Coinbase: What is the main driver for this week's crypto market trends?

Source: Coinbase; Compiled by: Deng Tong, Golden Finance

Summary

• Negotiations between China and the United States will kick off this weekend in Switzerland, which could become a major driving force for the market.
• New Hampshire has taken the lead in introducing a strategic Bitcoin reserve law, and other states are considering similar measures. The U.S. Senate rejected the Stablecoin Act (GENIUS Act).

The market seems satisfied with the outcome of the US-UK trade agreement, and negotiations between the US and China (or more precisely, the "downgrade" negotiations) will begin this weekend in Switzerland. President Trump stated that if the negotiations progress smoothly, tariffs on Chinese goods may be reduced. Recall that the 90-day tariff extension (announced on April 9) means we have about two months to initiate any new trade agreements, and the loss of momentum in this area could affect the risk sentiment of various assets, including cryptocurrencies. However, initial progress seems encouraging, especially with Japan seeking to reach an agreement by June. These agreements have the potential to alleviate semiconductor trade barriers, which is crucial for easing investors' concerns about economic activity.

Trade negotiations remain the most important market driver at present, and the muted market response to the May 7 FOMC meeting of the Federal Reserve is a clear indication of this. Although the stock market initially reacted poorly to Federal Reserve Chairman Jerome Powell's cautious statement on interest rate cuts, the Trump administration's announcement of plans to revoke President Biden's ban on artificial intelligence chip exports reversed this trend. We believe this continues to indicate that the convexity around news headlines remains high, leading to a lack of attractiveness in the risk/reward of short positions.

Currently, cryptocurrency is responding well to the recent macroeconomic developments, with Bitcoin strongly reclaiming the 100,000 USD mark this week. After experiencing net outflows in February and March, spot Bitcoin ETFs attracted a net inflow of 2.96 billion USD last month. Considering the latest data from the Commodity Futures Trading Commission (CFTC), leveraged funds only increased their net short positions in Bitcoin futures on the Chicago Mercantile Exchange (CME) by 619 million USD in April, indicating that this capital is mostly flowing directionally, rather than being related to the basis. In the first eight days of May, another 1.58 billion USD flowed into these ETFs. It is worth noting that the 13F filing deadline for the first quarter of 2025 is May 15, so next week we will have a more detailed understanding of which ETFs purchased these ETFs in the first quarter of 2025.

In terms of regulation, New Hampshire became the first state in the U.S. to pass the Strategic Bitcoin Reserve Act this week, indicating that its policy support for the application of Bitcoin will further strengthen. Currently, 28 states are reviewing legislative proposals to establish strategic Bitcoin reserves or include Bitcoin in their management funds. As of now, 8 states—Florida, Montana, North Dakota, Oklahoma, Pennsylvania, South Dakota, Utah, and Wyoming—have vetoed these proposals, while 19 states are still under review.

The Governor of Arizona vetoed the SB1025 bill allowing the state pension fund to invest in cryptocurrency, but approved the HB2794 bill allowing the state to custody unclaimed digital assets. The SB1373 bill (establishing a digital asset strategic reserve fund) is currently still on the Governor's desk. Additionally, the U.S. Senate yesterday did not approve the stablecoin bill, the "GENIUS Act", in a full vote, with only 48 senators voting in favor, falling short of the 60 votes needed to avoid a prolonged debate. However, this veto did not diminish the risk premium for most crypto assets.

Coinbase Acquires Deribit

Coinbase has made waves in the derivatives space with its landmark acquisition of Deribit. Deribit is a leading cryptocurrency options exchange globally, with an open interest of approximately $30 billion. This strategic move by Coinbase positions it as one of the world's leading cryptocurrency derivatives platforms, serving institutional and seasoned traders by offering the most comprehensive products in the market. By combining Deribit's robust options capabilities with Coinbase's established spot, futures, and perpetual futures products, traders will be able to trade a variety of products efficiently on a single platform.

This acquisition lays the foundation for rapid global expansion and unlocks opportunities in the thriving derivatives market, especially as cryptocurrency options are poised for exponential growth similar to the stock options boom of the 1990s. Starting today (May 9), Coinbase Derivatives Exchange will launch 24/7 futures trading for BTC and ETH contracts, providing U.S. traders with uninterrupted risk management. In addition, Coinbase is developing perpetual contracts aimed at bridging the gap between the U.S. and global cryptocurrency derivatives markets through regulated, convenient, and innovative solutions tailored for native cryptocurrency traders.

On-chain: The OP_RETURN Controversy of Bitcoin

The Bitcoin community is engaged in intense debates over a proposed upgrade plan that core developers intend to implement in an upcoming release (date to be determined). This change addresses data storage issues through the OP_RETURN field in transactions, a method that was previously limited to alleviating spam but is now increasingly used for non-monetary purposes. While some developers argue that removing the 80-byte size limit is a pragmatic solution to the inevitable data usage problem, hardline critics claim that this will lead to network inflation and normalize behaviors that undermine the core monetary principles of Bitcoin. However, we believe that providing less invasive methods (such as expanding the OP_RETURN field) can actually help guide data storage on the network away from destructive practices without imposing restrictive trade-offs that could harm the core spirit of Bitcoin.

Cryptocurrency and Traditional Assets

Insights on Coinbase Exchange and CES

This week, the cryptocurrency market surged significantly, with Bitcoin (BTC) breaking through $100,000 and Ethereum (ETH) surpassing $2,000. This bullish momentum is mainly attributed to the optimism following the announcement of the US-UK trade agreement and the continued strong inflow of institutional investors into the US spot Bitcoin ETF. Looking ahead to next week, the market focus will shift to key US inflation data (Consumer Price Index (CPI) and Producer Price Index (PPI)) as well as retail sales data. Maintaining Bitcoin above the psychological threshold of $100,000 is crucial for sustaining positive market sentiment.

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