The Bitcoin rally continues, with the largest cap asset now trading above $12k and the futures curve moving into deeper contango, as crypto market participants continue to react to the recent developments in the FX market. Notably, the Chinese Renminbi weakened beyond 7 per US dollar for the first time since the 2008 global financial crisis, breaching a level that China’s central bank (PBOC) has previously defended as the prospects of a trade deal between the US and China have continued to fade away. Unexpectedly though, the PBOC on Tuesday set daily currency fixing stronger than analysts expected and announced the planned sale of yuan-denominated bonds in Hong Kong. This comes directly after the U.S. labelled the country a currency manipulator, which helped drive the yuan up 0.2% a day after it sank to its lowest point since 2015. The central bank also rejected the accusation it manipulates the yuan. In times of distress, cash is king, and, while the focus may be on Bitcoin and other large cap assets in the crypto space, the growing importance of stablecoins will likely again be on display. Maintaining the peg can be just as challenging in times of high velocity inflows as it is during aggressive outflows, and premiums on the likes of KRW and CNH are to be expected. At the same time, Tether (USDT) may gain further ground against other stablecoins, given its preference during capital flight times.
As the cryptocurrency market remains focused on topping highs reached in Dec'17, a crisis is slowly brewing in the lending market and it is linked to the shape of the futures curve. Specifically, contango is actually a very dangerous phenomenon for retail platforms because most of the deposits are in crypto and cannot be sterilized via USD or BTC. This creates a problem for the lender, and one of the ways to keep the customer from leaving is to subsidize the interest rate from their ICO or VC raise, all in the hope that the market structure will flip. The professional desks, like Genesis Global Trading, won’t face such issues — at least not to the same extent, given their much more diversified book and approach to risk management.
Elsewhere, Coinbase has announced the possible addition of eight new tokens to its current collection. In an official blog post on Aug. 5, the group noted that the exchange is currently exploring support for Algorand (ALGO), Cosmos (ATOM), Dash (DASH), Decred (DCR), Matic (MATIC), Harmony (ONE), Ontology (ONT) and Waves (WAVES).
As planned, Litecoin's block reward was cut in half yesterday, with LTC up over 10% on the day, as a last-minute squeeze by miners, together with a broad based market rally, helped the so-called "digital silver" trade back above $100. With LTC’s halving event out of the way, it is only a matter of time before Bitcoin's halving event, set for May 2020, starts garnering more attention across the crypto media.
Thank you for reading,
The BeQuant’s Analytics team