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Week of Monday August 23rd to Sunday August 29th.
At Ledn, we believe transparency is critical to how we operate. This is why we invest in solutions like Proof of Reserves to provide peace of mind that Ledn is able to meet all financial obligations to our clients. During this process, we work with a trusted third party accounting firm, Armanino LLP, to assure our clients that all their assets are accounted for.
If you are a Ledn client and had a balance on July 31st, 2021 at 11:59 PM EST, your balance was automatically and anonymously included in our recent Proof of Reserves attestation.
To check your Proof of Reserves you must:
1) Log into your Ledn account and head to the bottom of your Dashboard.
2) Then, click the copy button beside your Hashed User ID, under the Reference Number Section
3) Next, to the right, click on the URL link icon to be redirected to Armanino’s external website
4) Click on Check your Balance to validate your balances at Ledn
5) Lastly, enter your Hashed User ID in the first field and hit “Find my Balances”
6) Et voilá 🎉! You have just anonymously checked your balances at Ledn. Thank you for helping us build a more transparent industry!
Bitcoin: Bitcoin closed its 5th consecutive week of gains on Sunday, finishing at $49,301, up +4.83%.
It was an eventful week with several data points and events worth highlighting as they can have an impact in the coming months.
First, Robinhood’s Q2 earnings report was published last Thursday.
Incredibly, crypto currency trading has grown to be the single biggest contributor to Robinhood’s transaction revenue - eclipsing equity trading revenue and options trading revenue. At the current pace, crypto currency may represent more than equities and options combined in Q3 2021.
Other exchanges are certainly looking at this data and discussing their “crypto strategy” in real time.
In other exchange-related news, Coinbase announced that it will be buying $500 million in crypto for its balance sheet, with plans to invest 10% of future profits into a crypto portfolio.
Alessia Hass, Coinbase’s financial chief, wrote in a blog that the company plans to invest in “Ethereum, Proof of Stake assets, DeFi tokens, and many other crypto assets supported for trading on our platform”. This makes Coinbase the first publicly listed company to announce plans to purchase and hold PoS and DeFi tokens.
To put Coinbase’s plans in perspective, the company booked net earnings of 1.16 Billion in Q2 2021. Meaning that if it maintains that profitability level for Q3, it will equate to a purchase of about $116 Million for its balance sheet on a quarterly basis.
Last, but certainly not least - former SEC chair, Jay Clayton, announced that he would be joining the advisory board for Fireblocks, a digital asset infrastructure provider.
The moves by ex-regulators like Clayton and Brooks are positive in that they signal a couple of things. For one, ex-regulators would not be joining these companies if they thought their futures were “doomed” by the proposed framework. The other one is that they feel they have a good opportunity to continue advancing their careers - meaning that they could see a lot of growth in our industry.
This week we get to hear from the SEC, the Fed, New Home Sales, GDP, Inflation, and an update on unemployment - all of the details in our What’s Ahead section. We’ll also be taking a look at bitcoin’s futures and options.
S&P 500: As expected, geopolitical tensions brought strength to the U.S. dollar, rising by +1.01% during the week. This created headwinds for U.S. equities - with all major indices finishing the week lower.
The S&P 500 finished the week lower by -0.53% at 4,442 - with the Nasdaq and the Dow Jones Industrial finishing lower by -0.29% and -1.11%.
Once again, the biggest loser of the week was the Russell 2000 (-2.50%) - highlighting how the economic environment continues to hit small businesses the hardest.
In addition to geopolitical tensions, the market had to digest the Fed’s meeting minutes which came out on Wednesday.
The minutes revealed that Fed officials are preparing to start reducing their $80 billion/month treasury bond purchases. This would implicitly let rates rise, which - as we have covered here at length, is the first step in letting interest rates rise.
To get a sense of why the Fed is preparing to take action, consider that the Fed’s long-term inflation target is 2%.
As per the U.S. Bureau of National Statistics, July’s Consumer Price Index came in at +0.5% month-over-month increase. If we annualize this number, we get that annual inflation is at ~6%. This is already at 3X the Fed’s target.
Some market observers have pointed to the fact that a large chunk of the CPI increase was due to price increases in used cars. While used vehicle sales did increase by 41.7% month-over-month in July, looking at the other segments, we see that they are all above 2% annualized.
For July, food prices rose by 0.7% month-over-month, or 8.4% annualized. Electricity and shelter both also rose by 0.4% month-over-month, or 4.8% annualized.
Given the astronomical rise in U.S. property prices and the recent trend in the rental market, it is very likely that rent prices will continue to climb in September, and put “sticky” upward pressure on CPI readings going forward.
Rent prices relative to the last tenant in the property are quickly rising. A recent survey from Bloomberg shows recent price increases of ~15% - which are almost 3X the implied rates we saw in July’s CPI.
Gold: Despite a rising dollar, geopolitical tensions bid up gold for the week, helping it finish the week +0.08% at $1,780.
As we highlighted last week, the “flight to safety” phenomenon tends to bid up the U.S. Dollar, U.S. treasuries and gold. It also tends to be negative for equities.
We saw this play out last week with the U.S. dollar index up +1.01%, gold up +.08% and yields on the 10-year and 30-year notes down -3.00% and -3.80% respectively. We also covered how all major equity indexes were down for the week in the U.S.
The trend could continue until geopolitical tensions cool down.
DeFi: The DeFi index finished the week +8% - with ethereum bucking the trend and finishing down -2.16% at $3,241.
The ETH ETF application withdrawals came from VanEck and Proshares. The piece by The Block suggests that the reason for the simultaneous withdrawals could have been that the SEC held a conference call to tell all applicants that they were “out”.
The article also mentions that ProShares also has a bitcoin ETF application based on underlying bitcoin futures contracts through the CME. Gary Gensler at the SEC recently mentioned that he’d look at futures-based ETF structures more favourably than others.
It makes sense, as a futures-based ETF would be much simpler than a physically-settled ETF. It does not have to worry about custody or physical delivery on redemptions.
For context, the GBTC is not a futures-based fund, and therefore its chances for becoming an ETF based on Gensler’s comments didn’t get any better.
The GBTC discount reached its lowest point ever last week at -16.52%.
Not all hope is lost, however. There are ethereum futures contracts now trading on the CME (same as with bitcoin).
The ETF applications for an futures-based ethereum fund should not take too long to come in.
Difficulty Commentary: Hashrate continues to pour into the network. The next difficulty adjustment is projected to increase difficulty by +8.8% to 16.93 THs this coming Wednesday.
The mempool has remained in good shape. Transaction costs have been within 10-50 sats/vbyte for next-block confirmation throughout the recent rally.
We also wanted to give a shoutout to our friends at Compass Mining, for getting Twitter CEO Jack Dorsey to start mining bitcoin with them!
Favorable economics and a welcoming environment have boosted U.S.-based mining efforts.
Public perception of bitcoin mining as an activity should improve over time as mining companies continue to set good examples for responsible operations and environmental awareness.
What's ahead for the week:
One thing to note is that we are headed to expiration week for August options. The “max pain point” or the point at which most contracts expire worthless, is sitting at around $40k. It is a relatively large ticket size with about 40,500 BTC worth of contracts - so that $40k level may have some “gravity” to it as we head into Friday.
Looking at bitcoin’s perpetual futures funding rates across major exchanges, we see that at the time of writing, Deribit and Kraken are both showing negative funding rates. This means that there are more leveraged investors positioned short.
As always, we wrap up with a summary of the upcoming economic data and earnings reports for the week:
10 AM EST - Existing Home Sales in the U.S. (July)
There will be a few things to look at here - mainly the pace of property price appreciation. In June, property prices increased by +23% relative to June 2020.
10 AM EST - New Home Sales in the U.S.
Similar to Existing Home Sales, the New Home sales figures will focus both on price appreciation, and volume of sales.
This is important as it highlights how many net-new mortgages are being added into the economy every year. We’ve covered in the past that the Fed is purchasing $40 Billion every month, which equates to about 160,000 mortgages. June added 676,000 new home sales in the U.S. - meaning that the Fed made up about 23% of all new homes sod in the U.S. The July number will put that number into perspective once again.
11 AM EST - Securities and Exchange Commission’s “Emerging Trends: An In-Depth Discussion of Consumer Fraud, Investment Fraud, and the Rise of Digital and Cryptocurrencies” event.
This event could have a direct impact on crypto markets as regulators will likely shed light on some of their concerns and plans around what they consider to be fraudulent activity in the space.
It may also be positive in that they may highlight what parts of the industry they _do not_ perceive as nefarious or negative.
8.30 AM EST - U.S. GDP Revision
8.30 AM EST - Jobless Claims (State Level)
8.30 AM EST - Core Personal Expenditures Index
10 AM EST - Jerome Powell speech on the Economic Outlook at Jackson Hole Economic Symposium
4.15 PM EST - Assets and Liabilities of commercial U.S. banks
The week closes with a big day of economic data and markets will likely be volatile as they digest the headlines.
For one, the PCE index - an inflation gage which excludes Food and Energy, has been increasing over the last 3 months. A number above +3.5% could cause markets to sell off as the Fed continues to get pushed into a corner by inflationary pressures.
Fed Chair Powell’s speech on the Economic Outlook at Jackson Hole will also be one to watch as he may shed more light on tapering plans.
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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