Week of Tuesday November 16th to Monday November 23rd
Market Commentary 💬
1 Bitcoin Giveaway 🎁
Remember that you can win 1 Bitcoin by referring your friends and family to Ledn throughout the month of November. Conditions apply - check our website for more details.
Bitcoin 🟠
After soaring to a new all-time high of $69,000 last week, bitcoin settled on Sunday to close the week at $65,509. It was its highest weekly close ever. It has since given back some gains but continues to consolidate within $5,000 of the all-time high.
As we covered last Tuesday, there was a lot of anticipation about the VanEck spot bitcoin ETF application and what that could mean for GBTC.
The SEC had until the end of day on Friday, November 12th to reject the application. The rejection letter was published at 11 AM on Friday - with only hours to go until the deadline.
The rejection letter from SEC referenced that spot bitcoin markets “can still be manipulated”. Shares in GBTC had been rallying on the expectation that VanEck’s application could be approved and that GBTC would follow-suit. The implied premium between GBTC and the market value of the bitcoin it holds had come to within single-digits on Wednesday.
However, the discount widened once again after the rejection letter was issued. It is currently trading at a discount of ~18%.
VanEck’s Spot Bitcoin ETF rejection did not deter VanEck’s Bitcoin Futures ETF application. Their Bitcoin Futures ETF is scheduled to start trading today.
On the topic of ETFs, as per Bloomberg ETF Analyst Eric Balchunas, both $BITO and $BTF (the listed bitcoin futures ETFs), had their biggest volumes in about 2 weeks last Wednesday.
The ProShares Bitcoin Futures ETF ($BITO) had over $400 million traded with 25% turnover in one day. This signals that it is being used as a trading tool by institutions.
This is consistent with its ideal use case. As we have discussed at length, futures-based ETFs are good for following short-term directional price moves, but are inferior to “spot” ETFs or owning the asset outright.
The continued demand for bitcoin futures ETFs has created a surge in demand for CME bitcoin futures contracts, and we see that the implied premiums remain elevated. The CME implied premium on its rolling 3-month contracts is trading at ~7.5% - which is considerably higher than where it was in August.
The next big catalyst in the ETF world should be the SEC’s decision on Greyscale’s application to turn GBTC into a spot etf. The rejection should come on or before December 24th.
S&P 500 📊
The S&P 500 posted its first week of losses in over a month last week, closing down -0.13% at 4,688. The Nasdaq and the Dow Jones both saw similar price action, dropping -0.97% and -0.63% respectively.
The headwinds came largely from the October inflation reading in the U.S., which came in at 6.2% annualized - the biggest jump in more than 30 years.
U.S. bonds sold off on the news, pushing the implied interest rates materially higher. The rate on the U.S. 10-year note rose 9.02% last week to 1.58% - and the rate on the 30-year note rose by +3.66%, currently trading at 2.07%.
Even though the interest rates on U.S. treasury bonds have risen dramatically, they are still materially below the inflation mark. If we assume that the October numbers can stay “sticky” - this means that the real return for a U.S. 10-year bond in the coming year is -4.62% (6.2% - 1.58%).
In the face of surging inflation, the U.S. government is scheduled to add another $1.2 trillion worth of stimulus through an infrastructure bill today.
Being able to borrow below the rate of inflation leads to one thing, and one thing only - wealth concentration.
The wealthy are typically well-versed in market structure, and they use inflation to their advantage. They typically own many assets, which not only appreciate, but allow you to borrow from them and purchase even more assets.
The above graph, shared by Tracy Alloway from Bloomberg, highlights how the 1% of the U.S. population earns over 20% of the entire U.S. income share. The top 10% makeup more than 50% of the entire income distribution.
Rising rates and a rising dollar put structural pressure on equity markets. Even though the infrastructure bill may work to put a bid on the markets, it runs the risk of overheating inflation even more.
The U.S. government is doing everything it can to control that narrative, and we get to hear from many members of the Fed this week - more on that in our What’s Ahead section.
Gold 🥇
Gold soared last week, finishing higher by +2.64% at $1,864/oz. A soaring 6.2% inflation reading in the U.S. was able to compensate for a ~1% rise in the U.S. dollar index.
With oil prices north of $80/barrel, and gasoline prices in the U.S. soaring, all signs point to more inflation in the foreseeable future.
This has prompted some market observers to call for a good few months ahead for gold.
Inflation is just part of the equation - and a lot will depend on what happens to interest rates in U.S. treasury bonds. However, judging by the levels of debt that the U.S. government (and everywhere else) is taking on, it is unlikely that the Fed can let rates go too high without creating a structural risk to the economy.
DeFi 🔄
It was an action-packed week in the DeFi world. The DeFi index finished the week lower by 4.22% and has continued under pressure to start the week. Ethereum finished the week higher by just +0.28% at $4,360 - to close it’s highest weekly close ever.
As requested by our readers, we wanted to cover the latest news on how the SEC is looking at stablecoins, and what the implications may be.
As per the above headline, the SEC’s Hester Peirce, also known as Crypto Mom, said she sees room to regulate stablecoins through a bank “lens”.
The SEC’s mandate is to protect consumers. As such, it probably wants to ensure that it understands that stablecoin reserves are, indeed dollars, and also safe at all times.
While this regulation might sound burdensome, reputable stablecoin operators, like Circle, have been engaging with regulators to ensure that they understand the business and how to regulate them appropriately.
We’ll get to hear from the Fed on stablecoins this Wednesday. Cleveland Fed president Loretta Mester and Fed Governor Chris Waller will speak at 11.20 AM EST.
They also have the financial means to comply with bank regulations.
The outcome could be a segmentation of “U.S. regulated” stablecoins vs. non-regulated stablecoins, which ultimately provide more optionalities, and protection in some cases, to consumers.
Elsewhere in the space, we see that NFT-mania continues to heat up, with none other than Jimmy Fallon announcing he purchased a Bored Ape.
While this trend does not show signs of stopping, other trends in DeFi are not as positive. Following up on Cream Finance’s $130 million hack from last week, the protocol has decided to print new tokens to compensate for the losses and the value of the token has tanked.
Price action shows that the DeFi index, and some of the main components like COMP, are far from their all-time highs. Keep in mind that seemingly every other asset class is at or near its all-time highs. This could be a sign that the hot ball of money has moved on into other tokens or asset classes for the time being.
Difficulty Commentary ⛏
Last week Bitcoin received a historic upgrade by activating Taproot. The upgrade will introduce a new functionality and improved privacy for bitcoin transactions.
We’ll be diving deeper into the specifics in future issues, but at a high level, Taproot enables Schnorr, which simply put - can make multi-signature bitcoin transactions indistinguishable from regular transactions. Currently, when you spend out of your wallet, the blockchain shows whether it comes out of a multi-sig or single key address.
Checking in on difficulty, the last adjustment was on Sunday and brought difficulty higher by +4.94% to 22.97 THs. We are now within inches of the 25 TH all-time high, almost fully back from the China slump.
Mempool continues to be clear and transaction times and costs remain optimal.
What's ahead for the week 📰
Ledn will be at LaBitconf this week! Come visit us at our booth. We’ll also be participating on a panel on Thursday. Check out the event page for more details and reach out to us on Social Media if you’re there and want to connect!
Inflation is surging and the powers that be are feeling the heat. Biden has been openly addressing soaring gasoline prices, and the Fed will be out in the media, likely getting grilled on inflation and what it plans to do.
The Fed has been saying that inflation “should subside” for longer than many can remember, and the term transitory has become a trigger word for many.
Expect the Fed to bang the same drum in the week ahead as it speaks to the media and the American people.
More paper but less people...
As a parting thought, we wanted to share an interesting data set that was shared by Noah Smith last week, highlighting that the contribution of international immigration to U.S. population growth seems to have reversed its trend over the past 6 years.
This is not great for the U.S. economy, and it highlights just how much of the recent growth in GDP has been financial growth vs. organic population growth.
As always, we wrap up with a summary of the upcoming economic data and earnings reports for the week:
Tuesday:
8.30 AM EST - U.S. Retail Sales (High expectations here for a +1.5% month-over-month increase. If the number comes in below, it may put pressure on equity markets).
9.30 AM EST - VanEck Bitcoin Futures ETF starts trading.
2.30 PM EST - San Francisco Fed President Mary Daly speaks.
Wednesday:
9.10 AM EST - New York Fed President John Williams speaks at Treasury market conference
11 AM EST - Fed Gov. Michelle Bowman speaks
11.20 AM EST - Fed President Mester and Gov. Waller speak on stablecoins
12.40 PM EST - San Francisco Fed President Mary Daly speaks
4 PM EST - Chicago Fed President Charles Evans speaks
Thursday:
8.00 AM EST - Atlanta Fed President Raphael Bostic speaks
8.30 AM EST - Initial and Continuing Jobless Claims. The expectation is for a gradual reduction to 267,000 new claims. While no single-month move should derail markets, the bigger risk is for a surprise to the upside that could derail the recovery narrative.
2.00 PM EST - Chicago Fed President Charles Evans speaks
3.30 PM EST - San Francisco Fed President Mary Daly speaks
Friday:
10.45 AM EST - Fed Gov. Christopher Waller speaks
12.15 PM EST - Fed Vice Chair Richard Clarida speaks
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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