3rd Highest Weekly close in Bitcoin's history. The Fed is driving markets - what drives _it_?. Quantifying a Central Bank's Fiscal Room.

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The Bitcoin Economic Calendar:

Week of Monday November 9th to Sunday November 15th.

Market Commentary:

Bitcoin:  Bitcoin had an excellent week on the background of a tightly contested U.S. election and did not seem to care as it rallied on the days the winner had not been announced. Major news outlets finally declared Joe Biden the winner on Saturday and he did his acceptance speech that evening. Bitcoin closed the week at $15,482 up 12.43% for the week. 

On Thursday, the Federal Reserve came out with a strong statement amid the uncertainty that reassured the markets - this was likely a catalyst that drove bitcoin and other markets higher - more on this on today's market trends section. 

S&P 500:  After 5 days of counting, a decision on the U.S. presidential election was reached over the weekend. Joe Biden will be the 46th president of the United States - our congratulations to the American people for a peaceful election. Markets will likely cheer that a decision was reached. Amid the uncertainty last week, the U.S. Federal Reserve sent a very strong message to the markets on Thursday - signalling that it was ready to keep on supporting the U.S. economy. This sent the markets roaring and the S&P 500 closed up 7.32% for the week and could continue to grind higher as investors likely see a lot of fiscal room for the Fed's policies - more on this on today's market trends section. 

Tom Lee from Fundstrat had called for a rally in the S&P 500 during a contested election scenario - mentioning that he had observed a large cash position build-up leading up to the election. Moving forward, on a Democratic win, Fundstrat mentioned it expects the markets overall to rally but with some pressure on big tech because of the risk of future regulation.

Gold & DeFi: Gold rallied along with everything else this week likely on the back of the strong message by the U.S. Federal Reserve. It closed the week up 3.98%. It may sound like a lot is riding on U.S. monetary policy these days - but that's because it is all dollar-driven, and the Fed drives the dollar. We'll be highlighting this and how much room the Fed has on our next section.

Moving on to the FTX DeFi index, It had a rollercoaster week after being down significantly it bounced strongly on Thursday - as with a lot of other asset classes, and closed the week up 19%. Given the dimension of Bitcoin's recent rally, it wouldn't be unreasonable to expect that some of that speculative volume may seep down to DeFi  and alt coins in general in the coming days. On the Ethereum front, we saw last week that Vitalik Buterin had sent $1.4 M worth of Ethereum in preparation for ETH 2.0 staking - the launch is expected to be in early December, we'll start covering these updates as this may be another  market catalyst for crypto outside of BTC. 

The Fiscal Room of the U.S. Federal Reserve

Last week we were discussing the idea of "fiscal room" that any Central Bank has to relax monetary policy. Last week's statement by the U.S. Federal Reserve gives us a perfect example of how a Central Bank sets is "anchors" and how it drives monetary policy to support its views. Based on the anchors and current data, we can measure progress in their eyes and understand some of their actions. 

The Inflation Anchor: According to the statement this week, the Fed thinks inflation must moderately surpass 2% in the near term so that the long-term average inflation is around 2%. For context, inflation for September came in at an annualized 1.4% - and we get a new reading for October this Wednesday. An interesting note from the September inflation numbers is that "Food" whether at home or in general, had annualized inflation ranging from 3.8% - 4.1%. Other numbers out of the ordinary were the annualized inflation for apparel at -6% and transportation services at -5.1%. As we can see from the numbers below, the Fed has a positive Inflation fiscal room of 0.85% - which means they can aggressively relax monetary policy in the near term to accomplish this.

Inflation Fiscal Room: [Target inflation ] - [Real inflation] = 2.25% - 1.4% = 0.85%

The Unemployment Anchor: The Fed also stated that interest rates will remain at 0%-0.25% until full employment is reached. he U.S. Fed observes a natural rate of unemployment for Q4 2020 of 4.37%. As per the latest statement from the U.S. Department of Labour Statistics last week (Nov. 6th), the unemployment rate is currently at 6.9% . The reason they anchor unemployment to the base interest rate is because they associate business activity with low interest rates - and they want to encourage business expansion and hiring as much as possible by keeping interest rates low. As we can see from the numbers below, the Fed is looking to bring unemployment down by another 2.53% - so we can expect them to keep the rates aggressively lower.

Unemployment Fiscal Room: [Unemployment Target] - [Real unemployment] = 4.37% - 6.90% = -2.53%

Last but certainly not least is the "soft" signals that the Fed sends in its messages. In the last statement it explicitly mentioned that it would "sustain smooth market functioning, and support the flow of credit to households and businesses by increasing its holdings of Treasury securities, and agency mortgage-backed securities.". In plan English, this means that the Fed is going to buy government bonds to keep interest rates low and lend cash to the Government. It also means that it is going to provide liquidity to banks to keep a healthy housing market. 

People say a lot of things about the Fed - but if you take some time to understand it, you realize that they are actually very smart people tackling very difficult problems. 

Difficulty Commentary

We had a tumultuous downwards difficulty adjustment last Monday to 16.79 TH, and hashrate has continued dropping. Currently, we're looking at potentially another -13% down to around the 15 TH mark and help flush out the transactions in the mempool. As is the case anytime we have a large drop in hashrate and high price move - like we saw over the last 2 weeks,  the number of transactions in the mempool swells up - and although it has been trending down to lower numbers, we are still above October numbers. We'll keep you posted throughout the week and make sure you're checking your transaction fees if you're planning to move Bitcoin around.  

What’s ahead for the week:
Now that a winner has been announced, we can expect to see some sector repositioning around the U.S. equity markets - which may create some volatility. Investors of course will be looking to favour sectors that they believe will benefit from the new administration. Regardless of positioning - as the saying goes, a rising tide lifts all boats and the Fed is driving everything these days. It's strong stance last week can be the backdrop the market needs to keep grinding higher. At the same time, it will keep the value of the dollar suppressed - which is Bitcoin fuel. We'll talk about the Fed's "Exchange Rate" anchor next week - and how that impacts Bitcoin. As always - we'll keep you posted on any relevant news throughout the week from our Twitter account @hodlwithLedn.

Last Week’s Content:
[Last Week’s Issue] Last Week’s Economic Calendar - Click here

Market-Moving Stats:
Bitcoin Hashrate and Network Difficulty:
Current Difficulty: 19.97 TH
Estimated Next Adjustment: 14.7 TH - 12.47%
Time to next Difficulty Update: 7 days (Monday November 16th, 2020)
Difficulty All-time-high: 19.97 TH

Corporate Earnings

Monday: Air Canada, SoftBank, 

Thursday: Walt Disney

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