By David Duong CFA & Colin Basco, Coinbase

Compiled and edited by: BitpushNews

Main points

Geopolitical risks are easing, with the Israel-Iran ceasefire stabilizing the market. Concerns about tariffs are easing, and downward inflation pressure is more likely to support a rate cut by the Fed.

Polymarket’s success and high valuation underscores the market’s interest in consumer-focused applications, particularly prediction markets, whose momentum is expected to accelerate.

Market Overview

Geopolitical risks receding?

Since the ceasefire agreement between Israel and Iran on June 23, market sentiment has stabilized, with the COIN 50 index rebounding along with U.S. stocks. In fact, the 25 delta put-call skewness of Bitcoin 30-day options has begun to decline after a surge last week, while the skewness of 90-day and 180-day contracts is in negative territory.

This suggests that demand for downside protection on short-dated Bitcoin put options has eased, and we believe that longer-dated options show that investors want exposure to Bitcoin but don’t want to pay the upfront costs of the spot market, reflecting a slight bias toward out-of-the-money calls. Implied volatility for the 1-week and 1-month contracts has fallen sharply, making it less attractive to sell volatility at this time.

Still, there is lingering uncertainty about whether tensions could flare up again. Looking ahead, we believe the most likely potential scenarios include:

Maintaining the status quo, characterized by a fragile and tense balance, Iran continues to use its nuclear program and regional proxies to project influence, essentially buying time without crossing clear red lines.

The second, more severe scenario involves limited military escalation, given Israel’s residual concerns about Iran’s nuclear capabilities.

Closing the Strait of Hormuz, which carries a fifth of global oil consumption, would be a major red line, indicating an escalation of the conflict. However, we believe this is unlikely to happen, as not only does a ceasefire reduce this threat, but such an action would severely damage Iran's own economy. Therefore, we believe buying the dip on geopolitical events may still be a viable market strategy at this time, which is consistent with our latest monthly outlook.

What about tariffs?

Despite the July 9 deadline (August 12 for China) to suspend reciprocal tariffs approaching, there has been no significant progress on a trade deal - despite a rare earth shipment agreement with China and a proposal to the EU. However, both traditional and crypto markets have largely ignored the economic risks that could arise from this, in part because it is not reflected in economic data.

Federal Reserve Chairman Jerome Powell testified this week before the House Financial Services Committee and the Senate Banking Committee that inflation could still be affected by tariffs later this summer. (Notably, President Trump subsequently announced that he could name Powell’s successor as early as September or October of this year.)

But remember that goods only make up about 20-25% of the core CPI basket, and it is unclear whether businesses will fully pass on the costs of tariffs to consumers. Moreover, service prices have been falling since mid-2024 and are more sensitive to long-term developments such as AI over the longer term. In fact, we believe the impact of tariffs is more likely to be deflationary given its net effect on aggregate demand. In our view, this will continue to push the Fed to cut rates in the second half of this year. All of this may explain some of the market complacency regarding tariffs, which we believe may persist until the upcoming deadline. Ultimately, we do not believe trade barriers pose a significant risk to our constructive outlook for Q3 2025.

Regulatory updates

The Guidance and Establishment of a United States Stablecoin National Innovation Act (GENIUS Act) has passed the U.S. Senate by a vote of 68 to 30 and is currently under consideration in the House of Representatives. House Majority Whip Tom Emmer (R-IN) is attempting to merge the bill with the CLARITY Act (House Market Structure Act), but given the complexity of the latter's content, this process may cause delays. Notably, President Trump has called on the House of Representatives to pass the GENIUS Act "without delays and without additions." Separately, Senate Banking Committee Chairman Senator Tim Scott (R-SC) said a crypto market structure bill is on track to be completed by September 30.

Additionally, on June 23, Senator Adam Schiff (D-CA) introduced the Limiting Official Income and Non-Disclosure Act (COIN Act), which seeks to restrict the ability of senior executive branch officials and their immediate family members to issue, sponsor, or endorse 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. Previous guidance had led to the crypto industry being systematically excluded from banks due to the subjective nature of “reputational risk.”

Polymarket: The new unicorn in the crypto space?

This week, decentralized prediction market platform Polymarket sought a valuation of around $1 billion in a round led by Founders Fund, becoming crypto’s newest unicorn.

Just one day later, regulated competitor Kalshi announced it had raised $185 million at a $2 billion valuation.

Together, these deals show that venture capital this week is focused on distribution moats (consumer-facing applications) rather than liquidity moats (token chains and DEXs), with the real-time events market leading the way.

Driving the valuation are its strong usage metrics. Despite regulatory barriers preventing U.S. users from trading, Polymarket has seen more than $14 billion in total trading volume, including about $1 billion in May alone. The platform averages 20,000 to 30,000 traders per day, surpassing many mid-cap DEXs and demonstrating its ability to attract a non-crypto native audience.

Momentum is expected to accelerate further with a new content partnership with X (formerly Twitter) that positions prediction markets as viral social content rather than pure financial tools.

Stablecoins — especially USDC — are its hidden beneficiaries.

Polymarket transactions are settled in USDC on Polygon, and these stablecoin flows are reflected in on-chain metrics. For example, in November 2024, when headline news events drove market attention, monthly trading volume soared to $2.5 billion, triggering a surge in USDC transfers and cross-chain bridge activity. Unlike lending protocols that lock up a large amount of total locked value (TVL), prediction markets have fast capital turnover, and high-frequency settlement activities drive a large amount of on-chain payment behavior.

Coinbase Exchange and CES Insights

This week, the crypto market has seen Bitcoin hold onto the $100,000 mark while the broader market has been in a consolidation phase.

In the housing market, the U.S. housing mortgage regulator issued an order requiring Fannie Mae and Freddie Mac to consider cryptocurrency holdings as assets when assessing the risk of home loans. We also saw continued inflows into spot BTC and ETH ETFs, and BlackRock (Invesco) also submitted an application for a spot SOL ETF, the ninth application to date.

All of this, along with ongoing tensions in the Middle East and comments from Fed Chairman Powell, has kept traders constructive. Perpetual swap funding rates are in the low to mid-single digits and positioning looks neutral, which could leave room for further gains.