WealthBee Macro Monthly Report: US Stocks "Turn Downward," While the Crypto Market "Rises to the Challenge"

Author: WealthBee, R3PO

In mid-June, the U.S. stock market experienced a correction, temporarily putting the "mini bull market" on hold. Many global stock indices showed signs of reversal in June, indicating a potential "initial cooling" after an "overheated" rise. In contrast, despite the "unrest" in the cryptocurrency space this month, the prices of crypto assets have shown an upward trend. Is a new round of crypto bull market on the horizon?

Let's start with the macro perspective. The biggest macro news this month is undoubtedly the Federal Reserve's decision to pause interest rate hikes, which provides a breather for global capital markets. On June 14, U.S. time, the Federal Reserve announced that it would maintain the current target range for the federal funds rate at 5% to 5.25%, in line with market expectations. Since the start of this interest rate hike cycle in March 2022, the Federal Reserve has raised rates consecutively 10 times, with a cumulative increase of 500 basis points, marking the fastest pace of rate hikes since the 1980s, which can be described as "aggressive." Although the U.S. has pressed a temporary "pause button" on rate hikes, Powell stated that this does not mean the end of the Fed's rate hike cycle, advocating for further increases and asserting that there will be no rate cuts in the short term.

Why did the U.S. choose to pause after aggressive rate hikes? First, because the effects of the rate hikes are "starting to show." The U.S. released its May CPI index this week, which rose 4% year-on-year. This marks the 11th consecutive decline in growth rates, reaching a new low since March 2021, and is below the market expectation of 4.1%, indicating that inflationary pressures have been significantly curbed. Additionally, the PPI growth rate for May was 1.1%, also a larger-than-expected decline, showing that inflationary pressures in the industrial sector are easing. Second, the U.S. financial system is under immense pressure following aggressive rate hikes. A report from the World Federation of Large Enterprises indicates that the consumer confidence index fell in May, with a "serious deterioration" in consumers' assessment of the current employment situation.

While the market was immersed in the joy of the pause in aggressive rate hikes, on June 22, Powell delivered another hawkish speech mentioning rate hikes, leading to declines in U.S. stocks and most Asia-Pacific indices. However, the stock market's decline was not solely due to Powell's remarks; the short-term excessive gains in the stock market were also a significant factor.

This year, U.S. stocks, bolstered by the AI wave, have seen tech stocks lead the market into a bull run, with Nvidia's market value surpassing one trillion dollars and Adobe's stock rising over 25% this month. Since June, the Nasdaq has seen a maximum increase of 7.43%, while the S&P 500 has risen by 6.63%. The Asia-Pacific market has also performed remarkably, with the Nikkei 225 index being the standout performer in the region, continuously rising since mid-March and reaching its highest level in 33 years, with a maximum increase of 9.45% in June.

However, whether in the U.S. stock market or the Asia-Pacific stock market, the upward trend is likely to face a round of adjustments. The current economic fundamentals in the U.S. are not meeting expectations. The preliminary Markit manufacturing PMI for June is 46.3, below the expected 48.5 and the previous value of 48.4, marking a six-month low; the preliminary Markit services PMI for June is 54.1, below the expected 54 and the previous value of 54.9, also a five-month low. The composite PMI for June is reported at 53, lower than the previous value of 54.3.

Due to the economic downturn in Europe and the U.S., the capital market has high expectations for emerging markets in the Asia-Pacific region, leading to impressive performances in some of these markets this year. However, according to Vietnamese media Vnex Press on June 23, signs of a sharp economic decline in Vietnam are everywhere, resulting in a significant drop in exports and shrinking factory output. As the second-largest economy in Southeast Asia, Vietnam's poor economic performance may cause investors chasing emerging markets to exercise more caution and rationality.

The rise in the Japanese stock market is attributed to its "cost-effectiveness" compared to European and American markets. The Japanese stock market has been long undervalued compared to developed markets. To improve this long-standing undervaluation, the Tokyo Stock Exchange introduced a new regulation at the end of March 2023: "For listed companies with a PBR consistently below 1, they are required to publish specific improvement plans." This is similar to China's "special valuation" logic and is thus referred to as "Japanese special valuation" in the market.

At the same time, Warren Buffett has continuously increased his holdings in Japan's five major trading companies, and the influence of the "Oracle of Omaha" has added a catalyst to Japan's booming market. However, as the Japanese stock market continues to rise, the "cost-effectiveness advantage" of Japanese stocks compared to European and American stocks is gradually diminishing. Additionally, since the pricing power of Japanese stocks lies with foreign capital, historically, Japanese stock movements have shown strong correlation with U.S. stocks. Therefore, in light of expectations of a potential decline in U.S. stocks, attention must also be paid to the risks in the Japanese market.

Despite the U.S. economic fundamentals being slightly below expectations, the continuous appreciation of the dollar makes international capital more inclined to favor dollar-denominated assets. After the negative fundamentals are digested by the market, there is still a significant possibility that international capital will flow back into U.S. stocks.

Since the beginning of this year, Bitcoin's price has rebounded from its lowest point and has been rising steadily. On the 20th of this month, Bitcoin's price surged over 10% in a single day, continuing to rise on the 21st. Since May 2021, Bitcoin has regained 50% of the entire cryptocurrency market share.

Although on June 5, the U.S. SEC sued Binance for violating securities laws, this event did not significantly impact the cryptocurrency market. Bitcoin's price dipped on June 5 but quickly "recovered lost ground" by June 7. As of today, Bitcoin's price has reached a new high for the year. Many media outlets analyze that the SEC's lawsuit aims to seize regulatory authority in the crypto asset space, but this move has not been recognized by others, as a U.S. judge rejected the SEC's request to freeze Binance's assets.

However, even against this backdrop, global asset management giant BlackRock insisted on applying to the SEC for a Bitcoin spot ETF on June 15. In the following two days, Bitcoin surged over 5%. BlackRock's actions surprised many, as the SEC has always been "not very friendly" towards crypto assets. David Bailey, CEO of Bitcoin Magazine, stated that BlackRock's BTC ETF might soon receive SEC approval, marking a breakthrough after multiple failed attempts by other companies.

As Bitcoin gradually becomes an asset allocation option for more people, traditional financial giants are also seeking pricing power in this field. Notable KOL AutismCapital believes that BlackRock's decision to launch the ETF under the regulatory pressure of the SEC likely indicates that the SEC is conducting a cleanup operation aimed at eliminating "low-level scammers" in the crypto space, allowing traditional financial elites in the U.S. to rebuild the gaming platform according to their own rules. Therefore, although BlackRock's actions are favorable for crypto assets, many in the crypto community do not support it, believing that this move is undermining the original ecology of the crypto space.

However, from another perspective, why is BlackRock eager to apply for a Bitcoin spot ETF, even as the SEC has just cracked down on the crypto space? WealthBee believes that a significant part of the reason is that Bitcoin may experience a substantial market movement during the upcoming halving, and BlackRock clearly does not want to watch this opportunity "slip away."

Looking at Bitcoin's history, each halving has led to a significant Bitcoin bull market:

• November 28, 2012 - The first halving reduced the mining reward to 25 BTC per block, with Bitcoin's price rising from $12 to $1,217.
• July 8, 2016 - The second halving reduced the mining reward to 12.5 BTC per block, with Bitcoin's market value at $647 at the time of halving, soaring to $19,800 by December 17, 2017.
• May 12, 2020 - The third and most recent halving reduced the mining reward to 6.25 BTC. At this time, Bitcoin's price was $8,787, skyrocketing to $64,507, an astonishing increase of 635% compared to the price before the halving.

As early as April, Mark Yusko, founder and CEO of investment advisory firm Morgan Creek Capital Management, expressed confidence that "the summer of crypto assets" is coming. Since the last Bitcoin crash, the price of Bitcoin reached a low of $15,450 in November last year, and the current price has nearly doubled.

From a technical chart perspective, there are clear signals of a bottoming out in Bitcoin's price. If BlackRock's application is successfully approved, large-scale institutional buying of Bitcoin will inevitably lead to price increases. With the "triple resonance" of halving expectations, technical bottoming, and bullish sentiment from giants, perhaps a new round of Bitcoin bull market is indeed on the way.

Although expectations of continued rate hikes by the Federal Reserve and the diminishing driving force of tech stocks on U.S. stocks persist, under the backdrop of the continuous appreciation of the dollar, dollar-denominated assets may still attract capital. For the cryptocurrency market, the SEC's regulation of Binance will be a "normalization rectification" for the entire crypto market, further clarifying the scope of "securities assets." If Bitcoin is further declared to be a "non-security" asset, then BlackRock's application being approved would be a logical outcome, which would undoubtedly be a positive development for the crypto market.

Against the backdrop of the halving cycle, further normalization of the crypto market may become a catalyst for a new bull market. Although some crypto players do not anticipate the involvement of traditional financial forces, if Bitcoin is viewed as a crypto asset, comprehensive regulation is undoubtedly a necessary condition for its long-term prosperity.

The arrival of a bull market does not necessarily mean a one-sided rise. In the future, Bitcoin's price may fluctuate around $30,000 and may also experience downward movements for liquidation. WealthBee believes that the price trend of Bitcoin shows clear bottom characteristics, so any downward movement could present a good entry point.