Price action has remained volatile during the holiday season, driven in part by a fast-moving macroeconomic environment and thin trading volumes.

Just last week, the U.S. Federal Reserve announced that it would be doubling the pace of its tapering process (meaning it wants interest rates to rise faster) - while at the same time, we saw the Chinese Central Bank lower their benchmark interest rate. We’ll break this down in more detail in our S&P section. 

As we’ve been covering here for months, there has been a positive correlation between the yield on the U.S. 10-year bond and Bitcoin over the last year. 

One reason both Bitcoin and the yield on the 10-year note are showing a correlated price relationship could be the fact that they are both great barometers for current and future inflation.

By doubling the speed of it’s tapering efforts, the Fed is trying to get the yield on the 10-year note to move higher over the next few months. If the correlation remains, Bitcoin could benefit from some tailwinds during that time. 

Looking at the markets, the funding rates for Bitcoin perpetual swaps have spiked to its highest level in 30 days this morning. Meaning some investors are betting on a changing of the tides for the days to come.

The options flow from today also shows some bullish positioning, as more put contracts are being sold than bought, and more call contracts are being bought than sold. 

Our company also made headlines last week as we announced our most recent round of financing and the launch of the world’s first Bitcoin Mortgage. 

The $70 Million financing round was led by Dan Tapiero’s 10T, and included participation from our existing venture investors, such as Coinbase Ventures, Alan Howard, ParaFi Capital, WhiteStar Capital, and more. 

Proceeds from the round will be used to finance our growing lending business and to launch our new Bitcoin Mortgage product, which allows bitcoiners to purchase real estate using their Bitcoin. 

The demand for the product has so far surpassed our expectations and we are excited to bring this to market in Canada and the U.S. in 2022. 

You can learn more about it here and sign up for our waitlist.   

Equity markets and Central Banks around the world continue reacting to a fast-moving macroeconomic backdrop. The most recent strain of the virus has resurfaced the concept of lockdowns and strict restrictions in some countries - and supply chain concerns across the globe.

In the U.S., The Federal Reserve is trying to get ahead of runaway inflation and last week it announced that it would be doubling the pace of its bond purchase tapering efforts. 

It also signalled that it sees 3 rate hikes possible for next year. A rate hike refers to the overnight borrowing rate, the “shortest” type of borrowing maturity that the Fed can set a price for. This “benchmark” rate hikes typically feed into later maturity bonds as well.

Equity markets have reacted quickly, with the S&P dropping -1.98% last week and down another -0.48% so far this week. The Nasdaq and the Dow Jones were down -3.25% and -1.68% respectively last week.  

But the canary in the coalmine of U.S. indexes might be the Russell 2000, which tracks small cap equities.

As you can see, it is on the verge of breaking the support level that we’ve been tracking since March of this year. If it breaks down lower, it may need to find a new support level before mustering up a new rally. 

Perhaps the most extreme example of supply-chain pains is what is happening to energy prices in Europe. 

Europe has been experiencing a trifecta of woes, low wind speeds for their renewable production facilities, nuclear shortages in France, and Russia limiting the flow of natural gas to Germany. 

This has caused energy prices to soar all across Europe, which has also led to the European Producer Price Index to spike to its highest level since the 1980s. 

For context, Europe’s historical electricity rates have been around 2x the rates paid in North America. Given the current conditions, energy costs in Europe are about 6x more than North America.

Producer Price Indexes tend to act as leading indicators to consumer price indexes - which means, more inflation and more monetary easing could be coming to Europe in the months ahead. 

As the U.S. is dealing with a potentially overheating economy, China is having to deal with the exact opposite. The lack of economic stimulus during the pandemic, the troubles in its real estate market, and a crackdown in their equity markets, has led to their economy slowing down and forced them to cut their benchmark interest rate for the first time in 20 months. 

The MSCI China ETF index is trending to close the year down -30%. There may be more action coming from China in the months ahead.

Gold prices finally caught a bid last week, with prices rising +0.83% to $1,797/oz.

Interestingly, gold prices reacted favourably during the week when the Fed announced that it would be letting interest rates rise much faster. This is unexpected, as rising interest rates typically improve the real return of U.S. treasury bonds, which gold is negatively correlated with. 

In addition to this, the move in gold also came on the back of a rally in the U.S. dollar index. 

This price action is very interesting as both are typically headwinds for gold. Investors could be signalling that even with their renewed efforts, the Fed is still behind inflation. 

The FTX DeFi Index has now dropped for 6 consecutive weeks and is -36% during that time period.

Layer 2 tokens continue to remain under pressure, while Layer 1 protocol assets continue showing more relative strength. This trend may continue.

Checking in on the NFT world, last week we saw 2 interesting headlines. First, Bitwise released an NFT Index fund, listing the top NFT assets. It is available only to accredited investors. 

The news speaks to growing investor demand in the space. 

Shopify also announced that it would be allowing some content creators to mint and sell NFTs through its platform. 

We will continue tracking the price performance of the Bitwise NFT index as a reference of market sentiment for NFT assets. 

Not much has changed on this front. The next difficulty adjustment is scheduled for this coming Saturday and should bring difficulty down a touch to 23.89 TH.

Checking in on the mempool, transaction costs and speeds remain optimal.

It’s a short trading week due to the Christmas holiday on Friday. Given the thin volumes and volatile macroeconomic conditions, it is likely that markets can remain volatile until the first or second week of January when more investors return to their desks.

This week we get a read of inflation data and the housing market in the U.S. We may get more headlines out of the European energy crisis and the Chinese economic slump. There’s also growing concerns over potential restrictions stemming from the new strain of the virus. 

The headlines on these fronts have been mostly negative for equities and risk assets, and this trend could continue. Investors could react to protect some of their profits to end the year. An example of this would be the price action in GameStop, the meme video game retailer, which is down -32.5% over the last 4 weeks. 

As always, we wrap up with a summary of the upcoming economic data and earnings reports for the week:

Wednesday:

10 AM EST - Existing home sales in the U.S. The expectation here is for 6.5 Million homes sold for the month of November. This number could be expected to rise in the months ahead. 

Thursday:

8.30 AM EST - Core Inflation, Personal Consumption Expenditures Index. 

We get a big read on inflation this Thursday - the most important one being the Personal Consumption Expenditures Index which the Fed tracks very closely.  

10 AM EST - 5-year inflation expectations. The projection here is for 3%. 

10 AM EST - New Home Sales in the U.S. This number is projected to increase to 766,000 from 745,000 in November. 

Given the Fed is rushing to let interest rates rise, it would not be surprising to see a rush into the housing market before the new rates come into effect. This could push real estate prices even higher in the U.S. 

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.