Markets fell this week after Federal Reserve chair Jerome Powell indicated the Fed will continue its aggressive approach to curb inflation despite the “unfortunate costs.” “A failure to restore price stability would mean far greater pain,” he said. Bitcoin plunged below the US$20K mark (A$29K), the S&P 500 fell 3.4% on Friday while A$46B was wiped from the Australian sharemarket on Monday. The local market is also bracing for another half a percentage point interest rate rise next Tuesday. Bitcoin is currently down 8% for the week to trade around A$29,300 (US$20.2K) while Ethereum has fallen 9% to trade around A$2,240 (US$1,540). Most other coins fell including XRP (-6%), Cardano (-6%), Solana (-12%) and Polkadot (-6%). Synthetix climbed 17.8% on the back off news it can now survive on actual revenue. The Crypto Fear and Greed Index is at 24 or Extreme Fear.
From the IR OTC Desk
At last Friday’s Jackson Hole symposium, US Federal Reserve Chair Jerome Powell highlighted an overarching requirement to bring inflation back down to the 2 percent target. Scheduled to speak for 20 minutes, Chair Powell needed only 8 minutes to deliver his pointed message. “While higher interest rates, slower growth, and softer labour market conditions will bring down inflation, they will also bring some pain to households and businesses. These are the unfortunate costs of reducing inflation. But a failure to restore price stability would mean far greater pain”.
US 10-year Treasury Notes have moved back above 3.10%: The USD basket (as expressed by the DXY) has made a new 20 year high of 109.48, before retracing some of the gain to settle near 108.75 at the time of writing. Higher yields and a stronger USD have negatively impacted equity markets and cryptocurrencies alike.
On the economic front, US PCE Price Index (the Federal Reserve’s preferred measure for inflation) came in at 6.3% (YoY for July) relative to 6.8% (YoY) June. On the core measure, the PCE Price Index YoY (July) moderated to 4.6% versus 4.8% in June. This week we received the US labour market data for August. Due for release on Friday the 2nd of September, the underlying strength of the labour market will be a key decision-making input for the September Federal Open Market Committee (FOMC) on the 21st of September.
In Australia, the Reserve Bank of Australia (RBA) is due to convene on Tuesday the 6th of September. The topic of conversation will centre around whether a 25bp or 50bp increase to the overnight cash rate will be most appropriate. Retail Sales MoM (July) came in strongly at 1.3% versus a market forecast of 0.3%. Currently, short term interest rate futures are pricing in a 90% chance of a 50bp increase at next week’s RBA meeting.
On the OTC desk, cryptocurrency sentiment remains firmly correlated with the broader macroeconomic market. The fall in cryptocurrencies over the weekend has proven to be a great leading indicator for equity market performance during the Monday trading session – expect this to continue (and vice versa). Despite the negative price movements in the underlying, our trading volumes have remained steady. As the market progresses towards the Ethereum ‘merge’ date, it is unclear what effect (if any) speculation is having on ETH price action. Time will likely tell however whether fast money has correctly valued the attributes of the ‘merge’. This will likely increase the volatility of ETH, relative to BTC during September.
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Singapore adds ‘friction’ to crypto trading
The chief of Singapore’s central bank has flagged new regulations to protect retail crypto traders. At a seminar titled ‘Yes to Digital Asset Innovation, No to Cryptocurrency Speculation‘ on Monday Ravi Menon the managing director of the Monetary Authority of Singapore, said the bank was looking to add “friction” – given crypto traders “seem to be irrationally oblivious about the risks.” Measures may include “customer suitability tests and restricting the use of leverage and credit facilities for cryptocurrency trading,” he said.
Black Swan watch
Forbes whipped up the FUD for September by suggesting the Ethereum Merge could become a “black swan” event for the entire crypto space if it goes wrong. The report also cited another big Federal Reserve interest rate rise and the potential flooding of the market with US$3 billion (A$4.35B) of Bitcoin being returned to creditors of the failed Mt Gox exchange. While these factors are causing uncertainty, the Merge has been tested within an inch of its life by the ultra-cautious Ethereum devs who have a track record of successful forks. And although the rate rise seems inevitable, a dump from Mt Gox creditors isn’t. Creditor Eric Wall said the exchange was yet to complete the infrastructure for the payments, which would occur in instalments and argued there’s no guarantee recipients would sell anyway.
DeFi grows up
Synthetix founder Kain Warwick has put forward a proposal to turn off the SNX money printer once and for all. At present SNX stakers are rewarded with very high yield provided by printing large amounts of SNX. But the protocol is now making a decent amount of real revenue by enabling atomic swaps on 1inch and Curve (decentralised exchanges) and Warwick believes the whole enterprise can now survive on actual revenue like a proper business. SNX has jumped 17% this week to trade around A$5.01/US$3.46. However Delphi Digital’s report this week stated its fair value model for SNX suggests its actually worth A$45/US$31.
Ava Labs vs CryptoLeaks
Self-professed whistleblower site CryptoLeaks has made a series of sensational allegations against Ava Labs, backed up with some candid video of lawyer Kyle Roche from Roche Freedman. The site claimed that Roche was launching lawsuits on Ava Lab’s behalf against rival projects including Solana to damage them and get a look inside their operations. However Ava Labs CEO Emin Gün Sirer said the firm had never directed Roche in his selection of cases and that the allegations were “ categorically false” and “conspiracy theory nonsense.” Roche meanwhile claimed the videos were a stitch up orchestrated by Internet Computer creator Dominic Williams that were made when he was drunk and then edited out of context.
Hash ribbons flash buy signal
No one knows where the market will go from here due to macro factors, but the hash ribbons indicator is flashing a buy signal. Capriole Investments founder Charles Edwards invented hash ribbons in 2019 and told CNBC the indicator suggests the worst of the capitulation is over. The 30-day moving average for hash rate had crossed back above the 60-day moving average meaning the worst was over. “Historically, these have been great times to allocate into Bitcoin, with incredible returns,” he said. “Miner capitulations that occur late cycle (at least 2 years after halving) and after cycle tops have been the most profitable long-term signals (eg. 2012, 2015, 2018).”
Full Tether audit months away
Despite finally hiring a real accounting firm (BDO Italia) for its attestations, Tether CTO Paolo Ardoino says a full audit is likely months away. “Things are going slower than…we would like,” Mr. Ardoino told the Wall Street Journal. The WSJ highlighted the fact Tether has $5.6B of “other investments”, which include digital tokens. Steven Kelly, a senior research associate at the Yale School of Management said Tether is the only major stablecoin to include crypto as a significant part of its reserves. “It’s certainly a riskier category” than other assets. Tether’s liabilities and assets are pretty much equally balanced and the WSJ said “a 0.3% fall in assets could render Tether technically insolvent.”
Bits and pieces
The Bitcoin mining hash rate has surged by almost 30% in the past two weeks. As a result tomorrow’s Bitcoin mining difficult adjustment is expected to be 6.8%, the largest increase since January 2021’s 9.32%. A recent survey from Pew Research found that 16% of Americans have bought crypto – but that half of them said their investments had done worse than they expected. Mastercard has announced it will launch a card supporting 14 coins including Tether in Argentina ahead of a wider rollout supporting 90 million online and physical stores. Eminem and Snoop Dogg performed as their Bored Ape NFT avatars at the MTV VMAs this week. The mainstream exposure comes after volume on the leading NFT marketplace OpenSea plunged 99% in 90 days with the floor price for Bored Apes falling 53% since May.
Until next week, happy trading!