Cryptos Surge Amidst Debt Ceiling Despair

Cryptocurrencies surged more than 1.5 percent in the past 24 hours even as negotiators grappled without a resolution to the U.S. debt ceiling deadlock that threatened to engulf financial markets worldwide.

The rally comes amidst speculations about the global financial impact of a potential debt default, should the lawmakers fail to arrive at a consensus deal before the Treasury runs out of resources. Treasury Secretary Janet Yellen has in the meanwhile reiterated the warning that Treasury could run out of resources as early as June 1, 2023.

Crypto markets also appeared to have for the moment shrugged off concerns that a hike in the debt ceiling could potentially result in the Treasury issuing government bonds to top up its coffers, draining fiat liquidity and jeopardizing risky assets including cryptocurrencies.

Hawkish hints from Fed speakers which added to the Dollar’s strength lifting the Dollar Index, a measure of the Dollar’s relative strength to 103.52, from 103.20 a day earlier also have not halted the rebound in crypto markets.

Expectations of quarter point hike in the Fed’s next review three weeks away, that increased to 27 percent, from 25.7 percent a day earlier and 22.5 percent a week earlier also did not suffice to subdue the rally in digital assets.

Overall crypto market capitalization soared to $1.14 trillion, from $1.12 trillion a day earlier. More than 85 percent of the top 100 cryptocurrencies are trading in the overnight green zone.

On an overnight basis, 66th ranked Kava (KAVA) is the topper, with a rally of 9.8 percent. 84th ranked Frax Share (FXS) is the biggest laggard having shed 1.5 percent.

On a weekly basis, 45th ranked Render Token (RNDR) which gained 41 percent tops the list. 73rd ranked Sui (SUI) which shed 8.9 percent lags the most.

Over the past 30 days, 68th ranked Pepe (PEPE) excels with a rally of 365 percent. 73rd ranked Sui (SUI) is the greatest loser, having declined 76 percent.

On a year-to-date basis, 52nd ranked Conflux (CFX) that gained 1345 percent is the best performer. 96th ranked PancakeSwap (CAKE) which has eroded 42 percent is the biggest laggard in 2023.

Bitcoin gained 1.8 percent overnight, 0.7 percent in the past week and 64 percent in 2023 to trade at $27,275.65.

Ethereum added close to 2 percent overnight to change hands at $1,849.57. Weekly gains add up to 1.7 percent whereas year-to-date gains exceed 54 percent.

BNB (BNB) strengthened 1.7 percent overnight amidst a Reuters report that said Binance comingled customer funds with company revenue in 2020 and 2021.

XRP (XRP) dropped 0.35 percent despite the broad-based bullish momentum across crypto markets amidst anxiety ahead of the verdict in the dispute with SEC.

International Organization of Securities Commissions, a global policy forum of 130 members regulating more than 95 percent of the world’s securities markets, on Tuesday released a consultative document that detailed recommendations to jurisdictions across the globe as to how to regulate crypto assets.

The Consultation Report titled Policy Recommendations for Crypto and Digital Asset Markets is open for comments till the end of July and is expected to be finalized by the end of the year. The recommendations numbering 18 cover six key areas, viz conflicts of interest arising from vertical integration of activities and functions; market manipulation, insider trading and fraud; cross-border risks and regulatory cooperation; custody and client asset protection; operational and technological risk; and retail access, suitability, and distribution. It also contains specific policy recommendations on stablecoins.

Stressing that time has come to put an end to the regulatory uncertainty that characterized crypto activities, the IOSCO called upon jurisdictions to ensure that investor protection and market integrity are upheld in crypto-asset markets.

The report inter alia notes that many crypto-asset service providers typically engage in multiple functions and activities ranging from exchange trading, brokerage, market-making and other proprietary trading, offering margin trading, custody, settlement, and re-use of assets under ‘one roof’. In this context the report recommends to effectively address and mitigate issues on conflicts of interests arising from vertical integration, including the possible need for measures such as legal disaggregation and separate registration. It also calls for specific disclosure regarding each role.

The report and its recommendations assume significance in the context of the FTX fiasco as well as the recent Reuters report on commingling by Binance.

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