In Markets
There were some green shoots this week with monthly inflation data showing a slight easing to 6.9% and pundits tipping the next interest rate rise will be 0.25%. There’s also the slim chance of a Santa Claus Rally (even if there’s not a lot of evidence of any consistent December rise over the years). Bitcoin finished the week up 1% to trade at A$25,340 (US$16,940) while Ethereum increased 4% to A$1,880 (US$1,260). XRP is down 3%, Dogecoin increased 4% (related: rumours of a Twitter Coin) and Cardano was up 1%. The Crypto Fear and Greed Index is at 25 or Extreme Fear.
From the IR OTC Desk
Cryptocurrencies remain thinly traded, and in general, continue to track sideways. The broader cryptocurrency complex is structurally concerned about counterpart credit risk. It doesn’t feel like this will change in the short term; particularly with the Federal Open Market Committee (FOMC) continuing to suggest that there is more monetary tightening in the pipeline. The historical sweet spot for risk assets has been circa 12 months after interest rates peak and the correlation between equities and bonds looks to break down. At least this was the tale of the period between 1980-1983 under the Paul Volcker tightening cycle.
Last week we received some critical US inflation and labour market data. We have previously written about the importance of both the JOLTS (available job openings) data as well as Average Hourly Earnings (AHE – wage price data) for the FOMC in their assessment of how tight the labour market remains. JOLTS for October continued to show 10.334 million open jobs relative to 10.687 million in September. AHE (YoY) materially outperformed the market forecast to increase to 5.1% in November versus 4.9% in October. Additional detail to the labour market series saw non farm payrolls increase by 263k in November, maintaining the unemployment rate at 3.7%. All signs continue to point to an incredibly tight US labour market.
The FOMC’s preferred measure of inflation is the PCE price index. In October, the PCE price index (YoY) reduced to 6%, relative to 6.3% in September. The core PCE measure also reduced to 5%, from a prior September reading of 5.2%. The FOMC are widely expected to increase the federal funds rate by 50bps at their 15th of December meeting. At this meeting, the FOMC will update their economic and monetary policy projections. As the market is becoming more comfortable that the FOMC is near complete in combatting inflation, these December projections will prove highly critical for asset pricing into the end of the year.
In Australia, the Reserve Bank of Australia (RBA) convened today for this final meeting in calendar year 2022. As widely expected by economists, the RBA increased the underlying cash rate by 25bps to 3.10%. In making the adjustment, the RBA Statement remained relatively unchanged.
“The Board expects to increase interest rates further over the period ahead, but it is not on a pre-set course.”
The RBA will look forward now to the Q4 2022 Australian inflation data that is scheduled for release on the 25th of January 2023. The RBA doesn’t convene in January and will return to opine on the state of the economy in February 2023.
On the OTC desk, not much has changed this week. We continue to be off ramping stable coins and remain highly alert to counterparty credit risks in the wholesale market. USDT has moved back in line with the 1:1 USD peg, which suggests a significantly ‘more balanced’ transaction profile in the stable coin – a boost for credit risk associated with the stable. For now, speculative buying remains token dependent. We continue to profile a strong inverse correlation between the USD index (as represented by the DXY) and the price of BTC. This inverse relationship is worth monitoring if it is not already on your radar.
For any trading needs, please don’t hesitate to get in touch.
In Headlines
Better regulations needed yesterday
Independent Reserve founder Adrian Przelozny told Nine this week that the FTX collapse had made running an exchange much harder and he called for the recommendations of last year’s Senate inquiry into the space to be legislated. “Had [the last government’s] recommendations been implemented into law, the FTX issues probably wouldn’t have occurred in Australia,” he said.
Ripple battle over soon
Ripple has filed its final submission in the long running court battle against the SEC which alleges it sold illegal securities. “We ask the court to grant judgement in our favor,” said Ripple’s general counsel Stuart Alderoty. “After two long years, Ripple is proud of the defense we’ve mounted on behalf of the entire crypto industry. We have always played it straight with the Court. Can’t say the same for our adversary.” CEO Brad Garlinghouse sounded optimistic about the company’s chances: “Ripple stood strong and withstood the SEC’s onslaught. I look forward to being on the right side of justice.
SBF apology and self incrimination tour
Disgraced founder of FTX Sam Bankman Fried appeared anywhere and everywhere this week on his apology tour. At DealBook he said he “unknowingly commingled funds” between Alameda and FTX. On Good Morning America he claimed not to know anything about the “improper use” of customer funds and on Twitter Spaces he again pleaded ignorance. Legal experts including Bernie Madoff’s lawyer are astonished and say he should just “shut up” given the potential for self-incrimination. Coin Desk’s David Z. Morris wrote “The disgraced man-child’s media apology tour may sway the underinformed. But it can only hurt Bankman-Fried where it counts – in the courtroom.”
No time for a proper inquiry
Democrat Maxine Walters, who is on the US House Committee on Financial Services, thanked SBF for being “candid” in his interviews and said they’d “welcome” his “participation in our hearing on the 13th.” SBF said it was his solemn duty to appear, but he wasn’t going to as he needed to finish “learning and reviewing.” Crypto insiders aren’t buying anything SBF says, with Mike Novogratz calling him “delusional” and crypto analyst Eric Wall commenting that “he is intentionally trying to spin the narrative into a risk management failure when the insolvency came from … embezzlement”.
More FTX
In other FTX news, Bankman Fried said that his fear of “angry people” on the ground in the Bahamas led to the decision to open withdrawals for locals. SBF was also called to appear at a February hearing in Texas for allegedly violating local securities laws. The BlockFi bankruptcy hearing was told that FTX and Alameda together owed the crypto lender more than US$1B (A$1.49B), however BlockFi also owes US$275M (A$410M to FTX.US. FTX Japan said local users could be able to withdraw their funds soon.
Only Bitcoin is a commodity
The chief of the United States Commodity Futures Trading Commission (CFTC) Rostin Behnam now claims that Bitcoin is the only cryptocurrency that can be considered a commodity. Back in October he said that both Ether and Bitcoin could be considered commodities.
Digital assets to be worth $60B to GDP
The Tech Council of Australia (TCA) released a report this week claiming that $60 billion could be added to the country’s GDP through the embrace of digital assets with the right regulatory framework. “Digital assets (DA) have the potential to transform our lives offering significant time and cost savings to individuals and businesses,” it said.
Bits and pieces
Ethereum creator Vitalik Buterin has written a new blog post naming five things in the ecosystem that are exciting him including stablecoins, DeFi, DAOs, verified identities and hybrid applications. Crypto lender Nexo is withdrawing from the US after various state regulators and the federal Consumer Financial Protection Bureau began investigating its “Earn” offering. The Financial Times reported this week that crypto lender Genesis owed US$900M ($1.34B) to crypto exchange Gemini, however a law firm representing exchange customers now claims the figure is twice as high. Michael A Gayed from the Lead-Lag report told his 700K followers that “conditions now favor an imminent stock market crash“.
Glass half full
Bitcoin billionaire Tim Draper is still a believer, telling CNBC that his Bitcoin price prediction of US$250K (A$372K) by the end of 2022 would be slightly delayed but still happen. “I have extended my prediction by six months. $250,000 is still my number.” The Real Vision bot, which allocates based on a survey of traders and outperforms the top 20 asset, currently favours ETH, Bitcoin, MATIC and AVAX. “USDC isn’t favored anymore, showing participants are ready to retake more risks,” Real Vision reported. Meanwhile, Bloomberg Intelligence analyst Mike McGlone said we were nearing the bottom. “You just don’t want to get too bearish when a thing is down 80%. I think we’re in the final stages of this bear market for cryptos, but it’s not going to be easy.”
Until next week, happy trading!
