Market Picture

The cryptocurrency market rolled back 1.8% in 24 hours to $2.17 trillion due to a reduction in risk appetite among investors, sparking a sell-off in bonds and equities. That said, as the less risky of the cryptocurrencies, bitcoin has been gaining ground relative to the overall market during similar periods, now holding 56.9% of the capitalisation of all currencies – its highest since April 2021. That share is largely taken away from Ethereum, which now weighs in at 13.5% of the entire market, which was also last seen three and a half years ago.

Technically, bitcoin sold off to consolidate above its 200-day moving average, a demonstration of bearish strength. But we’re still inclined to see this as more of a short-term correction for now, as the latest episode of risk-off is driven by strong data. While this is a formal reason to sell, strong employment is still a positive factor, promising more demand for final consumption and investment. The threat to cryptocurrencies so far is a combination of a new round of rising prices with signs of a weakening economy. Perhaps they’ll be found in economic reports this week and next. But that’s nothing more than a risk.

News background

According to CoinShares, crypto fund investments fell $147 million last week after three weeks of inflows. Bitcoin investments were down $159 million; Ethereum was down $29 million, and Solana was up $5 million. Investments in funds with multiple crypto assets were up $29 million, recording their 16th week of inflows. Since June, such products have become favourites among investors who prefer to invest in a diversified basket of assets rather than individual assets.

Despite the previous week’s difficult start, the options market points to bullish sentiment in the fourth quarter. QCP Capital is optimistic for a strong October, given the projected rate cuts and bitcoin’s correlation with equities. UBS forecasts China’s announcement of a new stimulus package from 8-18 October for 1.5-2 trillion yuan ($213-285 billion) with an additional 8 trillion yuan ($1.14 trillion) in 2025.

Crypto Insights noted ‘one of the highest levels of crypto optimism’ for the year among investment fund managers. The number of funds invested in cryptocurrencies topped 1,600.

PwC notes that the UAE has abolished VAT on all crypto transactions, putting digital assets on par with traditional finance (TradFi).

Pavel Durov said Telegram users bought up to 600,000 ‘rare’ gifts in a few hours on the day of their launch. The developers promise that in the future, ‘rare’ gifts can be converted into NFTs on the TON blockchain and traded as tokenised assets.

On paper, Pakistan’s deal with the International Monetary Fund for a US$7 billion (RM30.03 billion) bailout seemed like an inevitability. A period of crushing inflation, depleted foreign currency reserves and other economic shocks pushed the South Asian nation to the brink of default.

But locking down the funds recently might have been the easy part.

The finer print of the IMF program, which included increasing taxes by a record 40%, has caused panic across Pakistan. Leading to the deal, electricity prices jumped threefold for some people and the price of milk in Karachi surpassed what it would cost in Paris. Many Pakistanis now spend more than half of their income on food. And items from rice to shoes are increasingly out of reach for an already shrinking middle class.

“People simply have no power to buy,” said Niaz Muhammad, who sells produce in an affluent area of Islamabad, the capital. Customers who used to purchase fruits and vegetables from him daily are now doing so only a couple of times a week, he said. “It’s not just me facing this. Everybody is.”

Prime Minister Shehbaz Sharif, whose coalition government has only been in power for seven months, is urging patience in a country that cannot keep up. Over the past few years, Pakistan has lurched from one crisis to the next, including a tempestuous period of political unrest and deadly floods that caused billions of dollars in damage.

For a stretch, Pakistan reported Asia’s highest inflation rate. Though consumer prices have somewhat moderated this year, the cost of essentials continues to inflict pain. Incomes aren’t rising and purchasing power has roughly halved or more over the past five years. Inflation, which averaged 23% or so in the last fiscal year, is far higher than the average salary hike of 5% to 10% for Pakistan’s vast population of daily wage earners, according to government data.

In an interview with a local broadcaster, Finance Minister Muhammad Aurangzeb acknowledged “transitional pain” from the IMF bailout. “But if we are to make it the last programme,” he said, “then we have to carry out structural reforms.”

The IMF has also publicly defended terms of the deal. Officials have pointed out that Pakistan’s economic metrics broadly improved over the past year and the momentum must be sustained.

“The task now is to pursue reforms which underpin stability and sustainably strengthen the living standards for low- and middle-income households,” an IMF spokesperson said in a statement.

A pivotal question now is whether Pakistanis will bear the higher tax rates or mobilise for yet another change of government. Protesters appear on the streets regularly to vent their frustrations at Sharif and a political establishment they believe has looted them for decades without a payoff. The latest IMF program, which was secured two weeks ago, is the 25th time Pakistan has received bailout money since achieving independence.

Authorities will also want to avoid the kind of deadly protests that gripped Kenya in June and July. The demonstrations forced the government there to reverse tax hikes linked to IMF-backed austerity measures, putting billions of dollars of funding from the Washington-based lender at risk.

In a recent policy note, Moody’s Ratings warned that “a resurgence of social tensions on the back of high cost of living” could make it more difficult for Pakistan to implement reforms agreed upon with the IMF. Beyond a 40% general tax hike, Pakistani officials plan to increase taxes on agricultural income and within the retail sector.

Electricity prices are an especially sensitive issue, roiling rich and poor alike. In a recent video on social media, the popular actor Rashid Mehmood held up his inflated electricity bill and said he no longer wanted to live anymore.

“This has become too much,” he said.

Outside a hospital in Karachi, Ashrat Bano, 55, a cleaner in the building, expressed similar frustration. Electricity is now her biggest monthly expense. She routinely borrows money to support a family of four.

“I can’t pay it,” Bano said.

While almost nobody disputes that Pakistan needs to widen its tax base — the South Asian nation has one of the world’s lowest tax-to-GDP ratios at about 9% — the latest budget has triggered an uproar. Though taxes have risen for the middle class, there’s been no cut in state expenses for the new fiscal year, which started in July. Revenue generated from salaried Pakistanis fills 42% of the government’s tax coffers.

Private companies aren’t happy either. Pakistan’s current corporate tax of about 30% is among the highest anywhere. Exporters who were protected for decades by the government because they earned valuable dollars were also brought into the existing tax regime — bumping their tax rate from 1% to 29%.

Eighteen export associations published front page advertisements for multiple days in a row in leading newspapers to protest the move.

To meet the moment, multinational companies are resorting to “shrinkflation”. Nestle SA and Procter & Gamble Co have reduced the purchasable quantities of products including yoghurt and nappies. PepsiCo Inc’s Aquafina launched a more compact water bottle two years ago. And bread is available in smaller loaves, including a four-slice one.

Ali Khizar, head of research at Business Recorder, said it’s hard to find a bright spot these days for salaried workers. Car sales are the lowest in two decades. The price of air conditioners has doubled over the past couple of years. And Pakistan’s best and brightest are moving out of the country at a record pace.

Though the new taxes will help tame inflation, he said, the economic slowdown will continue.

“The misery of the middle and lower middle class is not likely to go away anytime soon,” Khizar said.

Source: The edge markets

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Hong Kong’s financial regulator, the Securities Futures Commission, says it expects to issue more licenses to crypto exchanges and digital asset firms operating in the region by the end of the year. 

SFC CEO Julia Leung said she expects it to “make progress” in issuing licenses to 11 currently operating Virtual Asset Trading Platforms (VATPs) on the regulator’s list of potential licensees, according to an Oct. 6 report from local media outlet HK01.

She added that licenses would be granted in “batches” moving forward in a bid to bring crypto exchanges into compliance more easily. 

A total of 16 companies are awaiting a decision on their VATP application. Eleven are already operating as “deemed to be licensed,” even though the SFC discourages traders from doing business with them.

Leung added that it had completed the first round of “on-site” reviews for the crypto firms and said all VATPs that are compliant with its licensing model can expect to have their applications approved. 

Leung said all firms that do not meet the SFC’s requirements can expect to lose their qualifications for licensing.

Leung’s comments came as the SFC released its roadmap for 2024 to 2026 on Oct. 6, with plans to advance regulations on crypto platforms, promote Real World Asset (RWA) tokenization, and to more thoroughly explore blockchain technologies. 

Retail crypto investors in Hong Kong currently only have four cryptocurrencies they can buy, and Hong Kong has been criticized for the slow pace of its crypto regulations despite its repeatedly proclaimed desire to become a world hub for crypto and financial technology.

However, Leung said she expects the regulatory framework for crypto assets to be finalized by the end of next year.

The update on crypto licenses comes just three days after crypto exchange HKVAX was approved as the third to be licensed for trading in Hong Kong after OSL and HashKey respectively received their licenses in 2020 and 2023.

Hong Kong has made licensing and regulation for crypto firms a top priority following the $165 million scandal involving the now-defunct Dubai-based crypto exchange JPEX in 2023. 

Over 2,500 Hong Kong residents claim they were defrauded by the exchange, which promoted its services heavily in Hong Kong before hiking withdrawal fees in September and preventing users from accessing their funds. 

In the wake of the scandal, Hong Kong said it would bolster its crypto regulations and policing of unlicensed firms. Additionally, the SFC set up a task force with the police to deal with illicit crypto exchange activities and updated its policies on crypto sales and requirements.

Source: COINTELEGRAPH