Markets Muted as Ark Invest Bitcoin ETF is Delayed

August 14, 2023

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PayPal’s brand new USD stablecoin (PYUSD) sent shockwaves through the crypto industry last week but the coin has already encountered fierce criticism and skepticism from both crypto and tradfi experts.

Meanwhile, U.S. inflation figures came in below expectations, indicating both positive and intriguing possibilities for the Federal Reserve’s next interest rate decision.

Additionally, the SEC’s recent decision to delay the launch of ARK’s Bitcoin ETF points to the complex path such investment products are treading.

PayPal’s new stablecoin encounters its first headwinds
US inflation figures come in below expectations
Ark Invest’s Bitcoin ETF decision delayed by SEC

PayPal’s new stablecoin encounters its first headwinds

PayPal has recently unveiled its plans to introduce a groundbreaking stablecoin, shaking up the cryptocurrency industry once again.

In an announcement on Monday, the payment giant declared the imminent arrival of PayPal USD (PYUSD), a stablecoin designed for seamless payments and transfers.

Backed by Paxos Trust Company, PYUSD’s value will be anchored to a combination of U.S. dollar deposits, short-term U.S. Treasuries, and other cash equivalents, establishing it as a reliable digital asset in the cryptocurrency landscape.

Notably, PayPal is orchestrating a gradual rollout of PYUSD exclusively to its U.S. customer base. This strategic move marks a significant milestone, as it signifies the first instance of such an initiative by a major U.S. financial institution.

With a commitment to transparency, PayPal vows to disclose exchange rates and any associated transaction fees to its users during cryptocurrency transactions.

In a press release, PayPal elucidated the multifaceted utility of PYUSD, stating, “PayPal USD is designed to reduce friction for in-experience payments in virtual environments, facilitate fast transfers of value to support friends and family, send remittances or conduct international payments, enable direct flows to developers and creators, and foster the continued expansion into digital assets by the largest brands in the world.”

Leveraging the Ethereum blockchain, PYUSD will be issued as an ERC-20 token, rendering it accessible to a burgeoning community of external developers, wallets, and web3 applications.

As PayPal paves the way for the debut of PYUSD, industry experts anticipate the currency to revolutionize payments efficiency and user experience.

Nonetheless, Bank of America analysts, Alkesh Shah and Andrew Moss, have expressed caution, predicting that the adoption of PYUSD might face challenges in the short term.

In a recent research report, they stated, “Over the longer term, we expect PYUSD to experience additional adoption headwinds as competition from central bank digital currencies (CBDCs) and yield-bearing stablecoins increases.”

Shah and Moss elaborated on their forecast, highlighting that the landscape of stablecoins is evolving rapidly. Yield-bearing stablecoins, offering returns above 5% due to rising short-term rates, are poised to attract greater attention. This shift could potentially influence investor preferences, impacting the adoption trajectory of PYUSD.

US inflation figures come in below expectations

Latest data reveals that US CPI rose by a mere 0.2% in July from the previous month, a result that aligns with economists’ projections and mirrors the growth witnessed in June.

On a year-over-year basis, the CPI exhibited a 3.2% rise, which, while still indicative of inflationary pressures, falls slightly short of the expected 3.3%.

*US YoY CPI figures between 2015 and 2023*

The Core CPI, a metric that excludes the volatile components of food and energy costs, followed a similar trajectory.

It ascended by 0.2% in July, precisely in line with forecasts and mirroring the growth noted in June. Yearly figures for Core CPI, however, showed a 4.7% increase from the previous year, a tad lower than both the projected 4.8% and June’s 4.8%.

Interestingly, the cryptocurrency market’s reaction to these figures was relatively muted.

Bitcoin (BTC), the flagship digital currency, exhibited minimal movement in the aftermath of the report’s release, maintaining its position at $29,500.

Perhaps the most significant implication of this report pertains to the Federal Reserve’s monetary policy decisions.

The data may have reduced the likelihood of an imminent interest rate hike during the upcoming September meeting of the Federal Reserve.

Preceding the report, market sentiment, as reflected by the CME FedWatch tool, suggested a 15.5% probability of a rate increase next month. However, this probability swiftly dwindled to 10% immediately after the report’s publication.

This development holds significance as the Federal Reserve has been diligently tightening its monetary policy for over a year, striving to curb the escalating inflation. This tightening translated to an increase of over 500 basis points in the benchmark fed-funds rate target over a span of 17 months, placing it within the range of 5.25% to 5.50%.

The ongoing concerns about interest rates throughout this year have potentially constrained Bitcoin’s rebound. The latest CPI report, however, carries the potential to alter this dynamic, as it aligns with expectations of a potential easing of rate hike pressures by the Federal Reserve, thus potentially offering a bullish outlook for Bitcoin’s future.

Ark Invest’s Bitcoin ETF decision delayed by SEC

In a recent turn of events, the United States Securities and Exchange Commission (SEC) has once again postponed the decision regarding the launch of a Bitcoin exchange-traded fund (ETF).

The latest postponement, announced on Friday, revolves around ARK’s proposed Bitcoin ETF, which is merely one among numerous applications vying for approval.

This delay means that the eagerly anticipated ARK 21Shares Bitcoin ETF, a creation of Cathie Wood’s ARK Investment Management, will not see the light of day until at least Q4 2023.

Despite the SEC’s cautious stance on approving such funds, the prevailing momentum seems to favor the eventual introduction of cryptocurrency-related investment products.

Leading financial institutions like BlackRock, WisdomTree, and Invesco have all thrown their hats into the ETF ring, seeking to establish funds that directly hold Bitcoin in its physical form.

This diverges from the existing Bitcoin investment options, which mainly involve funds holding Bitcoin futures or operating similarly to closed-end funds, as seen with the likes of ProShares Bitcoin Strategy (BITO) and Grayscale Bitcoin Trust (GBTC).

The SEC has historically rejected such ETF applications due to concerns about the vulnerability of cryptocurrency trading platforms to fraud and manipulation. However, the recent wave of applications includes novel provisions aimed at mitigating these issues, according to the fund companies.

Both the SEC and ARK declined to offer immediate comments on last week’s delay.

Cathie Wood, the CEO of ARK, hinted in a recent Bloomberg interview that the SEC could potentially give the green light to several Bitcoin ETFs simultaneously, rather than exclusively endorsing ARK’s proposal.

Many players within the cryptocurrency industry anticipate that the introduction of Bitcoin ETFs could unlock substantial demand for the cryptocurrency, although skepticism lingers. Critics suggest that this move might merely divert investor attention from existing Bitcoin investment products.