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JUNE 22, 2023

BITCOIN TRADING SURGES

Coinbase Custody, the crypto exchange service that provides institutional investors with a secure wallet to store large sums of tokens, including Bitcoin, saw a significant increase in the value of Bitcoin held in their wallet by 2,500 BTC last week. Following BlackRock’s recent request for a Bitcoin ETF, trading volumes on Coinbase were driven higher, with bitcoin prices rising by 20% in the last week. Over the past 24 hours alone, the exchange traded more than $2 billion worth of tokens, with trading pairs against the US dollar and tether (USDT) accounting for $900 million of those volumes.

STEADY JOBLESS CLAIMS

The Department of Labor has reported that the number of people filing for state unemployment benefits remained at a high level for the third consecutive week. In the week ending June 17, there were 264,000 new claims, the same as the previous week. This indicates a potentially weakening labor market amid the Federal Reserve’s tightening of credit. Economists had expected around 260,000 new claims. Additionally, the current account deficit in the US slightly widened in the first quarter of 2023, breaking a streak of three quarters of narrowing. The gap increased to $219.3 billion, compared to a revised $216.2 billion in the previous quarter. Economists had predicted a slightly smaller widening to $217.5 billion.

POTENTIAL SHRINK IN BALANCE SHEETS

According to Annette Vissing-Jorgensen, a senior advisor to the Federal Reserve Board, both the Federal Reserve and the European Central Bank may remove as much as 90% of the money they provided to banks over the last decade due to higher inflation rates and interest rates, which have made the extra liquidity unnecessary. In a newly published paper, Vissing-Jorgensen estimates that the Fed could shrink total reserves from $6 trillion to a range of $600 billion to $3.3 trillion, depending on the type of assets it accepts in return. The same applies to the ECB, which may reduce its liquidity provisions from 4.1 trillion euros to anywhere between 521 billion euros and 2.6 trillion euros.

BANKS’ CONCERNS

U.S. banks are concerned about a regulatory proposal that could increase bank capital requirements and become too onerous, especially for those still recovering from the bank crisis earlier this year. The U.S. Federal Reserve, along with other bank regulators, is finalizing the proposal to implement international capital standards set by the Basel Committee on Banking Supervision in response to the financial crisis of 2007-2009. The bank professionals in question are worried about a particular aspect of the proposal that would increase capital charges on non-interest revenue, such as fees earned from credit cards and investment banking services. They argue that these charges overstate the risk for banks with a high proportion of non-interest income and have called on regulators to cap the proportion of assets on which they can apply. Many banks have been relying on non-interest income as a key growth strategy, so it is no surprise that they are looking to minimize the impact of the proposal. Some of the banks that may be affected by the proposal include American Express, Morgan Stanley, UBS, Deutsche Bank, and Barclays.

INTERNATIONAL NEWS

The Bank of England (BOE) has raised its key interest rate by 0.5% to 5%, as it aims to control inflation, which is the highest among the Group of Seven (G7) countries. While the U.S. and the Eurozone have seen decreasing inflation rates, UK’s inflation rate, remains stubbornly high at 8.7%. The BOE is paying close attention to services inflation as this could indicate rising wages pushing prices higher. Moreover, if inflation remains high, the BOE might raise its rate even further, which could affect households, especially those on a variable rate mortgage, as it affects the cost of repaying their loan. The full impact of the rate rise will not be felt right away, however, experts forecast a potential slow down the UK’s economy as borrowing costs continue to rise.

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