(Original Caption) Croyden, England: Stunt flyer stands on top of his plane. Photograph, England, ca. 1910.
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The crypto market capitalization has jumped over $60 billion to reach $1.35 trillion in the past 24 hours, with the likes of Cardano’s ADA token and programmable blockchain Solana’s native coin SOL leading the way higher.
According to data sourced from Forbes at 06:00 EST, ADA topped the list of biggest gainers with a 12% gain at $0.6360, followed by SOL and decentralized open-source blockchain Tezos’ XTZ coin flashing double-digit returns. SOL took a beating last week after the network suffered a major outage, bringing activity to a standstill for almost five hours. Bitcoin, the leading cryptocurrency by market value, has risen 5% to $31,460.
Chart showing an overnight bounce in the crypto market cap and S&P 500 futures.
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Cryptocurrencies’ ascent began during the Asian hours as Beijing’s decision to roll back restrictions imposed to control coronavirus pushed regional stock markets higher. The Shanghai Shenzhen CSI 300 Index, one of China’s most closely followed stock market indices, rose by 1.9%, registering the biggest gain in two weeks. The futures tied to the S&P 500 jumped 1%.
The unwinding of restrictions could alleviate supply chain issues and cap inflation worldwide, easing pressure on central banks to tighten liquidity at a faster rate. As a manufacturer to the world, the disruptions in China fuel high inflation and economic slowdown across the globe. Covid-induced lockdowns are economically painful because they bring economic activities to a standstill and lead to supply chain issues and high inflation.
Additionally, hopes that the crypto regulation bill set to be introduced by Senators Cynthia Lummis and Kirsten Gillibrand on Tuesday would pave the way for integrating digital assets into the mainstream economy may have contributed to risk revival.
Both senators are widely-perceived as being crypto-friendly. Lummis, a bitcoin holder and the first-term Wyoming Republican, has made appearances at several crypto festivals in the past 12 months. Last month, Senator Kirsten Gillibrand, the former Democratic presidential candidate, said that the impending bill would “allow this industry to grow, allow it to flourish.”
The bill will likely include definitions of which coins are commodities versus securities, regulations for stablecoins and non-fungible tokens (NFT) and could consist of a framework for central bank digital currencies (CBDC).
Lastly, hedging activity by market makers may have contributed to bitcoin’s bounce. “Too many investors have bought call options [bullish bets] recently. Therefore, to hedge against upside risks, market makers could be buying more spot or futures,” Griffin Ardern, a volatility trader from crypto asset management firm Blofin, told Forbes.
Market makers are entities with a contractual obligation to maintain a healthy level of liquidity on an exchange. They make sure there is enough depth in the order book by offering to buy or sell a call/put option/futures contracts at any given point in time and run a direction-neutral book. For instance, if a trader named Bob’s sell order in BTC doesn’t have a matching buying order on an exchange, the market maker will step in and make the purchase. While doing so, the market maker also takes a short position in the futures market or buys a put option or bearish bet, keeping his exposure price-neutral.
Whether the crypto market bounce gathers pace over the coming weeks mainly depends on the US and China consumer price inflation (CPI) data scheduled for release on Friday.
According to consensus estimates, the US CPI likely saw a steep rise of 0.7% in May following April’s 0.3% jump, although the annualized rate is seen holding steady at 8.3%. Core inflation, which strips out the volatile energy and fuel component, is expected to come in at 5.9% year-over-year, marking a third consecutive monthly slowdown.
Surprises on the upside would dash hopes for the Federal Reserve (Fed) to slow interest rate hikes anytime soon and may bring renewed selling pressure to stimulus-addicted asset markets.
The Fed turned hawkish late last year and has raised borrowing costs by 75 basis points this year. Additionally, the central bank has begun trimming its nearly $9 trillion balance sheet from this month.
