OPTIMISTIC EXPECTATIONS

Anticipating a positive shift in the landscape of Bitcoin investment, Jeremy Allaire, co-founder and CEO of Circle – a financial technology company, believes that the recent influx of Bitcoin exchange-traded fund (ETF) applications will pave the way for regulatory approvals. Addressing concerns previously raised by financial watchdogs, market developments such as mature market structures, regulated custody infrastructure, and robust market surveillance are creating a favorable environment for the approval of Bitcoin ETFs. Allaire’s optimism arises from the progress made in addressing past concerns, increasing the likelihood of broader investor access to Bitcoin ETFs. While the U.S. Securities and Exchange Commission (SEC) has expressed caution, citing the need to protect investors from potential fraud and manipulation, Allaire maintains that Bitcoin remains a valuable hedge against persistent inflation and weakening currencies. This sentiment is reinforced by the growing institutional interest in crypto-based investment products, evident in the rising assets under management, with ProShares’ Bitcoin Strategy ETF (BITO) surpassing $1 billion in total assets.

EXPECTED HIKES

Morgan Stanley economists have revised their predictions and now anticipate that the Federal Reserve will raise interest rates during its meeting in July, after Chair Jerome Powell indicated that the central bank has yet to complete its aggressive hiking cycle. While some observers were puzzled when policymakers maintained rates earlier this month while also predicting the need for additional hikes to combat inflation, Powell dismissed any notion that future rate increases were unlikely during his presentation of the Fed’s half-year economic update to Congress. Consequently, Morgan Stanley economists, including Ellen Zentner, believe that the likelihood of an interest rate hike is significantly higher than their initial expectations, forecasting an increase of 0.25%.

CENTRAL BANKS’ LOSSES

According to a recent survey by the Official Monetary and Financial Institutions Forum (OMFIF), global central banks that primarily invest in government bonds experienced significant losses in managing their reserves last year. These losses were a result of aggressive monetary policy tightening and currency interventions aimed at supporting their financial units against a strengthening dollar. OMFIF’s survey revealed that out of the 75 reserve managers surveyed, responsible for assets worth almost $5 trillion, around 40% expect to recover from these losses within the next one to two years, while almost a quarter expect a longer recovery period of two to five years. In addition, the survey unveiled that 38% of reserve managers foresee a global recession within the coming year. Despite the losses suffered from bond holdings, reserve managers are turning to the bond market and gold as risk-averse investments over the next two years, reflecting concerns about a potential global slowdown and the threat of stagflation.

OIL PRICES STABLE

Oil prices have hovered around $69 per barrel as traders assessed the impact of China’s economic stimulus measures and the outlook for higher interest rates. As a result, West Texas Intermediate stabilized following the previous volatile trading session, triggered by the political unrest in Russia. Moreover, although Chinese Premier Li Qiang recently announced the government’s plan to introduce more effective measures to boost domestic demand, experts view this announcement as a reiteration of past statements made by officials, lacking a significant impact. Meanwhile, the hawkish tone adopted by policymakers on interest rates last week has added to the complexity of the situation.

INTERNATIONAL NEWS

In a recent speech at the ECB annual policy conference, President of the European Central Bank, Christine Lagarde, warned that despite a fall in inflation rates since last year’s all-time highs, persistent inflation continues to be a concern. The slowdown of the inflationary impact of shocks is ongoing, delaying the decline in inflation. Moreover, workers are now demanding higher wages, and this may maintain an inflationary wage-price spiral. To address this issue, the ECB plans to increase rates decisively to break the persistence of inflation, discouraging expectations of too-rapid policy reversal and keeping rates high as long as needed.