Vol Commentary: Quiet Week Ahead?

Cumberland is commenting on the recent volatility and potential opportunities to take advantage of it.

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Last week was fairly headline dense (and markets moved accordingly), and this week looks to be somewhat similar. The most interesting storyline of last week, which will bear watching this week as well, is the movement on SAB 121. SAB 121 is the rule which imposes prohibitive capital requirements on financial institutions custodying crypto; it requires banks to treat client crypto under custody as a liability; it essentially blocks the largest and frankly safest institutions from offering crypto custody. A repeal of SAB 121 last week passed through both the House and the Senate. What is interesting here is that the White House had announced before the vote that if it passed through the Senate, Biden would veto the repeal, keeping SAB 121 in place. Despite that announcement, the repeal still passed the Senate with impressive bipartisan support; twelve Democrats voted for it, including the Majority Leader, Chuck Schumer. Frankly, it’s still extremely likely to be vetoed, and that has to happen in the next ten days. It is encouraging that both sides of the aisle were able to vote for this common-sense repeal, especially for those of us who don’t want to see crypto become a party-lines issue.

Also in Washington, Paul Ryan spoke last week on Bloomberg about Stablecoin legislation, rekindling an effort which earlier in the year seemed to be going nowhere. The current proposal is bipartisan, and would establish a standard for stablecoin issuers. Ryan’s phrasing carefully disassociated stablecoins from crypto, and he highlighted the opportunity to offer regulatory clarity to an industry that could be a net purchaser of hundreds of billions, or even trillions, of US treasuries.

This week, the major catalyst for crypto has nothing to do with crypto. Nvidia has its earnings call on Wednesday, and this could be a major driver of where the stock market heads next. As of writing, the S+P is essentially at an all-time high, and while crypto hasn’t really noticed yet, BTC rarely ignores the macro trend of equity markets for too long; the crypto rally in Q4 and the start of Q1 is attributed to the approach of the ETF, and rightfully so, but it was spurred on by an impressive rally of 30% trough-to-tip between the end of October and the end of March.

Within crypto, there are a couple of negative headlines expected this week, which seem to be mostly priced in. The SEC has deadlines on spot ETH ETFs from VanEck and 21shares at the end of the week, and the market is broadly skeptical that these will be approved, especially after Grayscale withdrew their application last week. Additionally, as discussed above, the White House seems likely to veto the SAB 121 repeal, which needs to come in the next week-and-change.

After the return of Roaring Kitty and the rally in GME last week, it was expected that memecoins would make a run; however, while DOGE and BONK made small gains, they didn’t sustain and they certainly look nothing like the GME stock. The crypto market almost certainly has some meme fatigue here, particularly after the Pump.Fun exploit.

Cumberland will be in Austin next week for Consensus. If you are going to be in town, please reach out!