Considering it was a long weekend with a very uncertain macroeconomic environment, bitcoin prices held quite well over the holiday period. 

This could be a sign that forced liquidations are finally coming to an end and the market is in a more balanced position. 

The above chart, courtesy of Alex Krueger via Twitter, is very insightful and we thought it was worth highlighting. As you can see, during “capitulation” moves, traded volume usually reaches a high point as the price bottoms out. This pattern was evident in the 2018 bottom, the 2020 bottom, and the May 2021 bottom. We also saw aggregate bitcoin volume reach a record high in the week of July 13th. If this holds true, we could be at the early innings of bitcoin prices finding footing and turning a corner. 

Looking at broader markets, it appears that bond investors are finally starting to price in interest rate cuts by the U.S. Federal Reserve as early as the first quarter of 2023.

As we know, after the pandemic the Federal Reserve moved quite fast to ease monetary policy by lowering interest rates and providing cash stimulus to citizens - sending asset prices and markets higher. It is now embarking on the exact opposite, having the exact opposite effect on asset prices and markets. The fact that the market is finally pricing in rate cuts, means that it senses the Fed might have to let interest rates cool off as the U.S. economy enters into a recession.

The chart below highlights just how closely correlated bitcoin prices have been to the increase in money supply in the U.S.

In her most recent “In The Know” update, Cathie Wood from ARK Invest shared similar thoughts on the state of the market. She mentioned that most of the contagion risk could be over. She also mentioned Ledn, referring to us as a “highly regarded lending platform out of Canada” with deep expertise in our industry. 

Thank you for the kind words Cathie!

Looking at bitcoin derivatives, it still appears that the bitcoin futures markets are pricing in a good amount of volatility and uncertainty in the months to come.

As you can see from the curves below, they are now mostly in backwardation or flat at best. Meaning that, at the moment, the futures markets are not pricing in much price appreciation in the second half of the year.

Last week the SEC denied Grayscale’s application to convert GBTC into a spot bitcoin ETF. 

Grayscale quickly submitted an appeal to the decision and started legal proceedings. 

The decision did not affect the discount on GBTC units too much, in fact, the discount has compressed from over 35% to just 30% at the time of writing. This signals that investors could have been anticipating the negative outcome and see the legal action as a positive sign.

The second quarter of the year wrapped up last year and U.S. public companies are preparing to issue their earnings report starting in mid July. Additionally, the next Consumer Price Index reading for June will be released in mid July. 

Given that it is also summer, and that the market will not have an earning or Federal Reserve catalyst, it could be possible for the markets to have a couple of relatively quiet weeks in the absence of any other macro event.

Gold prices have been under pressure over the last 2 weeks as the U.S. dollar has continued appreciating.

Interestingly, the U.S. dollar has been appreciating as U.S. treasury bond yields drop. We know that gold has a historical inverse correlation with the real return of U.S. dollars. In other words, this could mean that while interest rates for U.S. bonds are coming down, inflation could be coming down even faster at the same time, making the real return of the U.S. dollar better.

This dynamic has put downward pressure on gold prices and will likely continue to be the case until the Fed changes course.

A quiet week in the DeFi universe, while the sideways price action continues.

Ethereum blockchain average gas fee fell down to 0.0015 ETH or $1.57 — a number previously seen in December 2020, as shown in this interesting chart from BitInfoCharts:

For those that were waiting for cheaper blockchain fees to execute transactions on Ethereum, now might be a good time.

Despites the shy week price-wise for the main tokens in the space, it is possible to notice resilient teams continuing to build - Axie Infinity Ronin bridge reopened last Tuesday after going through a hack that stole more than $600 million in March.

After the incident earlier this year, Sky Mavis, the developer behind the game, raised $150 million in April to handle the situation and return user's stolen funds. Binance led the fundraise, with participation from Animoca Brands, Andreessen Horowitz, Paradigm, and others.

Last week Intel’s VP of accelerated computing systems and graphics, announced that the company is already shipping its new Bitcoin mining hardware called “Blockscale ASIC”. 

Furthermore, Duke-Energy, the US’ 2nd-largest electric-power company is reportedly studying Bitcoin mining, with potential plans to integrate the activity into its demand response strategy. 

While the Bitcoin mining sector caught some positive headlines last week, as we reported in our last issue, miners are currently facing tough times. As reported by Coinmetrics, revenues for Bitcoin mining were $668 million in June, representing a fall of ~26% from the previous month.

In today’s “what’s ahead” section, we wanted to highlight what is currently happening in Argentina. 

Last week the Argentinian Minister of Finance resigned, in the face of soaring inflation and protests over fuel prices.

The chart we are about to show you is not a joke. According to “official” data from the Argentinian Central Bank, the Argentinian Peso has been losing value every single week for over a year. 

During that time, it has lost over 30% of its value relative to the dollar, and the losses are accelerating. 

This week Coindesk reported that local exchanges have seen stablecoin volumes soar after the announcement. 

However, as bad as the data provided by the central bank is, the reality for people on the ground is much, much worse. 

Exchange rates are a vanity metric for governments. As you can see, the exchange rate between the Argentinian peso and the U.S. dollar looks anything BUT free floating. It is designed by the central bank to craft an image to the outside world. 

Take a look at the “informal” exchange rate, and therefore “real” inflation, that people pay day-to-day.

As you can see, the “informal” rate has gone from 180 Pesos per dollar in July 2021, to the current 267 Pesos per dollar today. That’s equivalent to 48% annualized inflation. In June alone, inflation was 16%! That’s equivalent to an annualized inflation rate of 192%. 

Argentina is experiencing extreme inflation. It’s no surprise that Argentinians are looking for refuge in stablecoins, U.S. dollars, and bitcoin.

From my experience in Venezuela, it would not be surprising to see increasing restrictions on foreign exchange transactions through local banking and fintech platforms. 

In terms of economic data this week, we have the Fed meeting minutes and some Fed speakers on tap:

Wednesday:

2 PM EST - Federal Reserve Open Market Committee Meeting Minutes

Thursday:

1 PM EST - Fed Speaker - James Bullard. St. Louis Fed president

1 PM EST - Fed Speaker - Christopher Waller 

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.