Source: Coinbase
Authors: David Duong CFA, Colin Basco
Translation and Compilation: BitpushNews
Key Points
Geopolitical risks are easing, with the Israel-Iran ceasefire stabilizing the market. Concerns about tariffs are diminishing, and downward inflation pressure is more likely to support the Federal Reserve's rate cut.
Polymarket's success and high valuation highlight the market's focus on consumer-centric applications, especially prediction markets, with momentum expected to accelerate.
Market Overview
Geopolitical Risks Receding?
Since the Israel-Iran ceasefire agreement on June 23, market sentiment has stabilized, with the COIN50 index and US stocks rebounding. In fact, the 25 delta put-call skew for BTC 30-day options began to decline after last week's surge, while the skew for 90-day and 180-day contracts remained in negative territory.
This indicates a reduced demand for downside protection on short-term BTC put options. We believe longer-term options show investors want BTC exposure without paying upfront spot market costs, reflecting a slight bias towards out-of-the-money call options. The implied volatility for 1-week and 1-month contracts significantly decreased, reducing the attractiveness of selling volatility.
Nevertheless, uncertainty remains about potential tension resurgence. Looking ahead, we consider the most likely scenarios to include:
Maintaining the status quo, characterized by a fragile and tense balance, with Iran continuing to use its nuclear program and regional proxies to project influence, essentially buying time without crossing clear red lines.
A second, more serious scenario involving limited military escalation, given Israel's remaining concerns about Iran's nuclear capabilities.
Closing the Hormuz Strait (which handles one-fifth of global oil consumption) would be a major red line indicating conflict escalation. However, we believe this is unlikely, as the ceasefire not only reduces this threat but such an action would severely damage Iran's own economy. Therefore, we consider buying on geopolitical event dips still a viable market strategy, consistent with our latest monthly outlook.
What About Tariffs?
Despite the approaching suspension of reciprocal tariffs on July 9 (August 12 for China), trade agreements have not made significant progress—though a rare earth transportation agreement was reached with China and a proposal submitted to the EU. However, traditional and crypto markets have largely ignored potential economic risks, partly because these are not reflected in economic data.
Federal Reserve Chair Powell testified this week before the House Financial Services Committee and Senate Banking Committee, stating that inflation might still be affected by tariffs later this summer. (Notably, President Trump subsequently announced he could appoint Powell's successor as early as September or October.)
Remember that commodities only represent about 20-25% of the core CPI basket, and it's unclear whether businesses will fully pass tariff costs to consumers. Additionally, service prices have been declining since mid-2024 and are more sensitive to long-term developments like AI. In fact, we believe tariffs are more likely to be deflationary due to their net impact on total demand. In our view, this will continue to drive the Federal Reserve to cut rates in the second half of the year. All of this may explain the market's complacency about tariffs, which we believe will persist until the upcoming deadline. Ultimately, we don't see trade barriers posing a significant risk to our constructive Q3 2025 outlook.
Regulatory Updates
The "Guiding and Establishing the United States Stablecoin National Innovation Act" (GENIUS Act) passed the Senate 68-30 and is currently under review in the House. House Majority Whip Tom Emmer (R-Indiana) is attempting to merge the bill with the CLARITY Act (House Market Structure Act), but this process may cause delays due to the latter's complexity. Notably, President Trump has called on the House to pass the GENIUS Act "without delay and without additions". Additionally, Senate Banking Committee Chair Senator Tim Scott (R-South Carolina) stated a crypto market structure bill is expected to be completed by September 30.
Furthermore, on June 23, Senator Adam Schiff (D-California) introduced the COIN Act, aimed at restricting senior executive branch officials and their immediate family members from issuing, sponsoring, or endorsing digital assets.
Meanwhile, the Federal Reserve announced this week that it will no longer include reputation risk as a component of its bank supervision and examination program. This appears to be a continuation of the current administration's deregulation under "Operation Chokepoint 2.0". Given the subjectivity of "reputation risk", previous guidelines had systematically excluded the crypto industry from banking.
Polymarket: A New Crypto Unicorn?
This week, decentralized prediction market platform Polymarket sought a valuation of around $1 billion, led by Founders Fund, becoming the latest unicorn in the crypto space.
Just a day later, regulated competitor Kalshi announced $185 million in funding at a $2 billion valuation.
These transactions collectively indicate that venture capital this week focused on distribution moats (consumer-facing applications) rather than liquidity moats (token chains and DEXs), with real-time event markets leading the way.
Strong usage metrics are driving the valuation. Despite regulatory barriers preventing US user trading, Polymarket's total trading volume has exceeded $14 billion, with approximately $1 billion in May alone. The platform averages 20,000-30,000 traders daily, surpassing many mid-cap DEXs and demonstrating its ability to attract non-crypto native audiences.
With a new content partnership with X (formerly Twitter), positioning prediction markets as viral social content rather than purely financial instruments, its momentum is expected to accelerate further.
Stablecoins—especially USDC—are its hidden beneficiaries.
Polymarket trades settle in USDC on Polygon, with these stablecoin flows reflected in on-chain metrics. For instance, in November 2024, when headline news events drove market attention, monthly trading volume surged to $2.5 billion, triggering a spike in USDC transfers and cross-chain bridge activity. Unlike lending protocols locking substantial Total Value Locked (TVL), prediction markets have faster fund circulation, with high-frequency settlements driving significant on-chain payment activity.
Coinbase Exchange and CES Insights
This week, the crypto market saw BTC holding steady around $100,000, with the broader market in a consolidation phase.
