Overall, the cryptocurrency sector remains uncertain, with investors staying cautious as they await further developments in the Middle East and the next steps from the US Federal Reserve. This week, mutual attacks between the United States and Iran resumed, putting pressure on risk assets, including digital assets. Experts feared that a further escalation of the conflict could lead to a prolonged blockade of the Strait of Hormuz, worsening the global energy crisis, increasing inflationary risks and, consequently, raising the likelihood of tighter monetary policy from the US regulator. Nevertheless, President Donald Trump said the previous day that contacts with the Iranian authorities had been restored and added that the hostilities would not last long. White House representatives confirmed their intention to continue technical negotiations with the Islamic Republic and their commitment to seeking a diplomatic settlement of the conflict.
Uncertainty is equally high regarding monetary policy. Last week, investors revised their expectations for an imminent interest rate increase after the release of June labor market data showing signs of cooling in the sector. Nonfarm payrolls increased by only 57,000, compared with estimates of 114,000. However, the likelihood of a return to more hawkish rhetoric has now increased after analysts received the minutes of the Federal Reserve’s June meeting. Officials consider the risks of stronger inflation due to the current energy crisis and rising investment in artificial intelligence technologies to be high, while they view the risks of a slowdown in employment growth as relatively limited. Members of the Federal Open Market Committee, or FOMC, are prepared to adjust borrowing costs if current price pressures persist. Therefore, the presence of two opposing conditions — high inflation and a cooling labor market — makes it more difficult for economists to determine the next course of action and is limiting trading activity.
Among the positive developments in the digital asset industry is an announcement from Swift, the world’s largest financial messaging network, which connects more than 11,500 banks and financial institutions across over 200 countries. Swift said it is launching its own blockchain-based ledger, which has been under development for the past nine months. Seventeen major banks, including Citigroup Inc., HSBC Holdings Plc, UBS Group AG, BNP Paribas SA, ANZ Group Holdings Ltd., DBS Group Holdings Ltd. and Standard Chartered Plc, are currently preparing to launch cross-border payments using tokenized bank deposits through the new system. The platform is expected to allow institutions to process transfers around the clock, including overnight and during weekends.
Global factors remain unfavorable for the cryptocurrency sector. Inflows into exchange-traded digital asset products remain limited, while the longer-term trend is leaning negative. According to data from analytics platform SoSoValue, investors withdrew $4.0 billion from Bitcoin ETFs in June, with BlackRock’s iShares Bitcoin Trust ETF, or IBIT, recording the largest losses. The capital outflow was mainly driven by funds moving into the AI sector and other promising projects, including the initial public offering of Space Exploration Technologies Corp.
Overall sentiment in the sector remains negative. The Fear and Greed Index rose to 23 but remains in the “extreme fear” zone. Under these conditions, most leading digital assets may resume their decline or move into consolidation in the near term.
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