Meanwhile, the company is removing a handful of non-dollar currency pairs for trading on several of its platforms, including SUSHI-BTC, SUSHI-ETH, SUSHI-EUR, and SUSHI-GBP.
David Duong, head of institutional research at Coinbase, believes that the overall macroeconomic outlook is favorable for improving cryptocurrency performance in the fourth quarter of 2023.
Meanwhile, starting October 16, Coinbase plans to suspend a total of 80 token pairs for trading on its Coinbase Exchange, Advanced Trade and Coinbase Prime platforms. Among the group, cryptocurrency and stablecoin trading pairs with the Euro (EUR) and the British Pound (GBP) will be removed.
However, Duong warns that short-term volatility could arise due to issues such as a possible government US close. While traditional risk assets may temporarily influence crypto markets, Duong is optimistic that such impact will be short-lived.
He argues that digital assets like Bitcoin are likely to recover quickly, serving as a hedge against vulnerabilities in the traditional financial system.
Federal Reserve Policy and Its Impact
Duong analyzes the Federal Reserve’s monetary policy and says its “more for longer” stance is already factored into market prices. Specifically, he points out that federal fund’s futures imply only 65 basis points of cuts in 2024, compared to the 100 basis points they discounted at the beginning of September.
He adds that the possible shutdown of the US government could affect the Federal Reserve’s access to crucial data, which could influence its decisions at the next FOMC meeting scheduled for October 31 to November 1, 2023.
The United Auto strikes Workers and the Writers’ Guild could also affect the U.S. economy, potentially preventing the Federal Reserve from raising interest rates. Duong suggests these factors could pave the way for a market rebound through the end of the year.
Role of Macro Factors in September Crypto Performance
According to Duong’s report, macroeconomic factors had only a marginal impact on cryptocurrency performance in September. It stands out that Bitcoin appreciated 3.5% in September, exceeding the losses of the S&P 500 and Nasdaq, which were 3.1% and 3.7%, respectively.
Duong had previously speculated that Bitcoin’s poor seasonal performance would be limited, in part due to its 10.9% depreciation in August. It also mentions that the 10-year yield in the US Treasury bond market rose above 4.60%, affecting traditional risk assets more than cryptocurrencies.
Market Liquidity and Regulatory Developments
Duong notes that market fundamentals are currently secondary to technical factors such as liquidity. It mentions that trading volumes have decreased from an average of $38.2 billion in August to $30.1 billion in September. Regulatory developments, such as the SEC’s deferral of several Bitcoin spot ETF applications, have been the main focus of market participants.
Duong also notes that 90% of SEC staff could be laid off in the event of a US government shutdown, leading to speculation that the SEC is trying to get ahead of this potential risk event.
Protocol Changes and Chain Activity
Duong also refers to on-chain activity and points to a sharp decline in the number of daily transactions on the Bitcoin network. This coincides with a proposal from Ordinals creator Casey Rodamour to replace the current BRC-20 protocol with an alternative called “Runes.”
Duong claims that the minting and transfer of BRC-20 tokens has increased the number of transactions by 51% compared to the first quarter of 2023. However, according to his report, the total dollar value transferred on the network has remained stable.
By Leonardo Pérez
