Dispatch #142: A Debt Ceiling Deal, but Is the Damage Already Done?

Jun 02, 2023 3 min read

Dispatch

In this patch of your weekly Dispatch:

The US wakes up and smells the coffee ☕
China publishes web3 whitepaper 📜
The biggest DEX month ever 🎈

The Big Idea

Debt Ceiling

In a shocking move to absolutely no one, it took the two big US political parties until the 11th hour to craft a compromise deal to avoid the US defaulting on its debt. ⌛

Hammered out by President Joe Biden and House Speaker Kevin McCarthy, the deal effectively suspends the debt ceiling until the beginning of 2025.

Eagle-eyed commentators recognized that this meant that the US government was free to spend as much as it wanted in the interim. 💰 While markets initially greeted the news, some are wondering if there won’t still be significant collateral damage.

Firstly, many US debt holders (companies, funds) made moves to get away from Treasuries as a reserve asset.
At the end of April, for example, the USDC Circle Reserve Fund held more than $30B in T-bills. As of May 30, it holds none.
Equity market commentators are worried about what happens when the U.S. Treasury starts to refill its coffers to the tune of sucking $500B in cash out of the system. That could be a major liquidity stresser on top of ongoing quantitative tightening.

All in all, while the deal got done, so too did at least some of the damage.

The Latest In…

China and Hong Kong 🇭🇰

Last week we reported on the new exchange regulations announced in Hong Kong. Yesterday, they went into effect.
No exchanges have been formally licensed under the new regime, but there is no denying the energy and excitement around the city-state.
This week, Beijing’s government published a paper extolling the virtues of Web3.

Quite the change from a total industry ban just a couple years ago.

The Latest In…

Crypto Markets

We’ll be honest, May was a rough month for Bitcoin and crypto markets. BTC was down about 8% on the month and it decoupled from stocks (in the wrong direction). Meanwhile, overall spot crypto exchange volume in May was a little over $400B, the lowest number since Dec 2020 and a far cry from last May’s $1.4T. With the potential low-liquidity environment following the debt deal, our co-founder Antoni Trenchev says Bitcoin is facing a few potential “banana skins” in June. Read his full analysis in Barron’s here.

The Week’s Most Interesting Data Story

Where Is Staked ETH at?

With overall trading volume down, BTC price down, one would expect in staking Ether to be waning, too, right? Well, not exactly. Nansen data shows that 21.7 million ETH is currently staked, while more than 17% of all ETH currently staked and queued was deposited during the month of May. The appetite for staking ETH on Nexo has been very healthy since Shapella, too, and for good reasons. You can read about them in this blog post.