Author: David Duong CFA & Colin Basco, Coinbase
Translated and Compiled by: BitpushNews
Key Points
Geopolitical risks are easing, with the Israel-Iran ceasefire stabilizing the market. Concerns about tariffs are weakening, and downward inflation pressure is more likely to support the Federal Reserve's rate cuts.
Polymarket's success and high valuation highlight the market's focus on consumer-centric applications, especially prediction markets, with its 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 together. In fact, the 25 delta put-call skew for Bitcoin 30-day options began to decline after last week's surge, while the skew for 90-day and 180-day contracts remains in negative territory.
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This indicates that the market's demand for downside protection on short-term Bitcoin put options has eased. We believe that longer-term options show investors want Bitcoin exposure without paying upfront costs in the spot market, reflecting a slight bias towards out-of-the-money call options. The implied volatility for 1-week and 1-month contracts has significantly decreased, reducing the attractiveness of selling volatility at this time.
Nevertheless, uncertainty remains about whether tensions might reignite. Looking ahead, we believe the most likely potential scenarios 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 severe scenario involves limited military escalation, given Israel's residual concerns about Iran's nuclear capabilities.
Closing the Strait of Hormuz (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 believe buying the dip during geopolitical events remains 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 seen significant progress—though a rare earth transportation agreement was reached with China and a proposal submitted to the EU. However, both 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 could 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.)
But remember, commodities only represent about 20-25% of the core CPI basket, and it's unclear whether businesses will fully pass on 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 Fed rate cuts 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 do not see trade barriers as a significant risk to our constructive outlook for Q3 2025.
Regulatory Updates
The GENIUS Act (Guiding and Establishing National Innovation for Stablecoins) passed the Senate 68-30 and is now under review in the House. House Majority Whip Tom Emmer (R-Indiana) is trying 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 that 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 (Limiting Officers' Income and Non-Disclosure), 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 reputational 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 "reputational 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 deals 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.
Driving the valuation are its strong usage metrics. Despite regulatory barriers preventing US users from trading, Polymarket's total trading volume has exceeded $14 billion, with about $1 billion in May alone. The platform averages 20,000 to 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 the Hidden Winners
Polymarket trades are settled in USDC on Polygon, with these stablecoin flows reflected in on-chain metrics. For example, 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 that lock large total value (TVL), prediction markets have faster fund circulation, with high-frequency settlements driving significant on-chain payment activity.
Coinbase Exchange and CES Insights
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This week, Bitcoin maintained its position above $100,000, while the broader market remained range-bound.
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In the housing market, US housing mortgage regulators issued an order requiring Fannie Mae and Freddie Mac to consider cryptocurrency holdings as assets when assessing housing loan risks. We also see continued inflows into spot BTC and ETH ETFs, with Invesco submitting the ninth application so far for a spot SOL ETF.
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All of these factors, coupled with the ongoing tense situation in the Middle East and comments from Federal Reserve Chairman Powell, have kept traders maintaining a constructive attitude. Perpetual contract funding rates are in the low to mid single digits, and positions appear relatively neutral, which may leave room for further increases.
