In Markets

Crypto markets fell this week alongside traditional markets over mounting concerns Beijing will allow Chinese property giant Evergrande to default on its massive AU$400 billion (US$300 billion) debts. Bitcoin finishes the week down 10% to AU$57,600 (US$ 41.9K) while Ethereum lost 14% and is trading around AU$4,000 (US$ 2,950). Everything else lost ground: Cardano (-18%), Ripple (-18%), Polkadot (-23%), Dogecoin (-17%), Chainlink (-19%). In more positive news crypto assets held by institutional managers rose for a fifth straight week and El Salvador bought the dip, adding another 150 BTC to its stash.

From the IR OTC Desk

While this week was meant to be about the upcoming FOMC meeting on Thursday, it is the Evergrande story that is currently driving markets.  From a monetary policy perspective, last week’s headline US CPI print showed that prices appear to have stabilised, albeit at a high level (5.3% versus 5.4% prior).  US retail sales have also rebounded as the Delta effects on the retail economy appear to be abating.

From his Jackson Hole speech (last month), Fed Chair Powell mentioned “it could be appropriate to start reducing the pace of asset purchases this year”.  While the November meeting is currently viewed as the most likely announcement date for tapering specifics, the market will pay close attention to any subtle clues delivered at this week’s meeting.  It is expected that one of the primary objectives of the FOMC will be to ensure exceptional communication to avoid any heightened volatility and pricing disruption.

Domestically, Australian employment data proved confusing.  While the unemployment rate fell from 4.6% down to 4.5%, the employment change for August was -146.3k.  This was due to a large fall in the participation rate, as well as how stood down employees are categorised within the sample.  In his speech to the Anika Foundation, Governor Lowe was clear that “it will take some time for wage increases to lift to a rate that is consistent with achieving the inflation target”.

On the OTC desk, flows into the majors have lightened with the increase in volatility and caution within the market.  We continue to see good two-way activity in stable coins as capital is either being returned to less volatile assets, or fiat is converted to ensure quick deployment once things settle down.

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In Headlines

Evergrande contagion?

Crypto markets don’t appear to be directly exposed to the looming Evergrande disaster, but as we saw in March 2020, if financial contagion spreads then crypto can be in for a rocky ride. Tether has released a statement saying that it doesn’t own any of Evergrande’s debts or securities but Noelle Acheson, head of market insights at Genesis Trading said it could still be indirectly affected by the impact of the default on commercial paper. Not everyone buys the frequent comparisons to the collapse of Lehman Brothers that sparked the GFC, however. “We think some recent headlines related to China’s ‘Lehman moment’ are too pessimistic and exaggerated,” financial services group Nomura said. “These troubled developers, even though they have relatively large balance sheets, are not financial institutions.”

Cardano smart contracts

A week or so after the Alonzo hard fork and smart contracts were finally listed on the Cardano blockchain explorer, with a third party app putting the number at 3,800. However almost all of them are in timelock at present, with just 24 Plutus smart contract scripts listed as active. Input Output has also just released a detailed explanation of layer two scaling solution Hydra.

Regulators gonna regulate

Investors weren’t deterred by Coinbase’s run in with the SEC over its Lend product, and the company’s US$1.5B (AU$2.1B) junk bond offering was swamped with US$7B (AU$9.65B) worth of orders and subsequently expanded. Coinbase has now cancelled plans to launch Lend. Meanwhile Celsius, which operates existing products similar to Lend was hit by legal action from Texas, New Jersey and Alabama over claims its crypto lending accounts are unregistered securities. And Ripple has reportedly told the Fox Business Network it has no plans to settle the SEC’s lawsuit against it over selling unregistered securities. The team is “confident they can show Gary Gensler in pursuing the case is picking winners and losers in the #Crypto business to the detriment of innovation.”

Two networks go down, third stays up

In a highly unusual series of events mid last week two networks went offline and a third was attacked on the same day. Solana was knocked offline for 17 hours after getting hit with 400,000 attempted transactions per second. Ethereum layer two network Arbitrum’s sequencer went offline for 45 minutes, meaning new transactions could not be submitted. And someone attempted to attack Ethereum by tricking a small number of Nethermind nodes into switching to an invalid chain … but most weren’t fooled and the affected nodes were soon back on the straight and narrow.

El Salvador

It’s only been a couple of weeks, but already 1.1 million Salvadorans have signed up for El Salvador’s Chivo Wallet. Trustnodes points out that it took 40 years for 30% of Salvadorans to get a bank account, but just days for 20% of them to get access to Bitcoin. President Nayib Bukele points out that 65% of phones currently can’t access the app, so that number is due to go up considerably.

Bits and pieces

IntoTheBlock reported on September 17 that a record US$1.2B (AU$1.65B) worth of Ether had left centralised exchanges in a day. “Last time US$1B+ (AU$1.38B) left CEXs, #Ethereum increased by 60% within 30 days,” the data analytics firm noted. Ethereum co-founder Vitalik Buterin was named by Time Magazine as one of the 100 most influential people of 2021. Elon Musk was also named on the list. The Bitcoin network has already consumed more power in 2021 than it did in all of 2020. Turkish President Recep Tayyip Erdogan has ramped up the rhetoric against cryptocurrencies saying: “We are in a war against Bitcoin.” Turkey is set to launch its own CBDC. There are rumours swirling around this week’s Mainnet 2021 crypto conference in New York that an event speaker had been “served by the SEC” before taking to the stage. Ryan Selkis, CEO of Messari which put on the conference, seemed to confirm the story.


Bitcoin price lagging, but floor found

Bitcoin’s price has been lagging previous halving cycles, with Ecoinmetrics putting out a chart suggesting that in 40 days time “this drawdown will become the longest Bitcoin has ever experienced outside of a bear market.” On the upside it notes there are signs: “BTC might very well move towards a new all-time high this fall.”  Analyst Will Clemente has come up with a Bitcoin price model that combines PlanB’s stock to flow model with Glassnode’s illiquid supply data and puts the price floor for Bitcoin currently at $39K (A$53.8K). Meanwhile Bloomberg Intelligence chief analyst Mike McGlone says that no less than five different charts point to Bitcoin hitting six figures this year. “Past Bitcoin trading trends and the crypto’s declining supply vs. mainstream adoption suggest a significant advance in 2021, potentially to US$100,000 (AU$138K), we believe”, he said.



Bitcoin illiquid supply floor chart

Morgan Stanley’s crypto research team

Banking behemoth Morgan Stanley has joined several other major investment banks in launching a dedicated cryptocurrency research team. According to Bloomberg, lead crypto analyst Sheena Shah will lead the team, researching cryptocurrencies’ impact on equities and fixed income globally. In a memo to Morgan Stanley staff, the bank stated that the establishment of this team is in “recognition of the growing significance of cryptocurrencies and other digital assets in global markets”.


Until next week, happy trading!