Also, CoinDesk is hosting a free webinar this Friday on hybrid public and private blockchain solutions for enterprise use cases. The event is sponsored by Hedera.
BTC ETF?
BlackRock, the world’s biggest asset manager, is close to filing an application for a bitcoin exchange traded fund (ETF), according to a person familiar with the matter. BlackRock will be using Coinbase Custody for the underlying assets and the crypto exchange’s spot market data for pricing, the person said – though it’s unknown whether it will be a spot or futures ETF. Coinbase declined to comment. To date, the U.S. Securities and Exchange Commission (SEC), has rejectedeveryapplication for a spot bitcoin ETF, though it has approved several bitcoin futures ETFs for trading.
Push for Crypto
The Hong Kong Monetary Authority (HKMA) is putting pressure on HSBC, Standard Chartered and Bank of China to take on crypto exchanges as clients as the city sets out to become a “crypto hub.” According to a Financial Times report Thursday, the U.K.-based HSBC and Standard Chartered, and Bank of China, were asked by HKMA at a meeting last month why they were not accepting crypto exchanges as clients. The regulator also published a letter saying essentially that due diligence on potential customers “should not create undue burden.” Meanwhile, a leaked bill concerning a possible digital euro shows a number of interesting features including cash-like privacy settings under certain conditions and a ban on paying interest and surcharges.
Rotten Apple
Tech giant Apple may have it in for bitcoin wallets. In the past two days, the tech giant has rejected Lightning wallet Zeus’ application to put its latest release on the App Store and took aim at the Lightning-enabled social network Damus’ tip function. Zeus is apparently in violation of Apple’s guidelines requiring payments apps to get money transmitter licenses. The only thing: Zeus is non-custodial, meaning it does not facilitate transactions. Meanwhile, Damus has had to turn off certain uses of its “zap” function, which allows users to send small amounts of bitcoin over the Lightning Network like Twitter’s “tip” feature, after Apple allegedly said it violated rules concerning the sale of digital content.
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Proving that economics is more an art than a science, Federal Reserve Chairman Jerome Powell said the central bank will “skip” a round of rising interest rates. This left market analysts to debate the meaning of the word.
For the first time in over a year, the Federal Reserve has decided to stay the course by keeping rates at about 5%, breaking its streak of 10 consecutive interest rate hikes. However, Powell has left open the door to further hawkish rate increases, clarifying that he “shouldn’t call it a skip.” What would the market think?
Despite the Fed’s decision to pull back on the most aggressive monetary policy strategy in the U.S. since the 1980s, stocks and crypto crumbled after the press conference. For many, Powell’s slip of the tongue all but guarantees the Fed will continue to raise interest rates this year, likely as early as July, in a bid to cool the economy. Powell said signs show inflation appears to be easing, finally, and will use this … pause … to assess the impact of the Fed’s strategy.
I don’t envy Powell’s job to navigate an economy out of a global pandemic, which contributed to consumer price inflation spiking to 40-year highs of over 9%, as a regional war cut the global supply of necessities like wheat and oil. But the experimental economic rejiggering at the Fed is already one for the history books. “Given how far we have come, it may make sense for rates to move higher but at a more moderate pace,” Powell said, confirming the Fed intends to move more slowly after a breakneck pace. “It’s just the idea that we’re trying to get this right.”
For many, however, Powell has already gone wrong. It’s widely believed that the Fed’s financial engineering contributed to the collapse of three U.S. banks earlier this year – including the second-largest bank failure on record in the U.S. – by cratering the value of U.S. Treasury bonds. Backed by the full faith and credit of the U.S. government, Treasurys are considered the safest investment in the world. This banking distress could continue to weigh on the economy.
Then there are the effects on everyday folk. According to a WalletHub survey (between May 29 and June 2) two-in-five people say Fed rate hikes are forcing them into more debt, and putting their jobs at risk. Part of the Fed’s strategy of cooling an overheated economy is by increasing unemployment. WalletHub projects further that the Fed’s cumulative rate hikes of 500 basis points will translate into consumers paying $33.4 billion in extra interest charges over the coming year.
Borrowing costs are the highest in years and mortgage rates have been volatile and even if inflation has technically come down. People still report paying more than ever for groceries, healthcare, etc. Powell is at least candid about the difficulties ahead of trying to push inflation down to the Fed’s standard 2% target. “The process of getting inflation down is going to be a gradual one,” he said. Though he thinks the right conditions for that “are coming into place.”
Whether that translates into less economic anxiety is another question. It’s worth noting the stock market recently entered a bull market (as have most assets, besides crypto), which is a catalyst for populist rage considering who owns the majority of stocks (i.e. not the people hurt most by higher consumer prices).
To put a bow on this, because this is a crypto news site, there was a time when bitcoin advocates really seemed to think that government mismanagement or incompetence would drive people into the fold. If that was ever true, perhaps around when you could still call bitcoin an inflation hedge, adoption likely only happened around the margins. Bitcoin traded flat during the recent U.S. debt default crisis – if ever there was a time for a hedge, or a currency with a predicable issuance schedule. In the U.S., it’s hard to see bitcoin treated as anything more than a curiosity – at least in the short term.
But these things are relative. In places like Turkey and Argentina, bitcoin adoption continues to outpace those countries’ inflation. In other words, it’s a hedge depending on what currency you’re using. I guess that’s why they call economics a “soft science.”
