Tariffs Tie Powell’s Hands

Daily Updates:

• Speaking at ECB forum in Sintra, Portugal, on Tuesday, Fed Chair Jerome Powell offered clarity on the U.S. central bank’s cautious stance, stating the Fed likely would have eased monetary policy earlier this year had it not been the inflationary impact of President Trump’s proposed tariffs.
• “In effect, we went on hold when we saw the size of the tariffs and essentially all inflation forecasts for the United States went up materially as a consequence of the tariffs,” Powell said.
• When asked whether July is too soon for a cut rate, Powell stated that he “really can’t say”, emphasizing that “it’s going to depend on the data.” The Fed remains in  wait-and-see mode, with Powell repeating that no meeting is “off the table.”
• Fed funds futures traders are assigning an 80.9% probability that rates will be held steady at the July FOMC. The Fed’s most recent projections allow for two cuts by the end of 2025, but the timeline remains data-contingent. 

‍

• Despite the ongoing policy ambiguity and geopolitical uncertainties, the S&P 500 remains near record high, having reached an all-time-high last Friday, 27th of June.
• The index closed yesterday at 6,198, falling slightly by 0.11% (-6.94 points), but holding near peak levels of 6,205.

‍

• June U.S. Manufacturing data came in stronger than expected. 
• The S&P Global Manufacturing PMI rose to 52.9 in June, above the expectations of 52.0, marking the highest reading since May 2022 and it is the sixth consecutive month above the 50.0 threshold, signalling ongoing expansion in the factory activity.
• The ISM Manufacturing PMI also improved, riding to 49.0 from prior 48.5, pointing to a slower pace of contraction. While it remains below the key 50 mark, the rise suggests a tentative recovery in the sector.
• Meanwhile, the JOLTS job openings report surprised to the upside, coming at 7.77M, above the expectations of 7.30M, pointing to continued strength in labour demand.

‍

• While states such as New Hampshire and Texas have all passed their own versions of a Bitcoin or digital assets reserve bill, a new law in Connecticut bans the state and its government agencies from holding or investing in cryptocurrency.
• HB7082 was signed into law by Governor Ned Lamont after being approved by the state’s House of Representatives and Senate. The legislation specifically prohibits the state government from “accepting or requiring payment in the form of virtual currency” or “purchasing, holding, investing in or establishing” a crypto reserve. 
• It also prevents state agencies from accepting digital assets as payments, such as for taxes, fees or other financial obligations.

‍

• Arizona Governor Katie Hobbs vetoed a bill that would have created a reserve fund to manage cryptocurrency assets seized through criminal forfeiture.
• House Bill 2324, which passed the Arizona House 34-22 last week, proposed establishing the Bitcoin and Digital Assets Reserve fund under the State Treasurer’s authority. The fund would have allowed the state the ability to actively manage seized cryptocurrency, including investing and divesting as needed.
• In her veto letter, Hobbs expressed concern that the bill “disincentives local law enforcement from working with the state on digital asset forfeiture by removing seized assets from local jurisdictions.”

‍

• Both BTC and ETH have enjoyed a small, but near-monotonic rally overnight to $107.4K and $2.45K, having bottomed at $105K and $2.4K respectively.
• But the move has done little to arrest the fall in volatility that has been sustained since the compression and inversion in volatility term structures on June 23rd. Short-tenor BTC options now trade with a historically low volatility premium, echoing levels last seen in the summer of 2023.
• The 7-day ATM implied volatility now trades below 30%, while the equivalent ETH tenor option trades at 52%, maintaining its significant premium over BTC’s levels.

‍

• The 15-day streak of net inflows into U.S. spot Bitcoin ETFs came to an end on Tuesday, July 1st, with a combined $342.2M in net flows, breaking a $4.7B inflow run.
• BlackRock’s flagship IBIT product also saw its 15-day, $3.8B inflow streak end, registering zero flows for the day.

‍

• AllUnity, a joint venture including Deutsche Bank’s asset manager DWS, announced today that it has received approval from the German regulator BanFin to issue a euro-backed stablecoin. 
• The plans for this stablecoin have been in the works for more than a year.

‍

• Nasdaq-listed Bit Digital Inc. (BTBT), a digital asset mining company in the U.S., has raised approximately $163M through a share offering, including an additional $21.4M after underwrites exercised their option to purchase 11.25M extra shares.
• The procedure will finance the company’s strategic pivot from Bitcoin mining to building a strategic Ethereum treasury.

‍

• Global Dollar (USDG), a USD stablecoin issued by Paxos Digital Singapore, has launched in the EU after receiving MiCA compliance.

‍

• A publicly-traded telehealth company Dogecoin Cash Inc. is expanding deeper into the crypto space with the launch of a wholly owned subsidiary, Dogecoin Treasury Inc. 
• The new entity will establish and manage a dedicated DOGE treasury, supporting the company’s growing involvement with Dogecoin.
• The firm’s plan includes developing a “Dogecoin Protocol”, aiming to unify its Dogecoin-related projects under a coordinated technical framework.

‍

• Webus International has entered a conditional agreement with Ripple Strategy Holdings for a $100M senior equity line of credit over 24 months, to build out their XRP treasury strategy. This gives Webus the option to sell shares up to the value of $100M to Ripple, with regulatory approval. 

‍

• The SEC has approved Grayscale’s request to transform its Digital Large Cap Fund into an ETF, enabling its trading on NYSE Arca. The ETF will track a portfolio consisting of Bitcoin, Ethereum, XRP, Solana, and Cardano, in varying amounts.

This Week’s Calendar:

Charts of the Day:

Figure 1. BTC at-the-money implied volatility across selected tenors. Source: Deribit, Block Scholes

Figure 2. ETH at-the-money implied volatility across selected tenors. Source: Deribit, Block Scholes

Figure 3. BTC 25-delta put-call skew ratio across selected tenors. Source: Deribit, Block Scholes

Figure 4. ETH 25-delta put-call skew ratio across selected tenors. Source: Deribit, Block Scholes