Katie Talati, head of research at crypto asset manager Arca, was cautiously optimistic, highlighting the energy efficiency and other improvements resulting from The Merge in comments to CoinDesk TV’s First Mover program. «From a technological standpoint, this is as advanced and as significant as it gets,» Talati said, adding: «We’re potentially going to have a much lower emission of Ethereum, but then also the benefit like the potential for anybody who is a validator or node on the network to earn part of that staking yield.»

She continued that Ethereum is «really hard to price in general because it does act like a currency,» and that Arca would be eyeing data about the yield post-Merge in combination with other information «hoping to have a better valuation for it (Ethereum).»

Biggest Gainers

Biggest Losers

Insights

The IMF Sees Growing Crypto-Asian Stock Correlation and Is Concerned

By James Rubin

Do cryptocurrency prices correlate with Asian equity markets?

In a recent blog post, the International Monetary Fund (IMF) highlighted the increasing interconnectedness between crypto and stocks traded on regional exchanges, reiterating its concerns that crypto might spur financial instability, even if it leads to environmental benefits and greater financial inclusion.

The IMF entry comes as many crypto observers see a lessening correlation between digital and more traditional assets, although others believe the two remain linked, particularly crypto and tech stocks. The latter group, however has focused largely on the connection between globally dominant U.S. equity markets and crypto.

While measured in tone, the post dovetails with IMF positions that have often seemed unfriendly to crypto, including earlier this year when Argentina agreed to “discourage” the use of cryptocurrency as a condition of a $45 billion loan from the IMF.

Crypto’s growth in Asia

Noting crypto’s soaring popularity in Asia among consumers and institutional investors, the Washington D.C. organization said that while «the financial sector appears to have been insulated from these sharp movements, it may not be in future boom-bust cycles.»

«Contagion could spread through individual or institutional investors that may hold both crypto and traditional financial assets or liabilities,» the IMF said. «Large losses on crypto may drive these investors to rebalance their portfolios, possibly causing financial-market volatility or even default on traditional liabilities.»

The IMF noted a sharp increase in the correlation between Asian equity markets, and bitcoin and ether in returns and volatility since 2020. It said that return correlations between bitcoin and Indian stock markets had risen «10-fold over the pandemic» and that volatility correlations had climbed 3-fold.

«Key drivers of the increased interconnectedness of crypto and equity markets in Asia could include growing acceptance of crypto-related platforms and investment vehicles in the stock market and at the over-the-counter market, or more generally growing crypto adoption by retail and institutional investors in Asia,» the IMF said.

Based on methodology the IMF highlighted in a paper earlier this year, the organization said that rising «crypto-equity correlations in Asia» had been accompanied by «a sharp rise in crypto-equity volatility spillovers in India, Vietnam and Thailand» that could shock financial markets.

The IMF noted increasing efforts throughout the region to regulate crypto that have resulted from increased adoption and called for a ratcheting up of efforts to build on these initiatives. Those efforts would include filling «data gaps that prevent domestic and international regulators from fully understanding ownership and use of crypto and its intersection with the traditional financial sector,» and clearer guidelines for financial institutions to «protect retail investors.»

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