International Monetary Fund sees the writing on the wall for some global currencies. U.S. Senate votes on $500 B Stimulus package this week. What do bank earnings tell us about the U.S. Economy? Click here for the video edition.
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The Bitcoin Economic Calendar:
Week of Monday October 19th to Sunday October 15th.
Bitcoin: With all eyes on U.S. stimulus the markets had a bit of a muted week as they wait on the next vote in the Senate this coming Wednesday. Bitcoin did bounce around higher and lower levels throughout the week but settled at $11,514 up $140 or 1.23% for the week. Amongst the noticeable news last week: on Thursday the director of the International Monetary Fund stated that the world economy is facing another "Bretton Woods" moment - this is significant and we will be discussing this in our "market trends" section. Separately on Friday OKEx, one of the largest derivatives exchanges by volume, had suspended withdrawals as one of its founders was allegedly cooperating with authorities in an investigation - there have still been no further updates. The mixed news and no decisive direction from the equity markets resulted in a somewhat flat week despite Bitcoin maintaining very strong fundamentals - particularly on the mining side, more on this in our Difficulty section.
S&P 500: Worldwide markets continue to wait on next steps around U.S. Stimulus. The S&P 500 closed the week up 0.19% after bouncing around as well throughout the week as there was uncertainty around the shape and timeline of the next stimulus. With a vote in the Senate scheduled for this Wednesday on a $500 B bill - some doubts remain on whether the current proposal will get passed or not, as both parties are touting "mega" packages respectively that are way above the proposed $500 B. Markets will likely move regardless of the outcome.
Stimulus is front and centre for good reason - bank earnings last week show that investors have little confidence in continued stimulus after this year and are expecting credit delinquencies to start mounting in 2021, likely peaking at the end of next year. I believe banks are signalling that passing stimulus bills will be much harder after the election cycle and they are cautious about "writing off" the reserves for delinquencies that they have built up. They see people's spending patterns have gone back to normal, with a few discrepancies around the sectors (ie. less on travel but more on retail), so they are worried that there is no "reserve" to pay down debts. The Stimulus has been spent, the debts remain, and unemployment is still significantly above pre-COVID levels.
Gold & DeFi: Gold gave back 1.60% last week closing at $1,898.59/Oz. It has been effectively flat for the month of October as it is likely waiting for a decision around the Stimulus to form a strong directional leg depending on the outcome. Some volatility is likely on Wednesday this week.
Moving on to the FTX DeFi index, we see that - as we anticipated, last week the Index has a really bad week closing down 8.25% under continued pressure. This trend looks like it will continue until the market capitulates. Emotions are still running high after many in the DeFi community realized that the professional traders that were hyping projects and communities up when the market was rising are also taking short positions on the same coins on way down. Between this and the recent moves by U.S. regulators, it is likely that many market participants continue trying to book profits before they vanish and the index in general can very likely see new lows in the coming weeks.
IMF sees the writing on the wall for currencies:
The International Monetary Fund Managing Director, Kristalina Georgieva, put out an impressive piece on Thursday stating that she believes the world is facing a new "Bretton Woods" moment. For those who may not remember, the Bretton Woods agreement was established in 1944 after WWII by the Allied countries, and the agreement promised that the participating countries' Central Banks would hold fixed exchange rates between their currencies and the U.S. dollar. The U.S. dollar was at the backbone of the schema - itself backed by gold at the time. We have since moved (far) away from that - today, the U.S. dollar is not backed by anything, and neither are the currencies in most other countries.
This is of great significance.
The IMF is ringing the alarms on behalf of emerging economies that are currently staring at a monetary precipice. I'll try to summarize it as this: in her piece, the director pointed out that "major central banks" have expanded their balance sheets by USD $7.5 Trillion - emphasis here on "major central banks" - when was the last time you read about a blockbuster stimulus deal in Iran, India, Brazil? There haven't been any.
Now to the commercial or retail banks - we see from the U.S. earnings report this week that the only reason banks are still strong is because of the aggressive stimulus has allowed people to meet their obligations - bank deposit levels are also strong signalling some willingness to plan for potential harder times ahead. Countries that have not yet printed more inorganic cash to stimulate their economies - or as Ms. Georgieva puts it so elegantly "expanded their balance sheets", have their banks staring at default. People have lost their jobs, loans are not getting repaid, banks are not getting their money back. These retail banks are staring at collapse. So, either countries print to save their retail banks and cause hyperinflation, or don't print and have their internal banking systems collapse - not to mention their economy's productive apparatus.
Now - what is the IMF proposing? They are proposing an aggressive external debt restructuring and potentially forgiveness plan for indebted emerging economies. Doing so would "strengthen" their balance sheets enough so that they could print the necessary stimulus without causing hyperinflation. It will take a lot of political will to coordinate such a move and one must consider that some of the countries that would be seeking help have other forms of sanctions, i.e. Venezuela and Iran. With this move, the IMF is trying to stop the currency dominoes in emerging markets from falling - but that's like trying to stop gravity. While this proposal is creative, there are other ways of strengthening your sovereign balance sheet - like being fiscally responsible, investing in programs with a real return for your constituents, and buying Bitcoin - like some publicly traded companies have done recently. Every day that goes by it looks more and more likely that a government will dip its toes in Bitcoin.
Lastly, the hashrate bulls are back and we hit a new all-time high in difficulty last Friday reaching 19.97 TH up 3.6% from our last difficulty adjustment. Miners haven't stopped adding hashpower since and we are already signalling a new all-time high with a considerable increase for the next adjustment. The estimate is for an adjustment up to ~20.52 TH. Which represents a further 2.6% increase from where we are today. Miners are some of the longest-term investors in bitcoin, and the stakes are high so it takes conviction. The fact that they are investing so heavily now is a clear sign that many veterans in the space are very optimistic about the future of Bitcoin.
What’s ahead for the week:
As mentioned in our introduction, the market-moving news this coming week will be the U.S. Senate vote on the most recent stimulus bill scheduled for Wednesday. There is a good chance that the market rallies if the package gets passed - and that it sells off if it is not. Regardless of the outcome this week - banks, and people in general, are worried about the idea of "finite" stimulus when there is no real "finality" around for the current Covid crisis or timeline to regain "normality".
Aside from the stimulus vote we get a slew of earnings this coming week. While the markets seem to be more worried about stimulus than actual corporate fundamentals, we have some key market players reporting this week like Netflix (after the bell on Tuesday), and American Express (Friday before market open). As always, we will share any relevant information throughout the week through our twitter account @hodlwithLedn. We'll also be on DataDash tomorrow showcasing our B2X loans!
Last Week’s Content:
[Last Week’s Issue] Last Week’s Economic Calendar - Click here
Bitcoin Hashrate and Network Difficulty:
Current Difficulty: 19.97 TH
Estimated Next Adjustment: 20.52 TH +2.60%
Time to next Difficulty Update: 12 days (Friday October 30th, 2020)
Difficulty All-time-high: 19.97 TH
Canadian Central Banking Updates:
Current Target Interest Rate: 0.00 - 0.25%
Current Overnight Money Market Rate: 0.23%
U.S. Central Banking Updates:
Current Fed Interest Target Rate: 0.00 - 0.25%
Current Effective Federal Funds Rate: 0.09%
Netflix reports after the bell
American Express reports before the bell