Week of Monday June 28th to Sunday July 4th.
Market Commentary:
Bitcoin: It was another volatile week for bitcoin, reaching the mid $28Ks - levels not seen since January 4th this year, before closing at $34,669, down -2.50% for the week. It was right in line with the weekly close from May 19th. However, the traded volume on spot exchanges is less than half what it was during that same week.
While the traded volume is not as high as back in May, the realized losses from bitcoin traded reached an all-time high last week. To put it in perspective, the dollar losses booked by investors last week were higher than those recorded in March 2020. This is typically a sign of “capitulation” in the market.
The price drop has also created a great buying opportunity for opportunistic long-term investors like Cathie Wood from Ark Invest. Ark invest added about 1.2 Million shares of GBTC to its holdings, which is now the 7th largest holding in the fund, accounting for 4.2% of total assets.
Similarly, Ark Invest added another 280,000 shares of Coinbase, making it the 10th largest holding in their portfolio at 3.5% of total assets. These are strong conviction buys.
On the topic of institutional investor conviction - Andressen Horowitz raised a $2.2 Billion crypto fund and said it is “radically optimistic” despite price fluctuations.
These are signals that institutional investors are no longer seeing bitcoin or crypto as just a passing trend. They continue to invest heavily in the infrastructure layer, which is a testament to the long-term potential they see in the space.
Looking at the futures markets, the curves are still showing backwardation across the board for July and August. Most curves show prices picking back up by the September contract expiration. Additionally, the perpetual swap funding rates are consistently negative across the board at the time of writing. These typically mean that the market expects sideways to lower price action in the near future.
S&P 500: It was a great week for U.S. equities. The S&P 500 booked a fresh all-time high last week at 4,286, up +3.20% for the week. The Nasdaq was up +2.10% at a new all-time high of its own. The Dow Jones also closed the week higher by +3.44% although it did not reach a new all-time high.
As we covered here last week, markets rallied higher on Friday on the back of economic data, such as the Personal Expenditures Consumption reading for May came in at 3.9% - lower than the Fed’s 2021 target of 4.3%, and way lower than May’s 5% Consumer Price Index jump.
Existing home sales also fell for the 4th consecutive month as home prices continue to soar.
Both of these economic data points reinforce the Fed’s “transitory inflation” view.
We often highlight how important the Federal Reserve posture is for markets in general (including bitcoin). Charts can drive this point home. The chart below is the S&P 500 in Fed Balance Sheet terms dating back to 1995.
As you can see, the market “peaked” in fed terms in 2001-2002. According to this benchmark, we are currently at levels similar to 2009. For context, in 2010 the S&P traded pretty range-bound at ~1,150. It is currently trading well north of 4,000.
This week we get unemployment data on Friday. Look for this to be a decisive day in equity markets. We’ll go over this and more in our whats ahead section.
Gold: Gold caught a bid last week and closed higher +0.96% at $1,780/oz. The dollar index was down -0.55% which gave a breather to other commodities as well.
Looking at the charts, gold seems to be bumping up against the descending channel from back in August. Kitco Senior Analyst Jim Wyckoff comments that he expects more selling pressure this week given a “bearish” technical backdrop in gold.
DeFi: It was a week of rug pulls and regulation in DeFi. The index was down -19.68% at 6,245, its lowest close since the week of January 25th. Ethereum was also down -11.57% at $1,983.
On the rug-pull front, we saw 2 projects go down last week - SharedStake and PolyWhale. While both were relatively unknown to the masses, it highlights just how risky the sector is.
On that note, the Financial Times reported over the weekend that representatives from global regulators met with Uniswap and dYdX among others. Representatives from the SEC and the CFTC attended the meeting.
Marc Cuban’s cry for stablecoin regulation last week seems to have landed on some Fed officials’ ears. Last Friday Boston Fed President Eric Rosengren highlighted Tether as a “New Disruptor” under the “challenges” section of his presentation on Financial Stability.
More on this in our Whats Ahead section.
Lastly, the Financial Action Task Force was scheduled to publish its draft guidance on AML around virtual currencies last Friday and it delayed its publication due to the large amount of feedback that it had received. The draft has now been delayed until October this year.
Difficulty Commentary: The large number of miners that have been taken offline in China have caused hashrate to plummet.
In plain English, this means that because there are less computers trying to solve the problem, the solutions can take more than 10 minutes to be found, on average. In order to set an average time of 10 minutes for finding each solution, the difficulty to solve the problem must be brought down.
That’s why you’ll hear about “the large difficulty adjustment” that the network is about to experience this week. It is scheduled tentatively for Thursday and it will be the largest single drop in difficulty in Bitcoin’s history.
What does this mean? Not much to the end bitcoin user really, other than the fact that blocks will now be produced much faster. And that the miners that are still active will now have higher average revenues.
What's ahead for the week:
The cooling off in the PCE Index, the 4 consecutive drops in the new home sales, and the free fall in lumber prices, are all reinforcing of the “transitory inflation” view. With that said, we are starting to see some subtle tapering signals from the Fed.
The Fed’s New York Bank raised the rate on its reverse repo facility to 0.05% from 0.00%. This is the Fed’s “overflow” facility to prevent negative rates - banks can lend the Fed cash by “purchasing” treasury securities from the reverse repo facility and having the Fed buy them back the next day. This gives the bank a place to “park their money” - now at above 0%.
With the “transitory inflation” narrative getting some validation, the Fed’s (and the market’s) attention will be turned to the Fed’s other important target rate - unemployment. We get a slew of data on Thursday and Friday. Look for the market to cheer an unemployment rate above 5.8%.
As we mentioned in the DeFi section, Tether seems to have caught the Fed’s attention. The fact that Boston Fed President Rosengren dedicated a full slide to Tether’s balance sheet signals that they are just not “glancing at it”.
While anything the Fed does will take a long time to play out, we are seeing some interesting Tether moves in the market.
Last week saw the largest Tether inflows into exchanges since 2019. While this could be just coincidence, it will be interesting to keep an eye on Tether flows and on the market capitalization of other stablecoins, namely USDC.
We will likely learn more about the Fed’s view on Stablecoins in today’s speech by Randal Quarles. The rest of the week is also full of relevant economic data.
Monday:
9 AM EST: New York Fed President John Willians at the Bank for International Settlements panel.
13:10 EST: Vice Chair for Supervision Randal Quarles gives a speech about Central Bank Digital Currency at the 2021 Utah Bankers Association Annual Convention.
Tuesday:
9.30 AM EST: Richmond Fed President Tom Barkin interview
Thursday:
08.30 AM EST: Initial and Continuing Jobless Claims
Friday:
There’s a lot of employment data coming out right at 8.30 AM EST - with the most closely watched one being the actual unemployment rate.
8.30 AM EST: Unemployment rate - given the Fed dynamics at play look for the market to cheer a number below 5.8%.
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%
Source: https://www.bankofcanada.ca/rates/
U.S. Central Banking Updates:
Current Fed Interest Target Rate: 0.00 - 0.25%
Current Effective Federal Funds Rate: 0.09%
Source: https://apps.newyorkfed.org/markets/autorates/fed%20funds
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