Bitcoin is up 73% in 49 days. Why last week's foreign policy move by the U.S. Government to help Venezuela is great for crypto. It's U.S. thanksgivings this week - what to expect.
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The Bitcoin Economic Calendar:
Week of Monday November 23rd to Sunday November 29th.
Market Commentary:
Bitcoin: It's getting harder and harder to pack all of Bitcoin's developments into a minutes-long summary. This week saw 2 more prominent personalities in mainstream finance voice that they are bullish on Bitcoin. In addition, we saw the Office of the U.S. Comptroller of the Currency motioned for what could be a critical positive step for the Bitcoin and crypto industry at large.
First off on Wednesday, Meltem Demiers was a guest in Bloomberg's Odd Lots podcast with hosts Tracy Alloway and Joe Weisenthal. Tracy, who I am a big fan of, is the host of one of the most listened-to finance podcast in North America, and has written 3 Bitcoin obituaries. By the end of the episode Tracy, like many other investors recently, cited Bitcoin's human capital as the reason she had turned bullish on it. Days later, on Friday, we had Blackrock's Chief Investment Officer Rick Rieter, say that "Bitcoin's here to stay" on CNBC. There used to be reputation risk in the financial industry with being associated with Bitcoin - that seems to be fading quickly, and some could argue that the crypto industry is soaking up talent from traditional finance at an unprecedented rate. On a very similar note, later on Friday the Office of the Comptroller of the Currency of the United States put forward a motion to stop large U.S. banks from denying banking services to "legal but undesirable" businesses. What does this means? It means that large U.S. banks are no longer allowed to make up excuses to not bank crypto currency businesses, among others. To date, this has been one of the largest chokepoints for mainstream adoption - believe it or not. And if this motion is successful - it could mean another big barrier to global adoption removed.
With all that said - let's look at the price action for the week. Bitcoin had its 7th consecutive week of gains - closing the week at $18,437 up 15.43% for the week. It is up 73% in a 49 day period. Something to consider is that we're heading into U.S. Thanksgiving this weekend on the backdrop of a massive Bitcoin rally, and a U.S. Central Bank that has been vocal about aggressively pursuing inflation. We'll discuss what this can mean in our "whats ahead" section later.
S&P 500: The S&P closed down 0.77% for the week in a backdrop of increasing COVID cases globally and renewed talks about economic shutdown. Additionally, U.S. Secretary Treasury Steven Mnuchin came out with a surprise statement on Thursday requesting the Federal Reserve to return the unused emergency funds back to Congress on December 31st, which has been interpreted as an attempt to damper the new administration's ability to disburse stimulus. Key things to point out here is that the Secretary Treasury is a position that is appointed by the President of the United States - furthermore, the funds would go back to Congress, which is controlled by a Republican majority after the 2020 elections. This sent the markets down on Friday handing them the first down week since October. While there may be some volatility early in the week, market commentators have highlighted that this week marks the start of a seasonally strong period for U.S. equities with the mythical "Turkey Rally" effect. Can this seasonality affect Bitcoin? We'll discuss next. Broadly, market analysts have been calling for a continuation of the rally in equities this week but they do expect some hiccups today and tomorrow.
Gold & DeFi: Gold had a down week closing at $1,870 per ounce or down 1%. This was likely on the back of Mnuchin's announcement looking to bring back the unused Fed funds to Congress which may delay any eventual deployment of economic stimulus. With a shortened trading week and no real activity from the U.S. Central Bank and a lame duck administration, it is likely that we see sideways action in gold until a catalyst pushes it in either direction.
Looking at the FTX DeFi index we see it had a rockstar of a week up 13.99%, however, as we mentioned on the last BEC, the rise in the value of these tokens is likely due to the rise in the value of Ether and Bitcoin, both of which are widely used as collateral on these platforms. In fact, if we look at the price action in ETH, we see that it was up 25% for the week - meaning that DeFi tokens are in fact lagging behind ETH. In euphoric markets, speculative tokens tend to be "high-beta" with BTC and ETH - meaning that they make similar directional moves, but they tend to be much more aggressive. All in all, these are signs of a healthy rally for both Bitcoin and Ethereum.
U.S. Government goes on the Foreign Policy "offence" with USDC
Venezuelans are in a tight spot. The country is ruled by a dictatorial regime that has systematically dismantled its institutions, eliminating the chance of a democratic election. The international community has condemned the regime, and has tried to help the Venezuelan people. To date it has identified regime officials as criminals, sanctioning them personally, as well as the regime-run oil company. The strategic sanctions have been implemented that way limit the negative impact these measures can have to the Venezuelan people. The tools used by the international community to date have been "defensive" or "restrictive" from a policy standpoint. They were meant to prevent bad actors from benefiting from the global financial system. Offensive policy moves such as sending aid directly, had been previously stopped by the regime. Financial aid was stopped by blocking access to the local banking system, and physical aid was blocked by literally blocking the bridges into Venezuela to prevent food and medicine from crossing. But now the U.S. Government is going on the offensive, enlisting a new, unstoppable weapon for its policy goals: USD-backed stablecoins and crypto companies.
The U.S. Government has seized sovereign funds belonging to the Venezuelan people from the criminal regime and has been looking for ways to return it back to the people. It started trying to do so by working with the last democratically elected body left in the country: the opposition-led National Assembly, led by Venezuela's interim president, Juan Guaido. Earlier this year, the U.S. Government had announced plans to test a new delivery system to get financial aid to the Venezuelan people - sending the dollars to pre-screened individuals using a crypto-company's P2P disbursement system. The test worked, delivering two $100-payments to 62,700 healthcare workers, and looking to disburse $18 Million in total. Now, the U.S. Government is doubling down and expanding the reach of the initiative.
Enter USDC
Details are very important. The previous iteration of the program did not explicitly mention the use of stablecoins. In it, AirTM's P2P payment system were seen as the rails through which recipients could exchange the "crypto" into local currency, bypassing the regime's blockade to send aid directly into the local banks.
P2P crypto exchanges are very difficult for the regime to control, since it only shows up as a standard bank transfer in the internal banking system. The regime is unable to stop these transactions without bringing the financial system to a halt. However, it can put pressure on local banks, and this creates an added complication to people receiving the aid and looking to make use of it.
USDC is the most compliant and liquid USD-pegged stablecoin in the market. By giving its blessing, the U.S. Government has signalled that it is OK with compliant Venezuelans holding and transacting in USDC - not forcing them to exchange into local currency, or making them feel that they are "at risk" for using it. This opens the door for Venezuelans to foster and encourage the use of USDC internally, to create a circular USDC economy, outside of the purview of the illegal regime. This is a huge sign of encouragement for companies like Ledn, who deeply believe dollar stablecoins can provide Savings and Credit opportunities not previously available to them, and at world-class standards. Ourselves and others have been pushing to educate Venezuelans and the region at large about the benefits of using USD-pegged stablecoins to escape local inflation.
This policy change can have huge positive implications for the future of crypto - and a huge step forward for stablecoin adoption in distressed economies. The United States seems to be waking up to the potential of USD-pegged stablecoins as a tool for foreign policy. If used correctly, it can help drive an agenda of economic progress worldwide, even in places where the incumbent regimes are deliberately trying to hold its citizens back - like Venezuela.
Difficulty Commentary
Last adjustment brought difficulty up to 17.56 TH and hashrate has come roaring back into the network since. We are now gaining back a few days into our next difficulty adjustment, which is no longer projected for next Monday but for this coming Sunday. Why does this happen? The same way adjustment periods can become longer when hashrate drops, they can be cut shorter when too much enters the network too quickly. We are currently looking at an upwards adjustment of 18.99 TH on Sunday, which will take us close to October's all-time high of 20 TH.
What’s ahead for the week:
Thanksgiving week is always an interesting one for Bitcoin and financial markets in general. It is a time when families in the world's largest economy gather to discuss the year and current events. Lets take a minute to appreciate the current backdrop going into this year's holiday:
- We've had a monster Bitcoin rally, with very little evidence of retail investor euphoria (as per data analyzed in last BEC)
- A U.S. Central Bank that has been vocal about pursuing inflation
- A Democratic administration that will likely pursue an aggressive stimulus package in light of renewed shutdown pressures and soaring infection numbers.
- PayPal just gave access to 346 million accounts, many of them in the U.S. - to easily purchase Bitcoin.
- The industry's infrastructure has matured to accommodate new entrants and new capital at an exponentially higher rate than in the 2017 rally.
While all of these set the stage for a potential Turkey Rally - it is important to keep an eye on metrics that let us gage market euphoria so that we can plan accordingly. We love Bitcoin very much, but nothing goes up forever - and while the secular trend is undeniably upwards and to the right, it is important to be well positioned for potential short-term volatility. 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: 16.79 TH
Estimated Next Adjustment: 18.99 TH + 7.9%
Time to next Difficulty Update: 6 days (Sunday November 23rd, 2020)
Difficulty All-time-high: 19.97 TH
Corporate Earnings
No relevant earnings for Bitcoin this week.
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