Bitcoin finally found some footing last week, closing higher by +2.31% at $21,027 after dropping by more than 30% in the 2 weeks prior. 

The drop in price triggered a large outflow from publicly traded Bitcoin funds last week. As per the chart below, a net -$422 million flowed out with almost half a billion dollars flowing out of Canada’s Purpose Bitcoin ETF. 

Digging deeper on the action around the Purpose ETF, Arthur Hayes pointed out that the fund offloaded 24,500 BTC into the market close last Friday. The timing was interesting as fiat rails are closed over the weekends. Friday’s big sell triggered a “run-on-stops” - meaning that investors got margin-called into the Friday close and could not find additional collateral over the weekend, forcing some large liquidations from big investors. From the volume chart it is evident that once the large volume selling ends, the market rallies back on light volume. 

As Mr. Hayes also pointed out, we may not have seen the last of the forced sellers in bitcoin. If any of the large crypto platforms that are currently in trouble were to go through a bankruptcy, there would be much more forced selling as assets would most likely have to be converted to their dollar equivalent for the legal proceedings. 

Relatively speaking, bitcoin had an underwhelming week last week as other assets recovered and bounced higher - including the S&P 500, the Nasdaq, Ethereum, and even the DeFi index. 

In the futures markets, the curves are still showing irregular shapes, which reflects how much uncertainty there is in the markets right now. 

To wrap up this section, we wanted to share the recent news from Gary Gensler from the SEC. Mr. Gensler, who is outspoken about many cryptocurrencies being unregistered securities, stated during a testimony that “some [assets], like bitcoin - and that’s the only one I’m going to say, my predecessors and others have said, they’re a commodity”. 

This should be seen as a positive, as it reinforces the idea that bitcoin is clearly categorized as a commodity in the eyes of the U.S. securities regulator.

In this week’s S&P 500 section, we wanted to look beyond the U.S. equity markets to get a sense of how the recent shifts in the markets are impacting emerging  markets. 

In Zimbabwe, the central bank raised interest rates from 80% to 200% this week in a desperate attempt to fight inflation.

In Turkey, the government has halted lending to corporations and could force them to convert their foreign exchange reserves into local currency. This is being done in an effort to tackle inflation and capital flight.

Protests have erupted in Ecuador demanding lower fuel and food prices. The impact has been such that the country is on the brink of potentially having to stop oil production within 48 hours. 

In Colombia, equity markets have tanked and the Peso has lost 8% of its value since the presidential election 2 weeks ago. 

Lastly, in Sri Lanka the fuel crisis is so dire, that the government announced that it will be shutting down schools and only providing fuel to health services, trains and buses for the next 2 weeks. 

As evidenced by the newsflow above, vulnerable economies are starting to feel the pain of increased fuel and food prices. Given the state of the bond markets, sovereigns will face the tough choice of getting more expensive debt to finance their needs, or turning on the printers which will drive local inflation higher.

Interesting, and likely volatile times ahead.

Gold has been holding up above the $1,800 mark for the last 6 weeks. As we witnessed from the previous section, there are parts of the world where inflation is running rampant - and the price of gold in U.S. dollars doesn’t tell the whole story. 

A good example of this is what is happening in Japan. The government is providing subsidies to its refiners in order to keep a lid on the price of gasoline. 

Of course, this has an impact on local inflation and the value of the Japanese Yen. For context, let’s compare the price of gold in USD vs JPY.

As you can see, the price of gold in JPY is up almost 20% year-to-date. Compare that with the price of gold in USD, which is only up 1.15%. The 19% difference is what the Japanese Yen has lost in value relative to the U.S. dollar so far this year.

It was another week with bitter news in the DeFi space - another exploit in a relevant bridge between two protocols occurred 5 days ago resulting in $100MM losses:

The Harmony Horizon Bridge hack happened last Thursday morning and according to Elliptic, a variety of crypto tokens were drained, including Ethereum, Binance Coin, Tether, USD Coin and Dai. 

An address linked in the thread above holds 85,837.251 ETH, worth approximately $98 million as of the time of writing. While official detailed information is yet to be released by Harmony's team, security experts said the hack happened because the bridge’s multi-signature wallet was compromised.

There was also positive news for the sector last week. Solana Labs also announced the launch of its Saga smartphone last thursday. It will be available for delivery in early 2023.

According to Anatoly Yakovenko, co-founder of Solana “Almost 7 billion people use smartphones around the world and more than 100 million people hold digital assets - and both of those numbers will continue to grow". 

Besides the smartphone launch introduced at an event in New York, the team introduced the Solana Mobile Stack - a framework for Android allowing developers to create rich mobile experiences for wallets and apps on Solana blockchain.

According to Arcane Research, Bitcoin miners sold more than 100% of their production during the month of May. This represents a substantial increase from the usual 25-40% they were selling during the past months.

In fact, as measured by Coinmetrics, during the month of June, the selling intensified, as miners sold ~9,000 BTC; and are now hodling ~50,000 BTC. 

The sell pressure is in part due to lower Bitcoin prices while hashrate continued making all-time highs. In fact, since 2017, Bitcoin’s hash rate has increased 100x from 2 exahashes to 200 exac hashes per second.

Although Bitcoin’s network had never seen such a level of mining-participation, hash prices are hovering around their October 2020 levels, and with rising energy costs, some miners are operating under stress levels with current market conditions.

A miners-capitulation event may be already happening in front of us.

In the past, two mains things have happened during similar times:

1. Hashrate decreased because some miners are forced to shut down their rigs 
   
   
2. Others have sold part of their Bitcoin holdings to compensate rising costs
   
   

It appears that markets have found some support at the current levels and are waiting for the next catalyst. However, during the month of June, Bitcoin has been under a lot of pressure relative to the S&P 500 - in part due to the fallout of several speculative crypto funds and platforms in the space.

It’s a complex landscape out there with many crypto-specific and other macro factors that could impact prices in the near and medium term. 

Crypto factors:

• More potential forced-selling (funds shutting down, troubled platforms)
• Regulatory action
• Potential negative media coverage (investors with losses, funds with big writedowns)

Macro factors:

• Rising interest rate environment across western Central Banks. 
• Ongoing conflict in Russia
• Soaring inflation

Having said all of that, there is always the possibility of a positive wildcard event - a “white swan”, if you would. This could take form in the way of a gasoline subsidy, or a food subsidy in major economies - or Central Banks having to take a breather on their rate-hike crusade. 

This week will be a busy one in terms of Central Bank speeches, with the heads of the Federal Reserve, The European Central Bank, and the Bank of England all meeting in Europe. There will also be speeches from several Fed officials throughout the week. Given how closely the markets are looking at Central Bank activity, markets could react to the speeches.

We hope you enjoyed reading and as always, we wrap up with a summary of the upcoming economic data and earnings reports for the week:

Tuesday:

12.30 PM EST - Fed Member speech - Mary Daly, San Francisco Fed President

Wednesday:

8.30 AM EST - U.S. Gross Domestic Product

9.00 AM EST - Central Bank Presidents meet at ECB Conference: Jerome Powell, Christine Lagard, Andrew Bailey and Augustin Carstens

11.30 AM EST - Fed Member speech - Loretta Mester, Cleveland Fed President

1.05 PM EST - Fed Member speech - James Bullard, St. Louis Fed President

Thursday:

9.30 AM EST - Core Personal Consumption Expenditures Inflation Index

t'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.