In Markets
Sad news this week after Bitcoin died for the 455th time. This time it’s serious however with Google searches for ‘Bitcoin dead’ hitting a new record. It’s certainly been a historic week with BTC dropping well below the 2017 former all-time high, plunging to AU$25,640 (US$17,744) on June 19th (ETH fell to AU$1,293/US$896). The unprecedented drop calls into question various cycle halving theories and invalidates the maxim that “no one who invested in Bitcoin and waited four years has lost money.” Over the weekend Glassnode reported AU$10.5B/US$7.325B in onchain BTC losses had been “locked in by investors spending coins that were accumulated at higher prices.” Bitcoin finishes the week down 11.5% to trade around AU$29,300 (US$20.4K) while Ethereum is down 10.4% to trade around AU$1,580 (US$1,100). However: Cardano was up 6%, Solana jumped 25% and Polkadot increased 9.8%. Various analysts suggest that relative altcoin strength means much of the BTC and ETH fall was due to forced selling and liquidations. After dipping to 6 out of 100 over the weekend, the Fear and Greed Index is now at 9 or Extreme Fear.
From the IR OTC Desk
Last Thursday the US Federal Open Market Committee (FOMC) delivered a 75bp increase to the federal funds rate, moving the target range from 0.75%-1.00% to 1.50-1.75%. The Committee also released their economic projections for June 2022. Of note, the year end projected federal funds rate moved from 1.9% (March) up to 3.4% (June), and the unemployment rate from 3.5% (March) to 3.7% (June) – quite a modest adjustment in unemployment given the significance of the change in the projected year end federal funds rate. During the press conference, Chair Powell confirmed that the legal mandate for inflation was ‘headline inflation’, rather than a trimmed mean or core approach. This unquestionably increases the Fed’s sensitivity to the price of oil, energy and supply side bottlenecks. Employment and inflation data will continue to prove critical, as will the price of energy related commodities.
In Australia, the unemployment rate (May) printed unchanged at 3.9%. The employment change (May) delivered 60.6k new jobs and a substantial increase in the labour market participation rate (66.7% up from 66.4% in April). The strength of the May labour market data would give the RBA additional comfort in further reducing monetary policy accommodation and increasing the underlying cash rate at their upcoming 5th of July meeting. Governor Lowe has announced to the market that the RBA is expecting inflation to peak in the December quarter 2022 at 7% – well above the 2.00-3.00% inflation target band. Currently, short term interest rate futures are pricing in a 47bp increase to the RBA cash rate at the July meeting.
On the OTC desk – positioning seems to continue to lighten, with sell side flow remaining the dominant trade direction on the desk this week. As prices stabilise, we expect flows to become more balanced – as the broader market can ‘take stock’ of the current situation and begin searching for value. Right here and now the price of risk assets remains very much at the mercy of long-term bond rates, as well as market positioning. Expect that there can be short and sharp pricing corrections in the sessions where positioning becomes extended or there is a sustained lack of noteworthy macroeconomic data.
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In Headlines
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The bad news
Bitcoin has never faced economic conditions like this before, with a recession looming in the US, and the Federal Reserve reversing the money printer and hiking rates by 0.75%. This has seen investors dump risky assets like crypto but also tech stocks too: FAANG stocks (Facebook, Amazon, Apple, Netflix, and Google), have shed a combined US$3.328T (AU$4.8T) this year. Around 50% of Bitcoin and Ethereum holders are now underwater according to IntoTheBlock. During Crypto Winter in 2017 Bitcoin fell from US$19,497 (currently AU$28K) on December 15 2017 to around US$3,300 (AU$4,740) one year later. Then again, Bitcoin hit a new all-time high one year after the March 2020 crash. Anything is possible in crypto.
Contagion
The big news of the week was Singapore-based hedge fund and venture capital firm Three Arrows Capital getting liquidated for hundreds of millions and being unable to pay margin calls despite selling off great wodges of crypto and helping cause cascading liquidations. The firm is now reportedly insolvent due to falling crypto prices, risky bets and a massive US$560 million (AU$804M) exposure to the Terra collapse. Given how big it was and how much funds it borrowed from everywhere there are real risks of further contagion. On that subject Babel Finance and Finblox followed Celsius’s lead and suspended withdrawals while Bancor turned off Impermanent Loss protection. Celsius has various white knights trying to ride to the rescue, including BnkToTheFuture’s Simon Dixon who is putting together a rescue plan and a community-led Wall Street Bets style short squeeze attempt. To round out the cheery news, Canada’s Purpose Bitcoin ETF saw 51% of its Bitcoin holdings slashed in a single day with similar outflows occurring on 3iQ CoinShares Bitcoin ETF. As of Friday, 72 of the top 100 coins had fallen 90% or more from their all time highs.
Glass half full
Since the March 2020 low, Bitcoin is up 4X and Ether is up 10X. With prices more affordable there are now 13,000 additional ‘whole coiners’ (which are addresses with 1 BTC or more.) There is US$155B (AU$223B) sitting in stablecoins right now – 150X more than in 2017 when Bitcoin was trading around the same price – which influencer Lark Davis says means there is A LOT of dry powder sitting on the sidelines. Tether has said it’s finally preparing an audit of its reserves with a “top 12” auditor to show that it really does have backing for its supply. The Sepolia Beacon chain has just been deployed for the latest test of Ethereum’s Merge, which has the potential to be a catalyst for a market revival in August… or September, or…
150X more “Dry Powder” sitting on the sidelines compared to 2017 | Lark Davis
Synthetix overtakes Bitcoin on fees
In another surprising good news story, Aussie-led project Synthetix has more than doubled in price in the past few days after it hit more than US$1M (A$1.43M) a day in fees. That’s double Bitcoin’s daily fees and the seven-day average of US$674K (AU$968K) all gets returned to SNX stakers. One major reason is that Synthetix is providing the mechanism to allow 1inch and Curve to allow atomic cross chain swaps between BTC and ETH. The news couldn’t come at a worse time for Celsius which has reportedly been shorting SNX and faced a short squeeze.
Solana dubious
There were some dubious goings on at Solana after the “community” voted to take over a massive whale’s position that presented a “systemic risk.” It faced an immediate backlash over-centralisation given 90% of the vote in favour was from one whale so they reversed that decision, which rather undercut the point of the DAO voting in the first place.
Saylor not fussed
Although in a total unrealised loss of US$1.2 billion (AU$1.72B), MicroStrategy founder and well-known Bitcoin enthusiast Michael Saylor reassured naysayers that the company has the backing to hold their current Bitcoin bag till it falls to US$3,500 (AU$5,017). Speaking further on the volatility, Saylor acknowledged on Twitter: “When MicroStrategy adopted a Bitcoin Strategy, it anticipated volatility and structured its balance sheet so that it could continue to HODL through adversity”.
Bits and pieces
Antoni Trenchev, the co-founder and managing partner of crypto lending platform Nexo, says three “household” name Wall Street banks have offered to step in to help fix the crypto crisis. He likened the current situation to the banking “panic of 1907” and said the crypto space was headed towards “acquisitions and a consolidation of the space.” Billionaire “Bond King” Jeffrey Gundlach says Bitcoin could fall to US$10K (AU$14.4K). Coinbase is laying off around 20% of its workforce, Crypto.com laid off 260 people and Gemini announced cuts of 10%. Binance is actually hiring 2,000 people. MicroStrategy CEO Michael Saylor argues that Bitcoin is “on sale” and goldbug Peter Schiff agrees, though he thinks it’s a “a going-out-of-business” sale. Grayscale CEO Barry Silbert also says it’s time to buy: “Feels like we have hit max pain and uncertainty in the crypto market. We’re buying BTC here. Let’s go!”
Until next week, happy trading!
