Inflation in the U.S. Shows No Signs of Slowing - Oct 4, 2021

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The Bitcoin Economic Calendar 🗓 

Week of Monday October 4th to Sunday October 10th

Market Commentary 💬

Bitcoin 🟠

It was a very good week price-wise for bitcoin, closing +11.65%, at $48,235. 

From a technical perspective, we saw increasing prices alongside increasing volumes for Wednesday, Thursday and a big jump on Friday after Jerome Powell’s comments. The timing of the rally coincided with positive statements from the SEC and the Fed. 

On Wednesday, SEC Chairman Gary Gensler reiterated his  support for a futures-based ETF - citing the bitcoin futures contracts that currently trade on the Chicago Mercantile Exchange. 

As a reminder, the SEC is scheduled to make decisions on 4 bitcoin ETF applications this month. The relevant dates are still a few weeks away, on the 18th, 19th, and importantly, 2 applications on the 25th. 

The first futures-based ETF application scheduled to hear a decision is the ProShares Bitcoin Strategy ETF, on October 18th. As per the chart above, Bloomberg Intelligence is projecting a 50% chance of the ProShares ETF being approved on the 18th. The second highest probability of being approved first, at 20%, is Valkyrie's application, which is also a futures-based ETF. That application is scheduled to hear a decision on the 25th of this month. 

October 18th may act as a magnet for bitcoin prices. Similar to what happened with the Coinbase IPO, we might witness a hype wave in the coming weeks that drives prices higher running up to the announcement. If this happens, keep in mind what happened with Coinbase and remember the adage “buy the rumour, sell the news”. 

On Friday, Fed Chair Jerome Powell stated to congress that the U.S. has no plans to ban bitcoin or cryptocurrency. 

Powell was specifically asked about the ban in China and point-blank responded that the U.S. has no plans for anything similar. Powell cited stablecoins as posing potential financial risks, and the Fed’s  intention is to get participants to comply with existing frameworks. 

In the same week, the Chairman of the Federal Reserve and the Securities and Exchange Commission made favourable statements for bitcoin. The powerful combination had an impact on prices that should carry forward.  

Another signal of growing institutional appetite outside the U.S. came out of Morgan Stanley’s Europe Opportunity fund last week. 

According to a recent filing, the fund disclosed that it held 58,116 GBTC shares as of July 31st, up from 28,298 GBTC shares which it disclosed on April 31st. 

Institutional appetite for bitcoin in this fund doubled in 3 months. To put that in context, at that pace, it would grow 16X over the course of a year. That’s massive growth in investor interest.

S&P 500 📊

Equity markets suffered a meaningful drop last week as they continue to digest the Fed’s tapering plans. The S&P 500 finished the week lower by -2.15%, the Dow fell by -1.36%, and the Nasdaq was the biggest loser dropping -3.51%. 

Last week delivered a series of news that resurfaced inflation fears, pressuring the Fed to start its tapering plans. 

Inflation signs are everywhere, again. Let’s break them down.

First, households. U.S. rents in August are up +11.5% from a year ago - that’s almost $200/month higher.

A concerning factor here is the “low-base” effect. In other words, rents came down during the pandemic. 

This means that, not only are they catching back up, but shooting higher.

Home prices are no different:

According to the S&P Case Shiller index, U.S. home prices in August soared by 19.7% from a year ago. That’s higher than July’s increase of 18.7%. This is great news for homeowners, but would-be buyers are being left in the dust.

We also saw an uptick in the used vehicle value index, which had soared earlier in the year, and had started coming down. 

In parallel, supply shortages are leading countries to step up their energy demand to meet their reserves and secure energy independence for the upcoming winter. 

We are seeing this play out in European Natural Gas prices, largely driven by Russian production and exports. 

Additionally, we are seeing WTI oil prices rally and currently trade above $75/barrel. Investors are taking positions in the options markets that prices could soar to $200/barrel levels. 

All of this is happening as manufacturing in China for “new export orders for factories” has once again contracted.

This could lead to even further upward pressure on prices, and inflation. 

While it seems like the Fed decidedly has to take action to raise interest rates, Janet Yellen at the U.S. Treasury wants to maintain fiscal room, in case new measures have to be taken. 

She voiced her support for efforts to remove the U.S. debt ceiling altogether. Which theoretically means that the U.S. could be indebted to infinity. Expect the debt ceiling debate to pick up steam in the coming weeks. 

The trends for bond yields and markets look poised to continue unless something changes.



U.S. Inflation markers hit new highs last week, and the yield on the U.S. Treasury yields sold off, helping gold inch higher by +0.61% for the week at $1,760/oz.

Gold’s price action was commendable, considering that the U.S. dollar index also rose by +0.85%. This is typically a headwind for gold. 

However, the compression in the real return of U.S. treasury bonds was able to compensate and drove  gold higher alongside the dollar.

The following chart illustrates the negative correlation between gold prices and the 10-year bond yield quite elegantly. 


As yields on the U.S. treasury bonds are poised to rise, this should act as a headwind for gold between now and the end of the year.

DeFi 🔄

Both the DeFi index and ethereum soared last week, closing higher by +11.28% and +11.52% respectively. From a technical standpoint, ethereum’s close was very positive in that it was above the key $3,325 resistance level. 

The big news in DeFi last week came out of the Compound protocol. After deploying what should have been a standard upgrade last Wednesday, a bug made the protocol pay out $90 million in Comp token to its participants.

This made waves for a few reasons. First, Compound has been widely seen as the one of the “most mature” protocols, managing almost $10 billion in total value locked. A $90 million “accident” is not an insignificant problem. It is a reminder that a bad code update in DeFi could put billions of dollars at risk with a couple of clicks.

Second, how the protocol reacted to the issue was also concerning. The founder took to social media in a somewhat threatening plea for users to return the accidental payout.

Ironically, the founder was quick to mention the IRS, as well as the clients’ identities - both of which are rather antagonistic to the spirit of DeFi. 

Price of the COMP token seemed unaffected by the event. It did have a slight drop but has since recovered. 

While the mistake was in favour of users, we will keep our eyes on the total value locked levels on DeFi protocols in general to see if this prompts any institutions to slow down or reconsider their positioning. 

Difficulty Commentary ⛏ 

The next difficulty adjustment should kick in later this evening and is projected to bring difficulty up +3.16% to 19.67 THs. Hashrate continues to bounce back after the crackdown in China. 

On that topic, we continue to see the fallout of the Chinese crypto ban. Last week Alibaba announced that it would stop selling crypto mining machines. Another blow to a sector of Chinese commerce and manufacturing that has been roaring for the last 5 years. 

At the same time, “The Great Mining Migration” from China to the U.S. continues to become a meme (in a good way!).

Last week’s article from Forbes reinforced the narrative and highlighted Austin as one of the premiere destinations of the new “mining migrants”. 

We expect this trend to continue, and potentially accelerate if bitcoin prices hold or continue rising. 

What's ahead for the week 📰 

Let’s take a look at the state of the U.S. labour market, and how the market could react to the upcoming data this week. 

The current unemployment rate in the U.S. is 5.2%. The Fed’s goal is to get unemployment to its “natural rate”, which the Fed believes to be 4.4%.

There are 2.8 million people getting unemployment benefits as of last month, while at the same time, companies have more than 10.9 million open jobs as of July. 

Yes, people are moving from factories to tech/gig economy work at an alarming rate. However, those who can't retool their skills may be left behind. This is often defined as “structural unemployment”. 

Notably, the expectation for new non-farm jobs added in September ranges from +235,000 to +373,000, while the expectation for new Jobless Claims reports is +362,000. This means that that, theoretically, only around +10,000 net new people entered the workforce throughout the month. This is partially why the unemployment rate is predicted to remain at 5.2% for the month of September. 

The gains in the labour market seem to be plateauing, which the Fed does not like to see. Some may attribute this last bit of friction to negotiating power by employees taking a stand to increase their wages, which is the optimistic view, as they will eventually enter the labour force soon at a higher rate. We can see some of this in the projected +.6% monthly increase in average hourly earnings. This is a +7.2% annualized increase - which is great for the American worker. 

The not-so-rosy view is that this last stretch in the unemployment rate is more structural in nature, where people require more education/training before they can re-enter  the labour market.

It could also be a combination of the 2 drivers. Either way, this week’s upcoming labour data will be very telling. 

Lastly, Evergrande, the troubled Chinese property developer that may be facing bankruptcy, managed to stay out of the headlines last week but the fear still certainly lingers. A positive announcement could cause markets to rally, while the opposite is also true for a formal bankruptcy proceeding announcement.

As always, we wrap up with a summary of the upcoming economic data and earnings reports for the week:


8.15 AM EST - September 2021 ADP Employment report for the U.S.  

Expectation is for an increase of +373,000 Non-farm payrolls in the U.S. for the month - slightly down from August’s +374,000 increase.  There’s a lot more employment data coming out throughout the week. As we covered above - these announcements could move markets as investors react to potential surprises. 


8.30 AM EST - Initial Jobless Claims (+362,000) 

8.30 AM EST - Continuing Jobless Claims (2.8 Million)


8.30 AM EST - U.S. Unemployment for September (+5.2%)

8.30 AM EST - U.S. Non-farm payrolls for September (235,000)

8.30 AM EST - Average Hourly Wages for September (+0.6%)

Investors will be paying close attention to labour market data this week and markets could react to the data. Remember that any “positive” surprises (such as more new jobs) will likely cause markets to sell off. While “negative” surprises, (such as more jobless claims than expected) will be cheered by the markets. 

This all ties back to the Fed, as it needs to maintain a relaxed fiscal stance as the labour market is weak and recovering. 

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%

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.

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