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Week of Monday July 26th to Sunday August 1st.
Bitcoin: Bitcoin closed the week up by over 20% at $38,161. It appears that bitcoin has formed a support base around the $30,000 level and is now starting to show signs of recovery. This downward correction started on May 17th after China banned mining in the country, making the network’s hashrate suffer a +50% drop. We experienced almost 70 days of downward/sideways trading but it appears that BTC may now be poised to resume its uptrend movement. This bitcoin bull cycle may have not yet come to an end.
A quick update on GBTC - during last week Cathie Wood’s Ark Invest added 450,000 Grayscale shares to its ARK Next Generation Internet ETF (ARKW) at $25 per share.
Furthermore, the futures curves have moved back into contango as the BTC price rallied over the weekend, which has resulted in a more attractive basis trade once again (see chart below). These are signs that the market is looking for the recent rally to continue.
Some of the buzz around yesterday’s rally was tied to reports that Amazon may be preparing itself to accept BTC and other major altcoins as payment methods by December of this year.
Considering that Amazon is the leading online retailer in the United States and owns over 37% of U.S.’ e-commerce market (a +$1 trillion dollar industry), this news may be perceived as a positive development for bitcoin. Shortly after the headlines broke, we saw a +20% upward movement in bitcoin’s price - taking it all the way up to the $40,000 psychological resistance level.
Part of the upside movement was caused by a shorts-liquidation event, as depicted in the chart above. Over $955 million worth of short positions were liquidated over the past 24 hours during bitcoin’s breakout.
We would like to clarify to all BEC subscribers that the report/headline out of Amazon is allegedly based on an “anonymous insider’s statement”. It is important to be cautious until more details are released.
This market movement reminds us of the post-Tesla headlines price action in bitcoin. Be wary, buying the news has generally not been a profitable long-term strategy.
Checking in on U.S. inflation and interest rates, we saw real rates hit a new all time low (see above chart). What does this mean? The short answer is that real inflation pressures in the market may continue to persist and that the Fed is reluctant to let rates rise further.
The disconnect between real inflation and interest rates creates an artificially favourable market condition - investors can become complacent. This puts equity markets in a fragile position, and models could “break” once the Fed decides to taper their asset purchase program and let rates rise.
As we have covered here extensively, gold generally has an inverse correlation with the real rate of return of U.S. bonds. As the digital gold narrative continues to build around bitcoin, it is not surprising to see that bitcoin price tends to be positively correlated with the volume of negative yielding debt. People that are making a negative real return on debt will look to exit and reposition to an asset where they have either appreciation potential or yield.
S&P 500: After having reached a low of 4,223.46 the S&P 500 closed the week higher by 1.07% at ~4,400 reaching yet another all-time high. It was the 40th all-time high of this year. The index is up more than 100% from its March lows from last year, right after the COVID narrative dominated markets.
As per the chart above, the Fed is sending a clear signal that it will do everything in its capacity to keep markets trending higher. There is a strong correlation between U.S. total employment and the stock market. One aspect of the Fed’s mandate is to drive towards full-employment, and it knows what would happen if the current trend breaks.
The Wilshire 5000 Total Market Index is the broadest stock market index of publicly traded American corporations. Two important things to note are (1) that the Total Wilshire Market Cap is now 208.2% of U.S.’ GDP; and (2) that the Shiller PE Ratio is nearing its 2000’s (Dotcom) peak; its highest point ever. It is interesting to see how much longer the Fed will let equity markets overheat before starting to taper their asset purchase program. Overall, equity investors don’t appear to be ready for it.
The week ahead will include an FOMC Meeting on Wednesday at 2:00pm EST. Look for investors to be on high alert on that day and the market could remain volatile for the rest of the week.
Gold: It was another mostly flat week for gold, ending just -$9 lower at $1,801/oz. Gold prices tend to trade sideways going into FOMC meetings as the market looks for confirmation from the Fed to enter positions with more clarity and conviction.
Zooming in on gold’s chart, it looks stuck between $1,788/oz and $1,835/oz until there is a firm catalyst for a breakout in either direction. Gold bulls are trying to make a case though the volume has clearly dried up ahead of Wednesday’s FOMC event. This could also be due to summer market conditions; we see lower trading volumes overall across most markets.
Often, the combination of these 2 conditions (low volumes and Fed meeting) can lead to big moves. As the chart below shows, Gold is getting ready to make its next decisive move.
DeFi: Decentralized Finance investors had a week of relief with the DeFi index closing at 6,799, +6.94%. The index followed BTC’s strong upward impulse and both snapped a 3- month long downtrend.
Despite the recently reported hacks and exploits, the segment seems to continue gaining traction within the institutional investor community.
Difficulty Commentary: After having dropped by more than 50% since the China Bitcoin Mining Ban started, this week, hashrate started climbing back and it is now projecting a positive adjustment of ~3.28%, placing the network’s hashrate at ~103.35 EHs (Exa hashes).
One magnificent point to remark is how low network fees have been during the past weeks. A High priority fee is sitting at only $0.16 at the time of writing. Someone could basically move +$1 Billion from anywhere using the bitcoin monetary network and pay less than $1 to move on-chain those funds to almost everywhere.
The relocation of Chinese miners is still in place but as the network’s hashrate continues to recover and miners come back online, this will play as a gradual and positive development for bitcoin.
What's ahead for the week:
It’s a big week for corporate earnings reports, with BIG Tech reporting this week - including Tesla, Apple, Google, Microsoft, Facebook, and Amazon. As with previous earnings cycles, the potential for a bitcoin treasury allocation announcement is real - and could impact markets in this low-volume environment.
Apart from the July 27th’s FOMC meeting, it is a quiet week for the Fed.
Tesla will be reporting on July 26th. Some eyes will be a close look on their BTC balance sheet, especially after Elon’s appearance at The BWord Event during last week.
Apple, Google, Microsoft, Starbucks and VISA report on Tuesday. Look for an interesting NASDAQ-contested day by then.
2:00 PM EST: We have the FOMC’s Meeting, Two-day meeting July 27-28, Press Conference.
Facebook reports Q2 Earnings.
Amazon's earnings report is coming out this week as well. Many Bitcoin Investors and PR companies will keep an eye on their report seeking for further clarification around the “bitcoin for payments acceptance” buzz.
Berkshire Hathaway will announce its results for Q2. Interesting event to check on how Warren Buffett and Munger are siding on markets, specially around the inflation narrative.
It's a big week coming up, and as always, we'll keep you posted on any relevant news throughout the week right here and from our Twitter account @hodlwithLedn
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%
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