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MAY 23, 2022

CRYPTO MARKET OUTLOOK

Bank of America (BAC) released a research report on cryptocurrency markets and found limited potential for growth in the short-term. The report mentions that the digital asset sector is currently trading within a range due to challenging macroeconomic conditions, low investor confidence, and a lack of catalysts to drive market growth. Additionally, although hedge funds have started trading digital currencies again after a period of decline, BAC predicts that cryptocurrency trading volumes will remain low, as retail investors are not showing much interest. However, traditional finance (TradFi) and technology firms are increasingly adopting blockchain technology to address everyday banking and finance issues.

DEBT CEILING UPDATE

The latest U.S. debt ceiling meeting was described as “productive” and “professional,” but it did not show much progress as a deal is yet to be reached. The negotiations between President Joe Biden and House Speaker Kevin McCarthy have been complicated due to differences in spending caps and cuts to government outlays. However, both sides are compromised to continue talks and are optimistic about finding common ground before the June 1st deadline.

INVESTORS SEEK ALTERNATIVES

As debt ceiling negotiations continue, it has become difficult for investors to decide where to invest their money. To everyone’s surprise, corporate bonds are offering lower yields than Treasury bonds, with established companies such as Microsoft and Johnson & Johnson trading nearly 1% lower than Treasury bonds. Although Treasury bonds are usually considered the safest investment, investors seem to be looking for other options due to the current market uncertainty concerning the ability of the U.S. government to raise the debt ceiling on time to avoid a potential default.

GOLD PRICES FALL

Gold prices have experienced a 0.8% drop, marking the second day in a row of decline to around $1,961 an ounce. As an asset that investors usually seek in tough economic or political times, gold’s supporters often recommend it as a safe option in a worst-case scenario like a U.S. debt default. However, despite the Treasury’s warning that the default could arrive as early as next week if a deal fails to be reached, investors have remained relatively calmed, hoping that a deal could be agreed before the deadline.

INTERNATIONAL NEWS

The International Monetary Fund (IMF) expects the UK to maintain positive economic growth in 2023 despite a significant slowdown compared to last year. The UK’s economic growth has been obstructed by challenges such as its current high inflation at 10.1%, energy costs, and the impact of the Covid-19 pandemic and Russia’s invasion of Ukraine. Nevertheless, the UK has endured recent global banking stresses well, and the government is very optimistic about improving the country’s growth prospects.

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