Daily Update June 23, 2022 – S&P Global

Written by Amanda

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

What Comes Next For Crypto

Amid a crypto crash, where will decentralized assets go from here? 

Pessimism has shrouded cryptocurrencies following their dramatic declines, with major assets like Bitcoin plunging nearly 20% last week after suffering sharp losses since the start of the year. The cryptocurrency lender Celsius’ suspension on June 12 of all withdrawals, swaps, and transfers between accounts due to what it categorized as “extreme market conditions” is considered to have played a significant role in sparking the most recent decline. The following day, worsening macroeconomic conditions sparked an overall bear market for equities on the S&P 500 benchmark index on June 13, according to S&P Dow Jones Indices. 

Now, market participants are questioning what will come next for cryptocurrencies, which may not be the promised safe haven in periods of volatility, as recession fears swell. The downturn and the potential for stricter regulation could disproportionally hurt diverse investors, with Black Americans holding more crypto asset than white investors in the U.S., and as crypto adoption expands in emerging market economies like the Central African Republic and Nigeria, according to S&P Global Market Intelligence.   

“Crypto markets, like markets more broadly, have been on a valuation roller coaster and are in what is known as ‘Crypto Winter.’ And, like all markets, valuations in crypto are driven by multiple drivers, although the mix of catalysts can be different in crypto versus traditional markets,” Chuck Mounts, Chief DeFi Officer at S&P Global Ratings, told the Daily Update. “But, at the end of the day, it comes down the scale and velocity of buyers versus sellers. This isn’t the first Crypto Winter and it is not likely be the last, but do these current valuations change the fundamental course or trajectory of crypto, digital assets and DeFi? We don’t think so.” 

Stablecoins—created on public or private blockchains that can be managed by central counterparties or decentralized and are backed by fiat assets, by crypto assets, by an algorithm, are tokenized, or are central bank digital currencies—have long been considered the future. The crypto assets attracted attention last month when the TerraUSD stablecoin, which was tied algorithmically to the cryptocurrency Luna with a $1 peg, endured a meltdown that prompted Luna to also plummet. 

“To become mainstream, decentralized finance (DeFi) needs digital currencies that can dependably act as a bridge with the world of traditional finance. Various stablecoins— cryptocurrencies with a market value tied to an external indicator—have emerged to fulfill that role,” S&P Global said in a report last week. “Stablecoins were in some ways always destined to be a transitory phenomenon. Since the digital finance world was evolving and innovating faster than the traditional finance world, the first generation of bridges connecting the two worlds were built from the digital side. These bridges started with cryptocurrencies and, due to their high volatility against fiat currencies, were followed by the development of stablecoins. In the next phase, the bridges are likely to be built from the other side.” 

Decentralized finance is likely to evolve as traditional policymakers seek seats at the table, banks and other players engage in the action, and more market participants find value in its benefits while also calling for greater oversight.  

“The potential risks inherent in this ecosystem—only partly illustrated by the current crypto downturn—underpin the material regulatory push that we are witnessing. Like any innovation, crypto assets can bring benefits, but also risks. The regulatory mission is a balancing act between both,” S&P Global Ratings Chief Financial Institutions Analytical Officer Alexandre Birry and Global Chief Economist Paul Gruenwald said in a May 13 commentary, at the onset of the crypto downturn in the month ahead of the crash. “In our view, certain crypto assets will continue to grow in both size and scope, reflecting the benefits stemming from the underlying blockchain technology. Their interlinkages with the traditional financial system will continue to grow and deepen as well … As a result, financial stability concerns will rise in parallel. This downturn will undoubtedly be considered in the regulatory debate that is taking place, including around stablecoins.” 

Forthcoming regulation will likely determine how impactful the crypto downturn could be—and what comes next for crypto overall, according to S&P Global Ratings. 

“One truth of crypto and DeFi markets is that they are always changing—or, more precisely—innovating. Like prior Crypto Winters, we expect this period to provide the foundation for the next round of innovation in the ecosystem,” Mr. Mounts told the Daily Update. “Simultaneously, policy makers are sharpening their focus on the crypto ecosystems, including stablecoins, which we believe will help establish a foundation for greater institutional engagement. All told, the combination of coming policy initiatives, sector innovations, and institutional investment in building capabilities are the seeds of Crypto Spring that prepare the pathway for a future Crypto Summer and the next round of crypto and DeFi adoption.”

Today is Thursday, June 23, 2022, and here is today’s essential intelligence.

Written by Molly Mintz. 


The Global Economic Climate Is Shifting, As Fighting Inflation Gains Urgency

With inflation at a fever pitch, central banks around the world are raising interest rates with new urgency, hoping to cool inflation by slowing growth of aggregate demand and achieving a closer balance with supply. Meanwhile, Russia’s war with Ukraine and recent lockdowns in mainland China have further disrupted supply chains, adding to cost pressures. With high inflation shattering consumer and investor confidence, forecast probabilities are leaning closer to recession. In Europe and North America, prospects for a “soft landing” are dimming.

—Read the article from S&P Global Market Intelligence

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Capital Markets

Listen: Ep28: Goldman Sachs AM CIO Ashish Shah On Private Debt, Social Media, Inflation & Growing Up

Ashish Shah, chief investment officer at Goldman Sachs Asset Management, joins Ruth Yang, global head of thought leadership at S&P Global Ratings, and host Joe Cass on this episode of Fixed Income in 15. Discussion focused on the future of private debt markets, GSAM’s view of financing fossil fuel companies, using social media as a communication tool, and Ashish’s experience growing up in Pennsylvania.

—Listen and subscribe to Fixed Income in 15, a podcast from S&P Global Ratings

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Global Trade

Listen: U.S. Gulf Of Mexico Hurricane Season Threatens Energy Trade Flows With Potential Global Impact

As hurricane season 2022 unfolds in the U.S. Gulf of Mexico, the implications for oil and gas infrastructure in the region are wide-ranging. More than ever, the whole world is watching the U.S. Gulf as energy from the United States grows its presence in global markets. Americas gas news manager Joe Fisher sits down with natural gas editor Alan Lammey and oil editor Jordan Blum to discuss what the forecast says and what tropical activity could mean for natural gas, LNG, and oil.

—Listen and subscribe to Commodities Focus, a podcast from S&P Global Commodity Insights

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Clean Energy Boom Leaves Fossil Spending Behind As Inflation, Climate Woes Weigh: IEA

Global investment growth in clean energy is set to outpace fossil fuel spending this year as uncertainties over future energy demand scenarios keep oil, gas, and coal capital expenditures below the levels seen prior to the pandemic in 2019, the International Energy Agency said June 22. Led by power sector spending on renewables, grids, and storage, clean energy investment is expected to exceed $1.4 trillion in 2022, accounting for almost three-quarters of the growth in overall energy investment, the IEA said in its World Energy Investment 2022 report.

—Read the article from S&P Global Commodity Insights

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Energy & Commodities

U.S. Refining Capacity Falls To Lowest Mark In 8 Years Amid Record Prices: EIA

The nation’s capacity to refine crude oil into fuel and other products fell below 18 million b/d at the beginning of 2022 and hit its lowest level since 2014, according to the federal government’s annual refinery capacity report released June 21. The U.S. Energy Information Administration projects the nation’s operable crude refining capacity dipped to 17.94 million b/d as of Jan. 1, which is down from 18.09 million b/d at the beginning of 2021, and from the record high of 18.98 million b/d in 2020 before the pandemic took hold. The 2022 projection is the lowest since 17.92 million b/d in 2014, the EIA said.

—Read the article from S&P Global Commodity Insights

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Technology & Media

Megadeals Buoy Tech M&A Totals, But How Long Can It Last?

Tech M&A is still setting records in 2022, largely due to a spate of megadeals, raising questions about whether the buying spree can continue as interest rates climb and markets turn sharply bearish. The pace of deal-making in 2022 is on track to match or exceed 2021’s record pace. For the year through May, 2,272 industry transactions were signed, totaling $386.95 billion. By comparison, 4,321 deals were signed during full year 2021 for an aggregate value of $790.94 billion, according to 451 Research.

—Read the article from S&P Global Market Intelligence

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Source: spglobal.com

About the author


Hi there, I am Amanda and I work as an editor at impactinvesting.ai;  if you are interested in my services, please reach me at amanda.impactinvesting.ai