Digital Assets Morning Call: April 5, 2022

Written by Robert Lynch
on April 5, 2022

SEC’s Gensler comments on crypto regulation; more central banks turn hawkish

US SEC Chair notes potential regulation focus

The Fed is shifting policy, but it’s not just them

The global turn in monetary policy is a potentially critical event for crypto

In a speech Monday, US Securities and Exchange Commission Chairman Gary Gensler reiterated that crypto exchanges should register as securities exchanges with the SEC because, in his view, most crypto tokens qualify as securities. New in his comments is that the SEC is looking into whether crypto platforms should separate their custody functions from other operations, a step that could help advance broader regulation. There was no timeline given for how this process could unfold but is another step in the longer movement towards greater regulation in the industry.

Bitcoin and Ethereum consolidate at firmer levels

Macro fundamentals remain a key focus, although those developments/conditions are currently generating less impact on crypto prices than has been the case in recent weeks. And indeed, the largest tokens including bitcoin and Ethereum continue to consolidate their impressive rallies from mid-March.

It’s not just the Fed

Much of the recent focus has been on the latest shift in Fed guidance, which now has markets anticipating a more aggressive path of tightening this year. But a number of central banks globally have also turned more hawkish.

Australia central bank turns more hawkish; Canada due next week

In Australia overnight, the Reserve Bank of Australia hinted at more rate hikes this year than it had previously. A tightening labor market and firmer inflation is encouraging the shift. Separately, markets are starting to price in risk for a larger 50bp rate hike at next weeks policy meeting by the Bank of Canada.

Even the uber dovish Bank of Japan could be feeling the pinch

There are some clear laggards in the global policy turn. Japan has stood its ground as one of the world’s most dovish central banks, even as many others have shifted towards policy tightening. As an example, just last week it expanded its bond purchases (quantitative easing) in order to hold down 10-year government bond yields at the targeted limit of 0.25%.

However, that policy has contributed to a dramatic weakening in the Japanese yen, with the USD/JPY rate surging from near 115.00 to 125.00 during March before stabilizing above 120.00 in recent days. The yen declines was sparked by a dramatic widening in US-Japanese interest rate differentials and the surge in oil prices (Japan pays more yen per barrel in the USD-based oil market, generating more demand to sell yen).

Continue to monitor the global policy turn

It could turn out that higher oil prices and a weaker yen could cause more inflation problems than the Bank of Japan anticipated, causing the Bank of Japan to shift towards some tightening in monetary policy. That would probably require some extension of the current stresses. But the point is that more and more economies are moving to withdraw the sizeable liquidity injections that have supported financial assets—including crypto—in recent years. So while Federal Reserve actions draw the lions share of attention, it is important to monitor what is happening in other economies too, particularly as it becomes more of a globally synchronized policy tightening environment.

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Robert Lynch

Robert Lynch

Head of Research and Strategy | Robert Lynch is an experienced financial market strategist, focusing on macro markets including currencies, interest rates, commodities and cryptocurrencies. He is trained and practiced in the analysis of economic developments, monetary and fiscal policy, political events and technical indicators in order to generate actionable investment solutions.