Cryptos Gain Amidst Debt Deal Relief, Mixed Jobs Data

Cryptocurrencies gained more than 1 percent in the past 24 hours amidst overwhelming relief at the passage of the debt deal Bill. Jobs data released for the month of May showed a simultaneous jump in the jobs added and the unemployment rate, and a cooling in the average hourly earnings.

Close on the heels of its passage in the House, the Senate also passed a Bill late Thursday evening, suspending the nation’s debt limit through January 1, 2025. A catastrophic debt default was averted just before the deadline, triggering relief across markets worldwide.

Data released by the U.S. Bureau of Labor Statistics just a while ago showed the U.S. economy unexpectedly added 339 thousand jobs in May 2023 versus market expectations of 190 thousand. Figures for April were revised higher by 93 thousand to 294 thousand. The unemployment rate which was expected to rise to 3.5 percent from 3.4 percent earlier jumped to 3.7 percent. As expected, the average hourly wages cooled to 0.3 percent on a month-on-month basis versus 0.4 percent in April. Though the fresh data revealed a massive jump in the jobs added, the same has been softened by a spike in the unemployment rate and the cooling in the hourly wages, triggering uncertainty over the likely moves by the Fed in the ensuing review due on June 14.

Amidst the uncertainty, the CME Fed Watch tool indicates a 74.8 percent probability for a pause and 25.2 percent for a 25-basis points rate hike. The same stood at 80:20 a day earlier and 36:64 a week earlier.

The Dollar remained firm as markets digested the twin effects of debt deal passage and jobs data. The Dollar Index, a measure of the Dollar’s strength against a basket of 6 currencies is currently at 103.58, versus 103.56 a day earlier and the recent peak of 104.70 scaled on May 31.

Though stock markets on Thursday and Friday cheered the passage of the bipartisan Bill, markets continue to speculate whether the development would eventually turn out to be good for risky assets including equities and crypto. Questions raised include whether the crisis aversion would provide more headroom for the Fed to raise rates and how a potential liquidity drain post the debt deal could impact prices of risky assets including equity and crypto.

Overall crypto market capitalization is currently at $1.14 trillion, versus $1.13 trillion a day earlier.

Bitcoin is currently trading at $27,082.24, having gained 0.60 percent in the past 24 hours and 2.30 percent over the past week.

Ethereum is currently changing hands at $1,889.72, after adding 1.4 percent overnight. Weekly gains aggregate to 3.9 percent.

In regulatory news, the Consumer Financial Protection Bureau, a U.S. government agency, on Thursday released a report titled “Analysis of Deposit Insurance Coverage on Funds Stored Through Payment Apps”. The Issue Spotlight report published by the CFPB’s Office of Competition and Innovation and Office of Markets focuses on payment solutions offered by nonbanks (such as PayPal, Venmo, or Cash App) through applications on mobile devices. The CFPB estimates that U.S. consumers have billions of dollars stored on nonbank payment apps. The agency has cautioned that funds stored on platforms that lack deposit insurance coverage are at risk of loss in the event of financial distress or failure of the entity operating the payment platform.

The report notes that while the core service of nonbank payment platforms is to provide a mechanism to send funds from one person to another, these apps also facilitate a growing set of related financial products and services, including crypto asset transactions. In this context, the agency clarifies that as the market for financial services has evolved, it is not always clear to consumers as to when they are dealing directly with a bank and when they are dealing with a nonbank entity. As a result, the report warns, that consumers may not fully appreciate when, or under what conditions, they would be protected by deposit insurance.

The report by CFPB, the agency of the United States government that implements and enforces Federal consumer financial law and ensures that markets for consumer financial products are fair, transparent, and competitive, notes that funds stored in a payment app may be at significantly higher risk of loss for a consumer than if it is deposited in an insured bank or credit union account.

The report clarifies that in the unlikely event of a failure, deposit insurance coverage would only apply to funds which are held on deposit at an FDIC-insured bank or NCUA insured credit union. If the consumers’ funds have not been deposited into an account at the bank or credit union, then those funds would not be eligible for deposit insurance coverage, the report adds. The agency therefore warns that consumers should be aware of these risks if they choose to leave a balance on these nonbank payment apps. To minimize these risks, consumers may choose to transfer their nonbank payment app balances back to their federally insured deposit accounts, where they have a direct relationship with an FDIC-insured bank or NCUA-insured credit union.

The report also notes that user agreements for these payment apps are often confusing, murky, or even silent on exactly where consumer funds are being held or invested, whether and under what conditions they are insured at a partner bank, and what would happen if the payment app company or the entity holding the funds were to fail. Some nonbank payment app firms do not offer accounts that may be eligible for deposit insurance whereas some nonbank payment apps place pre-conditions on their products. The agency warns that in all cases, deposit insurance only protects against the failure of the bank or credit union and does not protect the customer against the failure of the nonbank company itself.

The agency also invited a reference to its circular issued in May 2022, regarding deceptive representations involving the FDIC’s name or logo or deposit insurance as well as the FDIC’s advisory issued in July 2022 regarding deposit insurance and dealings with crypto companies.

The report assumes significance in the backdrop of massive losses faced by crypto platforms. The CFPB report itself cites the case of the collapse of crypto asset platforms FTX and Voyager in 2022 that led to significant harms to platform consumers who lost hundreds of millions of dollars, in addition to their crypto assets.

Meanwhile, the CoinShares’ Digital Asset Fund Flows Weekly report on institutional investments showed a fall in activity, with an outflow of $39.3 million for the week ended May 26. Bitcoin products recorded a decline of $11.5 million whereas short Bitcoin products witnessed a drop of $10.9 million. Ethereum-based products followed with an erosion of $5.9 million.

The country-wise analysis shows outflows of $10.8 million in United States, $9.5 million in Germany and $8 million in Switzerland. Brazil, Canada and Sweden, all recorded outflows of more than $3 million each. Cumulative AUM stood at $34.07 billion.

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