Affected by the conflict between Israel and Palestine, the crypto market plummeted on June 13, with more than $1 billion in long orders getting liquidated within 24 hours. Among them, long positions in Ethereum suffered particularly heavy losses, with a liquidation ratio as high as 60%. This big dump caused ETH to break through $2800, which was characterized as a bull trap. Earlier, the aggressive bullish institution Trend Research was mocked by the market as a Reverse Indicator. It is worth mentioning that after the outbreak of the Russia-Ukraine conflict in March 2022, Bitcoin had a pullback of nearly 70% within three months, so the escalation of the geopolitical crisis in the Middle East is also considered by many investors as a signal of history repeating itself.
The current market concern about the geopolitical crisis in the Middle East is that higher oil prices could push up US inflation again, which in turn will force the Federal Reserve to delay the timing of interest rate cuts. According to federal interest rate futures, the market's appetite for a U.S. rate cut in the second half of the year was scaled back from 45 basis points to 34.5 basis points following the Israeli airstrikes on Iran. The probability of the first rate cut in September also fell from 58% on June 7 to 47% on June 15. This change fully shows that the geopolitical crisis has indeed lowered the market's expectations for interest rate cuts.
However, while the geopolitical crisis in the Middle East is still likely to push oil prices higher, the global crude oil market remains well supplied. This is mainly due to the continuous increase in production by major oil producers, with the total US crude oil production exceeding 13.4 million b/d (shale oil production surging), which is close to the historical peak, which can effectively mitigate the supply shock caused by geopolitical conflicts. JPMorgan Chase & Co. expects that the geopolitical crisis may bring a risk premium of $10-$15 per barrel in the short term, but oil prices will still return to the fundamentals-dominated range of $60-70 in the medium to long term. Unless the Strait of Hormuz is blocked (with a probability of only 5%-10%), it is unlikely that there will be a sustained surge.
In summary, the Middle East crisis has a limited long-term impact on U.S. inflation, mainly causing short-term market disturbances. If the market continues to decline due to escalating conflicts, it may instead present a good buying opportunity.
ON JUNE 18, THE U.S. SENATE OVERWHELMINGLY PASSED THE LANDMARK GENIUS STABLECOIN BILL BY A VOTE OF 68 TO 30 AGAINST, MARKING A KEY STEP IN U.S. CRYPTOCURRENCY REGULATION. Given that the House of Representatives is currently dominated by Republicans (220 seats vs. 215 Democrats), the bill, which is about to reshape the crypto market, is just one step away from final legislation. According to the bill, stablecoin issuers' reserve assets can only be low-risk liquid assets such as cash, bank deposits, short-term Treasury bonds (with a maturity of less than 93 days), and repurchase agreements (with a maturity of less than 7 days). This rule poses a compliance challenge for Tether, the world's largest stablecoin issuer, with only about 80% of its current reserves meeting the requirements, and the remaining 20% being non-compliant assets such as gold, bitcoin and secured loans.
If Tether decides to fully comply with the new US rules, it will be forced to sell about $10 billion worth of bitcoin (100,000) in its reserves and replace it with compliant assets. If this large-scale sell-off were to take place directly in the secondary market, it could trigger a sharp swing in the price of bitcoin. Considering that the current average daily trading volume of the Bitcoin market is about $200-30 billion (only major exchanges are counted), the size of Tether's sell-off is equivalent to 30-50% of the market's daily liquidity, and this concentrated reduction could lead to a 10%-15% decline in Bitcoin. However, a 10%-15% decline is only a worst-case scenario, as Tether can also mitigate the impact on the secondary market through over-the-counter transactions and tranche sales. In addition, Tether still has $5.6 billion in net assets on its books, which could theoretically keep some Bitcoin as its own assets, further reducing the selling pressure.
Of course, some may say that Tether is registered in the British Virgin Islands and could theoretically choose to exit the U.S. market to avoid regulation, but considering that:
The circulation of USDT in the US market accounts for as much as 35% (based on Chainalysis's regional circulation estimates), and it is nearly impossible to technically refuse services to Americans.
The U.S. Treasury has clearly stated that "any stablecoin transactions that use U.S. dollars for settlement" are subject to jurisdiction, including offshore transactions;
If it involves money laundering or sanction evasion cases, Tether may be deemed to have provided "substantial assistance" to illegal activities (refer to OFAC's sanctions precedent against Tornado Cash);
Therefore, regardless of the risk isolation measures Tether adopts, it is ultimately difficult to escape the "long-arm jurisdiction" of the United States. In other words, actively adapting to U.S. regulatory requirements has become a reality that Tether has to face.
Against the backdrop of geopolitical risks not yet fully released, the US stock market and the crypto market may continue to be under pressure in the short term. However, it is worth noting that the current Bitcoin exchange balances have been rapidly declining, ETF funds are still maintaining a net inflow trend, and institutional investors' willingness to buy on dips remains strong—under these circumstances, panic selling is likely to cause investors to lose quality chips, and even miss out on the upcoming main surge of Bitcoin. Therefore, a sharp drop at this position is highly likely to be a golden pit.
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Will Tether sell 10 billion dollars worth of Bitcoin?
Affected by the conflict between Israel and Palestine, the crypto market plummeted on June 13, with more than $1 billion in long orders getting liquidated within 24 hours. Among them, long positions in Ethereum suffered particularly heavy losses, with a liquidation ratio as high as 60%. This big dump caused ETH to break through $2800, which was characterized as a bull trap. Earlier, the aggressive bullish institution Trend Research was mocked by the market as a Reverse Indicator. It is worth mentioning that after the outbreak of the Russia-Ukraine conflict in March 2022, Bitcoin had a pullback of nearly 70% within three months, so the escalation of the geopolitical crisis in the Middle East is also considered by many investors as a signal of history repeating itself.
The current market concern about the geopolitical crisis in the Middle East is that higher oil prices could push up US inflation again, which in turn will force the Federal Reserve to delay the timing of interest rate cuts. According to federal interest rate futures, the market's appetite for a U.S. rate cut in the second half of the year was scaled back from 45 basis points to 34.5 basis points following the Israeli airstrikes on Iran. The probability of the first rate cut in September also fell from 58% on June 7 to 47% on June 15. This change fully shows that the geopolitical crisis has indeed lowered the market's expectations for interest rate cuts.
However, while the geopolitical crisis in the Middle East is still likely to push oil prices higher, the global crude oil market remains well supplied. This is mainly due to the continuous increase in production by major oil producers, with the total US crude oil production exceeding 13.4 million b/d (shale oil production surging), which is close to the historical peak, which can effectively mitigate the supply shock caused by geopolitical conflicts. JPMorgan Chase & Co. expects that the geopolitical crisis may bring a risk premium of $10-$15 per barrel in the short term, but oil prices will still return to the fundamentals-dominated range of $60-70 in the medium to long term. Unless the Strait of Hormuz is blocked (with a probability of only 5%-10%), it is unlikely that there will be a sustained surge.
In summary, the Middle East crisis has a limited long-term impact on U.S. inflation, mainly causing short-term market disturbances. If the market continues to decline due to escalating conflicts, it may instead present a good buying opportunity.
ON JUNE 18, THE U.S. SENATE OVERWHELMINGLY PASSED THE LANDMARK GENIUS STABLECOIN BILL BY A VOTE OF 68 TO 30 AGAINST, MARKING A KEY STEP IN U.S. CRYPTOCURRENCY REGULATION. Given that the House of Representatives is currently dominated by Republicans (220 seats vs. 215 Democrats), the bill, which is about to reshape the crypto market, is just one step away from final legislation. According to the bill, stablecoin issuers' reserve assets can only be low-risk liquid assets such as cash, bank deposits, short-term Treasury bonds (with a maturity of less than 93 days), and repurchase agreements (with a maturity of less than 7 days). This rule poses a compliance challenge for Tether, the world's largest stablecoin issuer, with only about 80% of its current reserves meeting the requirements, and the remaining 20% being non-compliant assets such as gold, bitcoin and secured loans.
If Tether decides to fully comply with the new US rules, it will be forced to sell about $10 billion worth of bitcoin (100,000) in its reserves and replace it with compliant assets. If this large-scale sell-off were to take place directly in the secondary market, it could trigger a sharp swing in the price of bitcoin. Considering that the current average daily trading volume of the Bitcoin market is about $200-30 billion (only major exchanges are counted), the size of Tether's sell-off is equivalent to 30-50% of the market's daily liquidity, and this concentrated reduction could lead to a 10%-15% decline in Bitcoin. However, a 10%-15% decline is only a worst-case scenario, as Tether can also mitigate the impact on the secondary market through over-the-counter transactions and tranche sales. In addition, Tether still has $5.6 billion in net assets on its books, which could theoretically keep some Bitcoin as its own assets, further reducing the selling pressure.
Of course, some may say that Tether is registered in the British Virgin Islands and could theoretically choose to exit the U.S. market to avoid regulation, but considering that:
The circulation of USDT in the US market accounts for as much as 35% (based on Chainalysis's regional circulation estimates), and it is nearly impossible to technically refuse services to Americans.
The U.S. Treasury has clearly stated that "any stablecoin transactions that use U.S. dollars for settlement" are subject to jurisdiction, including offshore transactions;
If it involves money laundering or sanction evasion cases, Tether may be deemed to have provided "substantial assistance" to illegal activities (refer to OFAC's sanctions precedent against Tornado Cash);
Therefore, regardless of the risk isolation measures Tether adopts, it is ultimately difficult to escape the "long-arm jurisdiction" of the United States. In other words, actively adapting to U.S. regulatory requirements has become a reality that Tether has to face.
Against the backdrop of geopolitical risks not yet fully released, the US stock market and the crypto market may continue to be under pressure in the short term. However, it is worth noting that the current Bitcoin exchange balances have been rapidly declining, ETF funds are still maintaining a net inflow trend, and institutional investors' willingness to buy on dips remains strong—under these circumstances, panic selling is likely to cause investors to lose quality chips, and even miss out on the upcoming main surge of Bitcoin. Therefore, a sharp drop at this position is highly likely to be a golden pit.