Sadly ‘Uptober‘ is in danger of being cancelled this year due to an ocean of grim economic news. The UK has begun emergency money printing again after the pound hit near parity with the US dollar, the UN is warning that interest rate hikes to tame high inflation could spark a global recession and an ABC reporter tweeting a rumour about an unnamed investment bank “on the brink” sparked fears that Credit Suisse or Deutsche Bank is about to collapse in a new Lehman Brothers moment (he has deleted it and the ABC is not at all pleased by the attention). The Reserve Bank is also due to hike rates again today, the only question is by how much, and are we in danger of one hike too many? Despite the news, Bitcoin finished flat to trade at just over A$30,000 (US$19,550), while Ethereum was down 4% to trade just over $2,020 (US$1,320). XRP lost 4%, Cardano (-7%), Solana (-5%) and Polkadot finished -5% for the week. The Crypto Fear and Greed Index is at 24 or Extreme Fear.
From the IR OTC Desk
Macroeconomic markets continue to be incredibly volatile – particularly UK sovereign bonds. Cryptocurrencies, however, have remained less volatile.
In the UK, the Bank of England (BoE) has been forced to intervene in the ultra-long dated UK Gilt market (sovereign bond market) on the back of heightened financial instability risks. Pledging to buy bonds to restore price tension and financial stability, the BoE has allocated up to GBP 65bn, to purchase assets until the 14th of October. In the last 24 hours the new Prime Minister Liz Truss and the new Chancellor Kwasi Kwarteng, have walked back proposed tax cuts – improving the UK’s forecast fiscal position. Global fixed income and risk assets have rallied on the back of the policy withdrawal. Time will tell whether the BoE will be forced to intervene again.
Today, the Reserve Bank of Australia (RBA) increased the cash rate from 2.35% to 2.60% at their October meeting. In a surprise announcement, the RBA have highlighted:
Today’s increase in interest rates will help achieve this goal and further increases are likely to be required over the period ahead. The cash rate has increased substantially in a short period of time. Reflecting this, the Board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia.
This week in the US, we received three incredibly important pieces of information relating to the labour market: JOLTS Job Openings for August (Wednesday), ADP Employment change for September (Wednesday), and Non-Farm Payrolls for September (Friday). Of the three, the Non-Farm Payrolls data (which includes the unemployment rate) will be most critical. This is scheduled for release at 1130pm, Friday the 7th of October.
On the OTC desk, volumes have been mixed. With increased volatility in macroeconomic markets, cryptocurrencies (surprisingly) have proven to be quite stable. Movements in both BTC and ETH have remained a good proxy for risk assets, although price action so far has seen the majors contained both to the downside and upside – and trade in a relatively narrow band. The relationship between protocol growth and the cost of funding will continue to play a critical role for cryptocurrency pricing.
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US edges toward regulations
Officials from the United States Financial Stability Oversight Council have recommended in a report that legislation be passed to provide a “rulemaking authority for federal financial regulators over this [crypto spot] market.” The report identified gaps in regulations pertaining to coins that aren’t securities (Bitcoin and Ethereum mainly), regulatory arbitrage and stablecoins. Some analysts seem to think the report is leaning toward the Commodity Futures Trading Commission being given a leading role, which the crypto community sees as the lesser of two evils compared with the perceived anti-crypto Securities and Exchange Commission. In vaguely related news, the SEC has just fined Kim Kardashian US$1.26M (A$1.93M) for promoting the junk cryptocurrency EthereumMax.
Solana is reliably unreliable
Solana went down again last week for the eighth time in the past year. This time it was due to a misconfigured node that caused an unrecoverable partition in the network according to Stakewiz.com. CyberCaptial CEO Justin Bons argued the frequent outages were because Solana had taken “dangerous design shortcuts” in its attempts to speed up the chain. By contrast Bitcoin and Ethereum are achingly slow but never go down.
Ticking off another classic bear market statistic, a news survey from Bankrate found that US Millennials’ enthusiasm for crypto is waning along with prices. Last year 50% surveyed said they felt comfortable investing in digital assets, but that fell to just 30% this year.
Voyager and Nexo
FTX agreed to buy the bankrupt yield platform Voyager for a headline figure of US$1.4 billion (A$2.15B) this week … but actually they’re just handing over US$51 million in cash (A$78.3M). Voyager’s US$1.31 billion (A$2B) in crypto holdings will be distributed back to eligible holders on a pro rata basis. Meanwhile Nexo is being sued by eight US states at once for offering interest earning accounts without registering them as securities. While Nexo claims to have more assets than liabilities, part of that is down to its holdings of its own tokens, which could collapse if confidence in the platform disappears.
Grayscale discount largest ever
Grayscale’s Bitcoin Trust manages 3.3% of Bitcoin’s circulating supply, offering institutions a way to invest in the cryptocurrency without holding it themselves. Historically it has traded at a premium of around 20% over spot prices, but over the past 19 months this turned to an average -19%. On September 29 GBTC traded at its largest discount in history of -36%. Some say this is due to a greater range of alternative Bitcoin ETFs being offered around the world, others say it demonstrates declining interest in BTC. However, if the SEC ever approves Grayscale’s application to turn GBTC into a Bitcoin ETF the discount could be erased overnight.
Lightning finally strikes
Bitcoin’s Lightning network has been derided by critics as an overly complicated and unpopular scaling solution since its introduction in 2018, with many claiming it has failed. However, the network hit 4,000 BTC capacity in June, and now just a few months later, it has hit 5,000 Bitcoin capacity. El Salvador’s Bitcoin Law is one of the main reasons according to Nicolas Burtey, CEO at Galoy.
El Salvador President Nayib Bukele has written an op-ed piece titled “Stop Drinking the Elite’s Kool-Aid” claiming that the world’s financial elites have been pressuring the country to reverse its decision to adopt Bitcoin as legal tender. He said the country hasn’t taken a loss on its investment yet, as it hadn’t sold anything, and claimed that in 2021 GDP, tourism, employment, exports and revenue all went up while the crime and murder rate went down 95%. “If El Salvador succeeds, many countries will follow. If El Salvador somehow fails, which we refuse to, no countries will follow,” he wrote.
Novogratz still bullish
Billionaire Mike Novogratz remained unashamedly bullish during his appearance to Token2049 in Singapore last week. He said that Bitcoin had been resilient in recent weeks even as traditional markets fell because most of the leverage was already taken out of the system due to the Terra crash and there weren’t many forced sellers left. “We’re in this weird equilibrium where there are a few buyers, there are a few sellers, and there’s not that energy in the market like you’re seeing in the equity market or the bond market where you have to sell, right?” Novogratz said. He says digital tokens will take off again when the Fed stops hiking rates.
The bear market also hasn’t deterred Pantera Capital CEO Dan Morehead, who is raising US$1.25 billion (A$1.92B) for a second blockchain fund. “We want to provide liquidity for people that are kind of giving up because we’re still very bullish for the next 10 or 20 years,” said the Pantera CEO.
Until next week, happy trading!