Market Wrap #7: Ease off Inflation
What a week it has been! BTC was up by +6.39%, outperforming the equity markets (SPX +3.31% and NDX +2.74%) to close at ~$24.5k. An early and volatile part of the week was eventually dominated by the bulls following the relatively encouraging CPI print as the headline inflation slowed more than expected at 8.5% in July from 9.1% previously, indicating a likely peak in inflation. More notably, the buzz continues to increase surrounding Ethereum’s Merge as ETH outperformed +16% in the same period as traders continue to position themselves for the September Merge.
While the week’s bullish rally was pretty much led by the risk-on positioning following the “better than expected” CPI print, the Fed will likely persist in making difficult decisions given July’s strong employment report (say hello to 50bps hike in Sept and 25bps hikes in Nov and Dec). Above all, the downside surprise in July CPI report will nonetheless keep the original plan on track for the time being.
The question worth asking now would be: how will the Fed orchestrate a soft landing from here?
These are the few steps that the Fed would need to take:
- Slowing GDP growth to slightly below full potential level, to allow supply to catch-up: This is on target as the consistent decline in Fiscal support and Financial condition tightening has resulted in the much-needed deceleration.
- Rebalancing the supply and demand forces in the labor market: We still have a long way to go. Labor demand has moderated as job openings have fallen sharply, but hiring pace continues to run hot.
- Lastly, to bring down wage growth and inflation: Little progress made so far, but the falling commodity prices definitely helps.
As difficult as it is to achieve, the soft landing is still possible, bearing in mind multiple confounding factors that may help or hinder the process (e.g. war/covid induced supply chain disruptions).
Chart of the Week
The information presented is not investment advice and does not constitute any offer or solicitation to offer or recommendation of any investment product. As always, please do your own research.
Market Recap
1. “Crypto markets have hit the floor,” JP Morgan
With Bitcoin crossing the psychologically important level of $24,000, the crypto market has reclaimed $1T level in market value, led by a rise in the prices of blue-chip tokens. Anticipation over the Merge, a much-awaited upgrade to the Ethereum (ETH) network, is the main driver behind a rally in cryptocurrencies over the last few weeks. BTC and ETH have rebounded considerably in July, gaining 36% and 102%, respectively, from their mid-June lows.
2. WazirX trading volumes tank over 50% amid ED probe, Binance controversy
Binance said on 5th August that the company does not own Indian crypto exchange WazirX, raising questions over a deal that was understood to be completed in 2019 — the uncertainty led to multiple fund withdrawals from users.
3. Ethereum completed its final test run on 10 Aug, moving closer to adopting a proof-of-stake model for its network
Deemed the most important event in the history of crypto, ETH’s transition towards POS has been pushed back for the last several years. The final launch will occur during the week of 19th Sept 2022.
4. Ripple Labs (XRP) interested in Celsius’ assets
“We are interested in learning about Celsius and its assets, and whether any could be relevant to our business,” and “is actively looking for M&A opportunities to strategically scale the company”, according to Ripple’s spokesperson.
Celsius’ assets include digital assets held in custody accounts, loans, a bitcoin mining business, the company’s own CEL token and bank cash and cryptocurrencies that Celsius has on hand.
5. U.S. bans Tornado Cash — a service that scramble information trails on the blockchain, helping safeguard users’ anonymity
Office of Foreign Assets Control (OFAC), a Treasury Dept. agency, called Tornado Cash “a significant threat to the national security” of US and alleged that it has been used repeatedly by hackers and laundered more than $7B.
Tornado Cash DAO has to shut down in fear that its contributors might be prosecuted. “DAO funds have been returned to Governance contracts, multisig deleted.” The removal of the DAO multi-sig indicates that this may be the end for Tornado Cash.
The decision drew backlash from the community as it oversteps privacy and autonomy. Many use Tornado Cash for practical reasons such as not wanting employers to look into their transactions.
Economic Summary/Market Stats
7d Market Update
Crypto
❇️ BTC: +6.39% to $24,520
❇️ ETH: +16.77% to $1,984
❇️ SOL: +13.98% to $46
❇️ Overall Crypto Market Cap: +7.56% to $1.177T
🥴 Bitcoin Fear & Greed Index: Fear (45/100)
Equities
❇️ S&P 500: +3.26%
❇️ DJ Industrial Average: +2.92%
❇️ Nasdaq 100: +3.08%
❇️ Hang Seng Index: +0.41%
❇️ Stoxx Europe 50: +0.69%
Rates
💸 USDC Supply APY: 0.50%
💸 ETH Supply APY: 2.53%
💸 BTC Supply APY: 0.09%
💲3-Month US Dollar Libor: 2.92157%
💲US Treasuries 2-Year: 3.245%
💲US Treasuries 10-Year: 2.837%
Key Economic Releases
16 Aug (Tues)
9.15am ET: Industrial Production Index (median forecast 0.3%, previously -0.2%)
17 Aug (Wed)
2.00pm ET: FOMC Minutes
18 Aug (Thurs)
8.30am ET: Initial Jobless Claims (median forecast 265k, previously 262k)
