No News is Good News but Boring For Us All
Sentiment is shifting back and forth and neither the yay-sayers or the nay-sayers are fully in contempt of the situation. Everything is uncertain, and no one knows how things will look tomorrow. Are things getting better? Have the markets bottomed out? Is there another turbulent surprise on the horizon? are all questions that are running through everyone's heads.
In fact, the last few months sentiment has swung more back and forth than a yo-yo in motion leaving everyone a little dizzy in the process. The motion starts as everyone turns bearish in the wake of bad news breaking. Shortly thereafter, other evidence suggests that the news was not as bad as expected. Investors rebalance portfolios again and again to accommodate.
All of this happens as the world finds itself dancing on a knife edge of structural shakers where things such as high inflation (worldwide), consistent increased isolation of a major nation, big scale war between nations, value chain crippling are but a few of the things we must account for.
In the midst of the grand picture sits Bitcoin. Not (yet) powerful enough to go its own way. Instead, our decentralised darling follows the swing of the equities markets in a pretty correlative fashion.
Currently, BTC continues to sit comfortably in the same range that I outlined in my first letter more than 3 months ago. In its own way this should provide a tad of encouragement to crypto proponents as those results are actually better for 2022 than that of many large cap companies. Yesterday, investors finally had enough of Meta as it took a 20% nosedive after the close due to missed quarterly results and a growing disbelief about the company's long term strategy. That’s quite the drawdown even if it happened in the realm of crypto.
BTC on the other hand currently trades at an annualised volatility at lower levels than what it has been for the last 2 years. Quite significant. Even more-so, because this type of behaviour from BTC usually leads to a “spring movement” where the compression of price will result in a strong movement in price. Question remains whether the spring will jump up or down.
Miners’ are getting squeezed
An argument for the bears is how the hashing rate on the Bitcoin network continues to climb as BTC valuation continues to sit low. This could be alarming as lower profitability for miners could trigger explosive sell-offs (like those we witnessed in May) from miners who are forced to sell BTC inventory to cover operational expenses and expansion plans. For the bigger and more well consolidated miners with better margins, the situation is a golden chance to higher competitive advantage and squeeze the competition, why incentives inside the mining sector could be favouring a price drop.
Rotations Happening But Still No “Risk-on”
In wake of the upturn for major equity indexes such as S&P500, BTC and the rest of crypto have enjoyed a little bit of backwind, bringing valuations slightly higher over the last two weeks.
However, things do not only feel positive as a glooming heavy carpet is still floating on top of sentiment. Every moment, it still feels like the floor could crash below us and take valuations down another story or two.
This pressure in sentiment is preventing investors from showing real risk willingness, which is why I think it is most likely that the upswings for crypto is happening because of rotations within the ecosystem, rather than being a testament to increased interest in the space.
So all in all, I think the outlook for crypto is slowly but gradually becoming better. However, heavy uncertainty still exists, especially in the macro domain, and chances are that we are in for another leg down before the end of the crypto winter.
It is safe to say that many things are stirring. Not only economically but also politically. And lately, there have been enough political events in the brewing worth beating the drum about.
Members of the Congress sent a letter to Joe Biden urging him to engage in dialogue
With nuclear threats flying around, the U.S Congress is becoming more keen to end the Russia-Ukraine crisis through diplomatic efforts. Last week, several members of the Congress sent a letter to President Joe Biden urging the consideration of a dialogue to end the stalemate. This is a serious change of sentiment among some members of Congress as there has previously been a very strong support for aiding Ukraine 100%.
Liz Truss steps down and is replaced by Rishi Sunak
Barely two months in office, Liz Truss resigned as U.K’s Prime Minister following the mounting pressure from the Tory party. The big question, however, is whether the newly appointed Prime Minister, Rishi Sunak, will be able to make a quick turnaround. As far as crypto goes, some claim he will likely be “crypto friendly” but given earlier testaments made about the efficiency of CBDCs, we will likely have to wait before making a final assessment on that point.
Xi Jinping secures a third term, causing uncertainty in Chinese and global markets.
Due to concerns over Xi Jinping's sudden attempt to tighten his grip on power in a significant overhaul of Communist Party officials, the Chinese yuan recently fell to its lowest level in nearly 15 years as investors fled Chinese assets. In my opinion, global markets will also feel the effects of this uncertainty as China looks to be positioning itself towards the intensifying rivalry about being the world's biggest economical force.
Italian Berlusconi boasts about being one of Putin’s best friends
This coincides with growing disparities amongst western leaders on the Russia-Ukraine crisis. While Berlusconi later clarified that he was taken out of context, the comments have stirred waters, with the former Prime Minister expected to form a coalition government led by Giorgia Meloni, an ultra-conservative who has fully supported Ukraine from the beginning.
Midterm Elections in the United States are around the corner.
It is difficult to speculate what direction the election will swing, but a situation where it will swing in favour of the Republicans seems very likely to me. I also think the Republican Party to a higher degree than its Democrats counterparts suggest a probability of rapid change. However, whether they will win the House and if that is even the case we are yet to see.
Also Worth Highlighting
Musk’s Twitter deal finally goes through and immediately fires CEO and CFO
The most discussed technology acquisition of the year seems to finally be concluding as Twitter stopped trading this morning. Musk has already made bold claims about firing up to 75% of Twitter staff and as of this morning news also broke that most of the current management received termination letters. An interesting saga up until now and surely something worth monitoring onwards.
Banking world continues to embrace crypto on all fronts
Traditional banks and EMI’s continue to steadily integrate crypto offerings into their platforms. Just recently Brazil’s Nubank made a debut into the digital asset space, this bandwagon has since grown bigger with Germany’s N26 and France’s Société Générale also joining the club. Meanwhile, Fidelity Digital Assets recently announced it will soon allow institutional investors to trade ETH.
More regulations to come across continents
US Tax regulators recently included NFT’s in their overall tax regulation. At the same time new CRS (CARF) reporting standard are being put into force in the EU, which will require crypto asset service providers to report taxes in a standardised fashion to tax authorities. In addition, the newly approved CARF framework will strengthen due diligence and reporting requirements for KYC/AML procedures.
Q3 earnings reports are out and big tech growth seems to be slowing amid a ‘looming’ recession.
Alphabet and Microsoft both reported a decline in their online advertising business, with customers cutting down on advert spending. This cascading profit compressions is something that could take the markets lower but should be worth observing for anyone looking to make value bets on tech companies.
That’s all for now! Remember to Subscribe to my letter and do pass it along to a friend if you value it. Readership is the currency for writing.