Bond yields and the U.S. dollar index dropped significantly last week, providing a tailwind for bitcoin and equity markets that helped both finish higher. 

Last week inflows into digital asset investment funds totalled $30 Million.  A correction to the prior week’s calculations saw the inflows corrected from $12 million to $343 Million - making that week the highest week of inflows since November 2021.

This is a very encouraging sign as it suggests that institutional investors are seeing the current prices as an opportunity, and are stepping to buy.

Looking at the week ahead, there are many catalysts that could impact bitcoin: plenty of corporate earnings from S&P 500 companies (we saw what Tesla’s announcement last week did to price!),  Federal Reserve interest rate decision, U.S. Gross Domestic Product reading, and bitcoin options expiration week. We’ll break down each of these and how they could impact bitcoin prices throughout this week’s issue.

FOMC Meeting

The Federal Reserve is meeting once again this week and the market expects them to announce a rate increase of 75 basis points. If the Fed goes through with the move, it will bring the overnight funds rate near the previous high reached in 2018. 

A rate increase of 100 basis points is highly unlikely as it would tip overnight rates “over the edge” and above the previous cycle high. The Fed will likely want to see how markets react as we approach the 2.30%-2.40% range and be increasingly gradual on any subsequent rate increases. 

A rate increase of 75 basis points, and an indication of reducing the size of future rate increases would be well received by the market. Conversely, a surprise 100 basis points rate hike would likely cause markets to sell off. 

Options Expiration week

There are over 89,000 Bitcoin worth of contracts expiring this Friday, which tends to increase volatility throughout the week and into expiration day. 

There is a big concentration of contracts at the $25,000 strike - which can sometimes act as a magnet if the prices move close into expiration day. 

The strength of the greenback continues to cause havoc globally. 

Countries across the globe are struggling to contain inflation from turning into social unrest. Last week protests broke out in Panama, and things have continued getting worse in Argentina and Nigeria to name a few. 

In Argentina, the peso has already surpassed over 300/USD in the “black market”. 

As a refresher, argentinians face a restriction that only allows them to buy USD $200/month with local currency at the exchange rate set by their central bank - if they want to buy more they have to tap into the “black market” and pay more than twice as many pesos to buy the same number of dollars. 

In Nigeria, the Naira is collapsing - they face similar restrictions to purchase U.S. dollars and the “black market” rate is soaring. 

To make things clear - in most instances, including the two mentioned above, the “black market” is actually the “open market”. It is the most accurate reflection of the price a willing person will exchange their currency for another. This is the rate that economists need to look at when considering local inflation.

Argentina and Nigeria are both economies in which adoption of digital assets is relatively high - and should be rocketing higher in the weeks and months to come. We will continue reporting on their progress.

This week we Q2 earnings reports from over 30% of the companies that make up the S&P 500. Last week’s Tesla earnings call was a good example of why corporate earnings matter for bitcoin price. 

This week we get to hear from McDonalds, Coca Cola, Visa, Google (Alphabet), Meta (Facebook), Shopify, Amazon, Intel, Apple, ExxonMobil and mode. 

As we commented on the previous issue, IBM and other companies have reported great quarters, but lowered their guidance for the rest of the year and subsequent years. We also mentioned that this may lead to some earnings revisions by analysts, and the S&P 500 Net Earnings Revisions Index had its first negative reading for the year this month.

This is a dynamic that may continue, and this could add headwinds on equities for the coming quarter. 

We also wanted to highlight another interesting insight - which is that, the hype around food delivery spending that rose during the pandemic, seems to have corrected back to pre-pandemic levels, and even headed lower.

Lastly, we also get a GDP reading out of the U.S. which will likely show a second consecutive quarter of negative growth - which is typically how a recession is defined. More on this in our What’s Ahead section.

Gold has been under a lot of pressure lately, reaching the lows set in March 2021. The headwinds are in large part due to the increasing real returns of the U.S. dollar. Last week saw the U.S. dollar come under pressure, which gave some relief to gold allowing it to snap its 5-week losing streak.

Having said that, the rally might be short-lived, as the Fed prepares to raise interest rates yet again this week. 

Markets seem to be expecting a 75 basis point hike, which would likely be well-received by gold. If the Fed decides to do a surprise 100 basis point increase, it could impact gold negatively (as it would other markets).

Last week was another big one for Ethereum. It has come off the lows strongly, largely by the Merge narrative. This narrative will likely get louder as we approach the potential transition date this September. ETH outperformed BTC by nearly 10% last week, by contrast, the DeFi index underperformed both BTC and ETH. 

Despite the overall risk-off sentiment for riskier assets, big deals are still being done. Aptos Labs, a blockchain startup founded by former Meta employees that used to work in DIEM project, raised $150 M to rescue and relaunch the old Facebook blockchain:

The Series A round was led by FTX Ventures and Jump Crypto. It comes after a $200 M raise earlier this year at a $1 B+ valuation.

In the press release Mo Shaikh, Aptos' co-founder and CEO, mentioned to be "building a blockchain to be the reliable foundation for Web3 that ushers in users from around the world to experience the benefits of decentralization."

In the stablecoins front, after several teams launching their own stablecoin project, (AAVE and its GHO being the most recent one covered here) Curve - one of the main DeFi protocols specialized in providing “efficient” stablecoin trading services with nearly $6B in TVL across 10 different blockchains, indicated through their CEO Michael Egorov that Curve Finance will be launching its own stablecoin. 

Egorov mentioned that it will have an over-collateralization mechanism, allowing users to mint against liquidity provider (LP) positions, though he refused to reveal any more details. Other members of the team in the Discord, mentioned that users can follow Curve's GitHub in order to follow up in first hand the code for Curve’s forthcoming stablecoin. 

With the recent miner capitulation in, difficulty dropped for a third consecutive time, as shown in the purple line below.  Although last week’s -5% adjustment was the biggest drop since the China mining-ban, it is still orders of magnitude smaller than before. It has lost 11% since its peak in May.

In hindsight, Bitcoin’s last week price-recovery action helped hash prices retake the $0.10/TH/day level. Part of it is due to Texas miners shutting down their machines in lieu of the severe heat waves hitting the state. 

However, as covered in last week’s issue, plenty of miners are starting to shut off as their costs outweigh the profits they projected on their mining economics during last year’s bull run; especially those who are over leveraged.

Based on Luxor Mining data, Bitcoin’s 7-day moving average hashrate rose single digits, or 7%, last quarter, compared to 15% during Q1 2022 and 27% in Q4 of last year. Unless Bitcoin prices recover over the short-term, we can expect sluggish mining growth. 

As we’ve covered above, the coming week is packed with economic data and market-moving events. We get: FOMC meeting and interest rate decision, bitcoin options expiration, earnings from Apple, Amazon, Alphabet, Meta & more, plus a U.S. GDP print that could potentially confirm a recession. 

We’ll get to the dates and times in a second - but first, a few words on moving the goalposts…

Many in the Economics community critique the Consumer Price Index, (the way in which inflation is measured and communicated to the public). Many people understand it as the price of a basket of goods that a normal person consumes on average. What they don’t pay attention to, is how the components of that basket change over time - and they do.

As you can see from the chart above, if the same calculation for CPI that was used in the 1980s were used today, it would yield to a CPI number that would be twice as high. 

Even using the official data and looking at the slope of the curves, analysts have been able to show that the current inclination rate, on a year-over-year basis, is higher than it was in the 1980s. 

Similarly, the upcoming Gross Domestic Product reading in the U.S. will likely signal a second straight quarter of negative growth. 

Over the years, a recession was defined among economists as two straight quarters of negative GDP growth. However, there is now a campaign to “redefine” the meaning of recession - such that 2 straight negative GDP readings would not mean a country is in a recession. 

Let’s just say the timing is interesting…

This is a great example of why it is good to get to the bottom of all official data sources. Sometimes, small changes can have very big and real implications.

Now, here are the earnings and announcements that could move the markets in the week ahead:

Tuesday

8 AM EST - FOMC Meeting starts

10 AM EST - Case Shiller Home Price Index (expectation is for an increase of 19.7% year-over-year)

Earnings: Coca-cola, Visa, McDonalds, Alphabet (Google), General Motors

Wednesday

2 PM EST - Federal Reserve Open Market Committee Interest Rate Decision

2.30 PM EST - Speech by Fed Chairman Jerome Powell

Earnings:  Shopify, Meta (Facebook), Etsy, Hilton Hotels, Qualcomm

Thursday:

8.30 AM EST - U.S. Gross Domestic Product for Q2 2022

8.30 AM EST - Initial Jobless claims in the U.S.

Earnings: Apple, Amazon, Intel, MasterCard

Friday

8.30 AM EST - Personal Consumption Expenditures Index (inflation)

10 AM EST - Chicago Purchasing Managers Index

Earnings: ExxonMobil, Chevron, Procter & Gamble

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.