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Dollar’s rally supercharged by diverging US rate outlook

(Reuters)-17/04/2024

A rally in the US dollar is accelerating, as stubborn inflation sows doubts over how aggressively the Federal Reserve will be able to cut rates this year compared to other central banks.

The US dollar index .DXY , which measures the greenback against a basket of six major currencies, is up 4.6% this year and stands near its highest levels since early November. The index rose 1.7% last week, its biggest weekly gain since September 2022.

The greenback is advancing as market participants grow convinced the Fed will need to leave interest rates at current levels for longer to avoid a potential resurgence of inflation. Last week’s stronger-than-expected consumer price data bolstered that view: investors late Friday were pricing in just 50 basis points of interest rate cuts in 2024, future markets showed, compared to 150 basis points priced in at the start of the year.

By contrast, investors believe some global central banks – including the European Central Bank , the Bank of Canada and Sweden’s Riksbank – could have a freer hand to ease monetary policy. That is a shift from a few months ago, when many believed the Fed would be among the first to cut rates.

“We had a fairly clear path that the Fed would likely be the first actor. The data that we have received really does undermine that,” said Eric Leve, chief investment officer at wealth and investment management firm Bailard. “I can see obvious reasons why the dollar could strengthen further.”

Yield differentials between the US and other economies have widened in recent weeks, contributing to the greenback’s rally as higher yields boost the allure of dollar-denominated assets. The two-year US-German bond spread stood at its widest since 2022 late Friday, LSEG data showed, a day after the European Central Bank reported it could cut rates as soon as June.

Bullish investors have increased their bets on the dollar, while bears have wavered. Net bets on the dollar in futures markets stood at $17.74 billion in the latest week, data from the Commodity Futures Trading Commission showed, the highest level since August 2022.

Central bank policy has diverged in recent months, reflecting economies’ varying struggles to contain inflation.

The Swiss National Bank reduced rates by 25 bps in March, its first cut in nine years. Sweden’s central bank has signaled it could cut rates in May if inflation keeps falling, while the Bank of Canada recently suggested it was ready to ease.

Central banks in Australia, Britain and Norway, on the other hand, appear less eager to loosen monetary policy.

Japan’s yen, meanwhile, has weakened to a near 34-year low against the dollar – though the country has recently ended eight years of negative interest rates. The Bank of Japan has ruled out using rate hikes to support the currency.

Eric Merlis, managing director and co-head of global markets at Citizens, believes the dollar could continue appreciating broadly on the back of a more hawkish Fed relative to the ECB. The euro has fallen 3.6% against the greenback this year.

“The dollar has room to strengthen. We have the strongest economy right now, in general, the trajectory of yields has been going up,” he said. “Whereas Europe is struggling in terms of growth.”

A stronger dollar could complicate the inflation fight for other economies as it pushes down their currencies, while helping the US tamp down consumer prices by tightening financial conditions.

Dollar strength can also be a headwind for US multinationals as it makes it more expensive to convert their foreign profits into dollars, and make exporters’ products less competitive abroad.

Other factors may also be driving the dollar. The US currency is a popular destination for investors during times of geopolitical uncertainty, which has sharpened in recent days on fears over a widening conflict in the Middle East.

Brian Liebovich, chief dealer for global foreign exchange at Northern Trust, believes the dollar may receive a boost from the Fed allowing assets to run off its balance sheet, a process known as quantitative tightening.

The Fed is currently allowing up to $60 billion per month in Treasury bonds and up to $35 billion per month in mortgage bonds to mature and not be replaced.

While Northern Trust expected the dollar to strengthen by up to 5% going into the US presidential election, “market activity since the initial dollar rally this week suggests that move could happen sooner than expected,” Liebovich said.

Others are less certain the dollar has more room to run. Shaun Osborne, of Scotiabank, wrote that the dollar’s recent strength means investors have been priced in a good deal of bullish news.

Rates and spreads are in the dollar’s favor, however, meaning “the trend at the moment suggests the USD will stay better supported,” he said.

HSBC to cut another 20 investment banking jobs in Asia, sources say

(Reuters)-17/04/2024

HSBC is expected to cut an additional 20 investment banking jobs in Asia on a deals slump, takes the total cuts to around 30 this week, three sources with knowledge of the matter said.

The Asia-focused lender started the layoffs on Tuesday in the region, when it notified around a dozen bankers.

HSBC did not respond to Reuters query immediately.

Microsoft pours $1.5B into UAE AI company, sets sights on global expansion

(Coin Telegraph)-17/04/2024

Microsoft continues its expansion into global artificial intelligence (AI) with a strategic partnership and $1.5 billion investment in the Abu Dhabi-based AI tech holding company, G42.

In an announcement on April 16, Microsoft explained that the investment aims to propel AI development forward and expand the accessibility of cutting-edge technologies in both the United Arab Emirates (UAE) and on a global scale.

As part of the collaboration, G42 will run its AI applications and services using Microsoft’s AI computing platform, Azure. The two entities stressed that the partnership will go beyond the Emirates and provide advanced AI solutions to clients in the “global public sector,” as well as large enterprises.

Additionally, the investment aims to support skill development for workers in the UAE to build a “diverse” AI workforce and talent pool.

Sheikh Tahnoon bin Zayed Al Nahyan, the chairman of G42, said that the investment is a “pivotal” moment in the company’s growth.

Brad Smith, Microsoft’s vice chair and president, added that the partnership will also be looking toward areas of the world that are more in need.

“Our two companies will work together not only in the UAE but to bring AI and digital infrastructure and services to underserved nations.”

As part of the collaboration, Smith is also expected to have a seat on the board of directors at G42.

This investment comes as the latest in a string of multiple billion-dollar investments Microsoft has been making in countries all over the world.

On Feb. 15, Microsoft pledged to invest the funds to boost AI infrastructure in Germany over the next two years with a $3 billion euro investment.

Only a few days later, the company revealed that it would also invest $2 billion in AI infrastructure development in Spain, aiming to boost local capacity for the technology.

Most recently, on April 9, Microsoft AI CEO Mustafa Suleyman said the company intended to make a “significant, long-term investment” in the United Kingdom as it starts hiring “passionate innovators.”

However, Microsoft is not the only AI developer making strides in scooping up investment deals and interactions in the race for AI dominance.

OpenAI CEO Sam Altman has been hosting hundreds of executives from Fortune 500 companies to pitch AI services to diversify revenue streams and tap into new markets, putting it in direct competition with Microsoft, a major stakeholder in the company.

History of Crypto: Crippling inflation, rising debt, and the evolving crypto landscape

(Coin Telegraph)-17/04/2024

The cryptocurrency market took a beating in 2022, falling more than 70% during a time when the industry made headlines around the world for all the wrong reasons — from FTX’s bankruptcy and Sam Bankman-Fried’s arrest to the $50 billion collapse of the Terra ecosystem.

The United States also saw inflation hit a 40-year high as the country’s national debt figure continued to rise.

But it wasn’t all doom and gloom. In September 2022, Ethereum made the long-awaited transition to a proof-of-stake network, and Bitcoin’s hash rate increased threefold throughout the year. The market also rebounded strongly in 2023.

Here are some of the major industry events between 2022 and 2023.

U.S. inflation rates have topped out, for now

Crippling inflation was one of several macroeconomic factors that contributed to the 77.2% price drawdown for Bitcoin from its previous all-time high of $68,990 to a cycle low of $15,740 in November 2022.

In fact, the U.S. Consumer Price Index (CPI) inflation rate topped out at 9.1% in June 2022, marking its highest level since 1982, according to the U.S. Bureau of Labor Statistics.

Fortunately, CPI inflation started trending downward after June 2022, bottoming out at around 3% in June 2023. Since then, monthly figures have hovered around the 3% range.

Since June 2023, Bitcoin has soared over 135% from $30,480 to set a new all-time high above $73,000.

However, the CPI inflation rate has risen 11.65% since November 2021, meaning Bitcoin still hasn’t hit its inflation-adjusted all-time high. That will happen when Bitcoin notches $77,026.

U.S. national debt continues to soar

The U.S. national debt continued its exponential rise in 2022 and 2023, increasing 4.35% to $33.2 trillion over those two fiscal years, according to data from the U.S. Treasury.

The debt, which has since risen to $34.5 trillion, has put the U.S. on an “unsustainable fiscal path,” according to U.S. Federal Reserve Chair Jerome Powell.

Fortunately, the U.S. debt to gross domestic product ratio has decreased from about 3.2% to approximately 123%.

Researchers from the University of Pennsylvania say financial markets can only withstand another 20 years of accumulated deficits projected under current U.S. fiscal policy. After that, the debt dynamics would begin to “unravel.”

Coinbase CEO Brian Armstrong recently voiced that increased Bitcoin adoption in the U.S. could serve as a “check and balance on excessive deficit spending,” which he believes is essential for the U.S. dollar to remain strong.

El Salvador is a textbook example of this, according to venture capitalist Tim Draper, who believes the country’s Bitcoin investment could help pay off the $215 million in debt it owes to the International Monetary Fund.

FTX’s collapse shocks the world as SEC plays cop on crypto industry

Tumbling macroeconomic conditions between 2023 and 2023 arguably impacted every cryptocurrency firm, which led to an array of bankruptcies, liquidations and even prison time for some of the industry’s most controversial figures.

The events triggered a wave of regulation by enforcement action by the Gary Gensler-led U.S. Securities and Exchange Commission (SEC), which declared itself the “cop on the beat” for the cryptocurrency industry.

No collapse was bigger than FTX, which saw more than $8 billion in misappropriated customer funds wiped from a crashing market. BlockFi also went bankrupt — citing loans it lost from FTX — while Three Arrows Capital filed for Chapter 15 bankruptcy after its excessive leverage on long positions was wiped out.

Celsius and Voyager were other notable firms that filed for bankruptcy.

Former FTX CEO Sam Bankman-Fried was convicted of fraud in November 2023 for his role in orchestrating what some described as the largest fraud in U.S. history.

The $50 billion collapse of the Terra ecosystem and its algorithmic stablecoin TerraUSD (UST) also caused carnage in May 2022.

The man largely responsible for that collapse was Do Kwon, the former CEO of Terraform Labs, who spent more than five months on the run in several countries before finally being detained at immigration control in Montenegro for using a fake Costa Rican passport.

He faces fraud charges in his home country of South Korea and in the U.S. for the role he played in the Terra collapse.

The SEC became even more determined to catch the remaining “hucksters,” “fraudsters” and “scam artists” in the cryptocurrency industry after Bankman-Fried. Most notably, it sued the world’s largest cryptocurrency exchange, Binance, and its former CEO, Changpeng Zhao, who pleaded guilty to money laundering violations in November 2023.

The securities regulator also sued Coinbase in June 2023, claiming the trading platform unlawfully listed cryptocurrencies, which it considered to be securities.

March 2023 also saw a local banking crisis, with three cryptocurrency-friendly banks collapsing: Signature Bank, Silvergate Bank and Silicon Valley Bank (SVB). This gave rise to fears that the U.S. banking system may not be as resilient as initially thought.

Even Fed Chair Powell was left scratching his head over the collapse of SVB.

Despite several industry setbacks, builders kept building.

Most notably, Ethereum transitioned to a proof-of-stake consensus mechanism in September 2022 and, in doing so, decreased its energy consumption by over 99%.

The Bitcoin network also became more secure between 2022 and 2023, with its hash rate increasing 200% to 515 terrahashes per second during that time frame, according to Blockchain.com data.

Bitcoin halving will lead to more sustainable BTC mining: Report

(Coin Telegraph)-17/04/2024

The upcoming Bitcoin halving could lead to a greener Bitcoin mining network with more sustainable energy sources.

With Bitcoin block rewards set to be cut from 6.25 BTC to 3.125 BTC, paired with a continually increasing Bitcoin hash rate, the profitability of mining firms could take a hit.

In turn, this could lead miners to search for greater capital efficiency via sustainable energy sources, according to Matteo Greco, research analyst at Fineqia International. Greco wrote:

“This dynamic compels mining companies to optimize capital efficiency and seek cheaper electricity sources, leading to an increasing use of renewable energy in BTC mining.”

Bitcoin has often been criticized for its high energy consumption and reliance on fossil fuels. Yet, over 54.5% of the Bitcoin network’s energy consumption has been powered by renewable energy sources since the end of January 2024, according to the Bitcoin ESG Forecast, a monthly research report written by Daniel Batten, the managing partner of CH4 Capital.

Bitcoin mining mechanics are also incentivizing greater efficiency, which could be among the main reasons for the network becoming increasingly more sustainable. Greco added:

“The BTC mining rewards mechanism inherently drives greater efficiency with each step, enhancing network security, reducing carbon emissions, and promoting research into sustainable block confirmation methods.”

Chinese Bitcoin mining: Greener after mining ban

Despite a ban on Bitcoin mining, China currently accounts for around 15% of the global Bitcoin hash rate, according to the April 5 issue of Batten’s Bitcoin ESG Forecast.

“No off-grid coal-based mining occurs anymore. It’s too easy to spot, it competes for baseload energy and interferes with the central government’s emission targets. This has caused a significant reduction of the emission intensity of the Chinese mining post-ban.”

Instead, miners in mainland China primarily rely on hydroelectric power, which is abundantly cheap during the wet months in the four regions of Xi’an, Wuhan, Bejing and Xining, noted Batten, referencing the chart below.

Lastly, Batten noted that a significant amount of retail participants are mining Bitcoin at a loss, mainly to have an exit from the Chinese financial system. He said:

“They convert Chinese yuan for ASICS and electricity which creates BTC, which gets converted into USD. Many retail miners are happy to take the profitability hit simply to have a way to convert Yuan to USD.”

Hong Kong’s Ether, Bitcoin ETFs will be ‘lucky to get $500m’

(Coin Telegraph)-17/04/2024

Three recently approved spot Bitcoin exchange-traded funds (ETFs) in Hong Kong may not be as big of a deal as some may think, according to senior Bloomberg ETF analyst Eric Balchunas.

On April 15, The Hong Kong Securities and Futures Commission (SFC) issued conditional approvals to three offshore Chinese asset managers to begin issuing spot Bitcoin and Ether ETFs. The asset managers cleared for approval include Harvest Fund Management, Bosera Asset Management, and China Asset Management.

However, in an April 15 post to X, Balchunas shot down lofty predictions that the ETFs could generate $25 billion in inflows and pointed to four main reasons why crypto investors should temper their expectations for the recently approved products.

“Don’t expect a lot of flows — I saw one estimate of $25b that’s insane. We think they’ll be lucky to get $500m.”

Justifying his predictions, Balchunas explained that the Hong Kong ETF market is “tiny” when compared to countries like the United States, adding that these ETFs don’t allow Chinese retail investors with official access to the products.

Balchunas noted these three prospective ETF issuers were tiny relative to “big fish” asset management giants such as BlackRock — which currently boasts more than $9 trillion in assets under management.

“U.S. spot bitcoin ETFs have more assets than the entire HK ETF market,” wrote Balchunas in a follow-up poAdditionally, Balchunas said the capital environment for these funds was far less efficient than elsewhere, and fees would likely be set around the 1-2% mark — a far cry from the “dirt cheap fees in the U.S. Terrordome.”

“The underlying ecosystem there is less [liquidity] efficient = these ETFs will likely see wide spreads and prem discounts,” said Balchunas.

“Takeaway: Other countries adding [Bitcoin] ETFs is no doubt additive but it’s nickel-dime compared to the mighty US market.”

On the other hand, the chief crypto analyst at Real Vision and former crypto analyst at Bloomberg Intelligence, Jamie Coutts, said that despite recent reservations at the size of the Hong Kong ETF market, the products would open up a “massive pool of capital” for Chinese investors, who Coutts says are already savvy with skirting government-imposed capital controls.

Notably, the Hong Kong FSC approved the spot Bitcoin and Ether ETFs to be launched using an in-kind model, meaning new ETF shares can be issued directly using BTC and ETH.

The in-kind creation model stands in contrast to the cash-create redemption model, which allows issuers to create new ETF shares only with cash. U.S. spot Bitcoin ETFs currently use the cash-create model, with the SEC fearing that cash-create could lead to money laundering and fraud-related issues.

The spot ETFs are slated for launch in roughly two weeks’ time.

UK to propose clearer crypto regulations by July

(Coin Telegraph)-17/04/2024

The United Kingdom Treasury intends to present a regulatory framework for crypto assets and stablecoins by July, with the aim of encouraging local innovation in digital assets and blockchain technology.

The U.K.’s economic secretary to the Treasury, Bim Afolami, revealed the government’s ongoing drive to lay the groundwork for revamping the country’s payments landscape while speaking at the Innovate Finance Global Summit (IFGS) 2024.

Alongside the U.K.’s focus on fiat payment innovation, Afolami highlighted the importance of crypto regulations to remain globally competitive:

“Speaking of true change, I know that the cornerstone of our position as a world leader in fintech is the delivery of our regulatory regime for crypto assets and stablecoins.”

Afolami further highlighted the British government’s perspective on regulations, which aims to find the right balance between allowing firms to innovate while protecting the consumers.

The U.K. Treasury is working on the final proposals that “deal with stablecoin and (crypto) staking” and plans to deliver them by June or July. The minister added:

“Once it goes live, a whole host of crypto asset activities, including operating in exchange, taking custody of customer assets and other things, will come within the regulator perimeter for the first time.”

Afolami also announced the formation of an open finance task force during the conference.

“The task force will craft a clear set of recommendations, pinpointing the data sets of commercial incentives necessary to drive forward CFIT’s SME lending use case for open finance,” he explained.

From April 26, U.K. authorities will be able to retrieve crypto assets directly from exchanges and custodian wallet providers.

The law comes into effect after amendments were made to the Economic Crime and Corporate Transparency Act 2023, which expands the power of the National Crime Agency to confiscate and seize crypto assets the agency suspects are linked to suspicious illicit activities without needing to go through extensive legal procedures.

While it didn’t outline its process, the most common way to destroy a crypto token is by burning it, transferring the tokens to a burn wallet address and taking them out of circulation.

SWIFT planning launch of new central bank digital currency platform in 12-24 months

(Reuters)-27/03/2024

Global bank messaging network SWIFT is planning a new platform in the next one to two years to connect the wave of central bank digital currencies now in development to the existing finance system, it has told Reuters.

The move, which would be one of the most significant yet for the nascent CBDC ecosystem given SWIFT’s key role in global banking, is likely to be fine-tuned to when the first major ones are launched.

Around 90% of the world’s central banks are now exploring digital versions of their currencies. Most don’t want to be left behind by bitcoin and other cryptocurrencies, but are grappling with technological complexities.

SWIFT’s head of innovation, Nick Kerigan, said its latest trial, which took 6 months and involved a 38-member group of central banks, commercial banks and settlement platforms, had been one of the largest global collaborations on CBDCs and “tokenised” assets to date.

It focused on ensuring different countries’ CBDCs can all be used together even if built on different underlying technologies, or “protocols”, thereby reducing payment system fragmentation risks.

It also showed they could be used in highly complex trade or foreign exchange payments and potentially be automated so to both speed up and lower the costs of the processes.

Kerigan said the results, which had also proven banks could use their existing infrastructure, had been widely regarded as a success by those who took part and given SWIFT a timeline to work to.

“We are looking at a roadmap to productize (launch as a product) in the next 12-24 months,” Kerigan said in an interview. “It’s moving out of experimental stage towards something that is becoming a reality.”

Although the timeframe could still shift if major economy CBDC launches get delayed, getting out the blocks for when they do would be a major boost for maintaining SWIFT’s incumbent dominance in the bank-to-bank plumbing network.

Countries such as the Bahamas, Nigeria and Jamaica already have CBDCs up and running. China is well advanced with real-life trials of an e-yuan. The European Central Bank has digital euro one underway too, while the Bank for International Settlements, the global central bank umbrella group, is running multiple cross-border trials.

SWIFT’s main advantage though is that its existing network is already usable in over 200 countries and connects more than 11,500 banks and funds who use it to send trillions of dollars every day.

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The firm has gone from being virtually unknown outside banking circles to a household name since 2022 when it cut most of Russia’s banks off from its network as part of the West’s sanctions for the invasion of Ukraine.

Kerigan said that kind of move could still happen in a new CBDC system, but doubted whether it would stop countries from joining one.

Its latest trial involved central banks from Germany, France, Australia, Singapore, Czech Republic and Thailand as well as a number that requested to remain anonymous.

A raft of heavyweight commercial banks including HSBC, Citibank, Deutsche Bank, Societe Generale, Standard Chartered and the CLS FX settlement platform all took part too, as did at least two banks from China.

The idea is that once the interlink solution is scaled-up, banks would have one main global connection point able to handle digital asset payments, rather than thousands if they were to set up an individual one with every counterparty.

As well as the advance towards CBDCs, Kerigan pointed to a forecast from Boston Consulting Group (BCG) that by 2030 around $16 trillion worth of assets could be “tokenised” – a process where assets like stocks and bonds are transformed into digital chips that can then be issued and traded in real-time.

“If we can plug in any number of networks (into the SWIFT system) it becomes a much more scalable option for the industry,” he said.

S&P Global downgrades outlooks on five regional US banks to ‘negative’

(Reuters)-27/03/2024

Ratings agency S&P Global on Tuesday downgraded five regional U.S. banks to due to their commercial real estate (CRE) exposures, in a move likely to reignite investor concerns about the health of the sector.

The ratings agency downgraded First Commonwealth Financial (FCF.N), opens new tab, M&T Bank (MTB.N), opens new tab, Synovus Financial (SNV.N), opens new tab, Trustmark (TRMK.O), opens new tab and Valley National Bancorp (VLY.O), opens new tab to “negative” from “stable,” it said.

“The negative outlook revisions reflect the possibility that stress in CRE markets may hurt the asset quality and performance of the five banks, which have some of the highest exposures to CRE loans among banks we rate,” S&P said.

Representatives for the banks did not immediately respond to request for comments outside business hours.

Investor concerns over regional banks’ CRE exposure intensified this year after New York Community Bancorp (NYCB.N), opens new tab flagged a surprise quarterly loss citing provisions on soured CRE loans, which triggered a sell-off in U.S. regional banking shares. The bank has sold assets to shore up its balance sheet.

Investors and analysts have been worried that higher borrowing costs and lingering low occupancy rates for office spaces in the aftermath of the COVID-19 pandemic could result in more lenders taking losses as borrowers default on loans.

Tuesday’s downgrades come a year after the collapse of Silicon Valley Bank and Signature Bank, which heightened investor sensitivity about the health of U.S. regional banks.

In addition to CRE exposure, the sector is also facing challenges from the rising cost of retaining deposits amid high interest rates.

As of Tuesday, S&P had negative outlooks on nine U.S. banks, or 18% of those it rates, it said, adding most of those ratings “relate, at least in part to sizable CRE exposures.” The company rates a range of banks of varying sizes.

Over $6B worth of BTC moved by 5th-richest Bitcoin whale

(Coin Telegraph)-27/03/2024

The fifth-largest Bitcoin holding address — also dubbed “37X” — has moved over $6 billion worth of BTC to three new addresses for the first time since 2019.

The Bitcoin whale transferred nearly its entire balance of 94,500 Bitcoin, worth $6.05 billion, on March 23, leaving only 1.4 BTC in the initial address, according to a March 25 X post by Arkham Intelligence. It wrote:

“$5.03B BTC was sent to bc1q8yj, with addresses bc1q6m5 and bc1q592 receiving $561.46M and $488.40M in BTC respectively. bc1q592 has since sent those funds onwards.”

The transfer occurred during a period of increased institutional interest in Bitcoin, driven by the upcoming Bitcoin halving, which will slash block issuance rewards in half when it occurs in late April.

Despite the Bitcoin price reaching an all-time high before the halving for the first time in history, the incoming supply issuance reduction is still not priced in to the full extent, co-founder of D8X decentralized exchange and former executive director at UBS told Cointelegraph.

The over $6 billion BTC transfer occurred two days before Bitcoin reclaimed the $70,000 psychological price level on March 25 for the first time in 10 days. As investors have resumed accumulating BTC off exchanges, BTC supply on Coinbase reached a nine-year low of 344,856 BTC on March 18.

Bitcoin rose 6.4% in the 24 hours leading up to 9:53 am in UTC to trade at $71,222, according to CoinMarketCap.

Bitcoin’s current rally is mainly driven by the anticipation of the halving and the increased institutional inflows from the ten spot Bitcoin exchange-traded funds (ETFs) in the United States, Christopher Cheung, partner at digital asset funds Ten Squared, told Cointelegraph in a research note:

“The involvement of traditional financial institutions like BlackRock and Fidelity in launching BTC products is further legitimizing cryptocurrency as an alternative asset class. This reduces the ‘career risk’ for investors who were previously hesitant to enter the crypto market.”

Bitcoin ETFs have reached a combined total of $58.3 billion in on-chain holdings, which represents 4.17% of the current BTC supply, according to Dune.