Your daily briefing of some of the most important stories from the crypto, finance, and tech space.
Market Round-Up April 28, 2023
Some of the Earth apes are at last showing signs of enlightenment and compromise, with one major economic bloc reaching a tentative understanding between the centralized and decentralized factions. We expect other blocs to follow shortly.
However, the Hegemon is digging in, entrenching its position and giving no quarter. Our algorithms forecast upheaval in the near future, though the quantum nature of reality means uncertainty about the outcome is inherent.
On Planet REX, events on Earth are now having rare spillover effects into the Rubeconomy, as demand for rubles* reaches an all-time high and supply chains become stretched to breaking point.
* A tasty organic snack that broadly corresponds in cultural significance to Earth's popcorn.
Bank Of England Fixes Inflation
The cost of insuring against a potential US government default in the next 12 months soared to record highs last week, as Congress plays its traditional game of chicken with the debt ceiling. The implied probability of a US default on its $31 trillion debt has rocketed to around 2%. That sounds low, but given how devastating the consequences would be, it's a lot higher than you'd hope for the largest economy in the world. If lawmakers don't find a solution, the US could run out of money as early as July.
First Republic (FRC) is much closer than that to collapse. Shares dropped 49% on Tuesday alone as the bank revealed depositors withdrew over $100 billion in the turmoil last month. Overall, FRC is down more than 95% in the last three months.
Where is all the money going? Well, the amount of cash in money market funds recently hit an all-time high, with inflows of almost half a trillion dollars this year. Jim Bianco calls this a "bank walk", which he says will have a "cumulative impact on markets, the economy, and lending", and will be a significant drag (aka Credit Crunch) later this year.
The Bank of England has come up with a novel approach to addressing inflation. BoE Chief Economist Huw Pill, who enjoys a £180,000 ($225,000) salary, suggested people need to "accept that they're worse off", and not look for wage rises, which will fuel further inflation.
Meanwhile, Arthur Hayes has been arguing that in the future, global trade will not rely on a single reserve currency, but rather different currency blocs—plus saving/trading in gold and bitcoin, when necessary. As if to agree, Zimbabwe announced plans to launch a gold-backed digital currency, reducing its reliance on foreign currencies as its citizens seek to hedge against persistently high inflation. The scheme will start with at least $100 million in gold.
Billionaire hedge fund manager Stanley Druckenmiller is confidently shorting the dollar. But not so fast, says Brent Johnson, author of the Dollar Milkshake Theory: There are plenty of reasons not to bet against the US dollar just yet.
Full Send For Volatility
BTC closed last week at $27,600, below the major resistance band from $28-30k, opening the possibility of significant further downside. This did not materialize; after a brief dip below $27,000, BTC rebounded from oversold conditions to leap $2,000 higher in a matter of hours.
On Monday, Standard Chartered published a note stating that conditions—including bank failures, the Fed nearing the end of its tightening cycle, and the upcoming Halving—were right for BTC to reach $100,000 by the end of 2024. News about First Republic's troubles followed soon after, helping drive BTC higher.
Wednesday saw intense volatility that liquidated hundreds of millions of dollars of both long and short positions. BTC closed at $28,400—almost where it started the day—following swings above $30,000 and below $27,300. The culprit appears to have been rumors (but nothing more) of large sells that spread online. At the time of publication, BTC sits around $29,000.
Alts have enjoyed rising prices, too, but this is primarily a story of BTC strength. Following a wave of unstaking, ETH outflows have stabilized, as new inflows increase, but ETH has also trended lower against BTC. Even $PEPE has not outperformed.
Clarity Comes A Step Closer
The European Parliament passed the Markets in Crypto Assets (MiCA) legislation, which brings in comprehensive regulation for the sector across the EU's 27 countries. MiCA brings much-needed clarity, and puts the EU firmly ahead of the US, UK, and Asia in providing a regulatory framework for crypto businesses.
Lacking such clarity, Coinbase resorted to drastic measures. The exchange's Chief Legal Office, Paul Grewal, writes: "Today Coinbase filed a narrow action in federal court to compel the SEC to respond yes or no to our July 2022 petition asking the SEC to use its formal rulemaking process to provide guidance for the crypto industry." The narrow action is designed to stop the SEC stalling, and allow Coinbase and the industry to move on—in court if necessary. It will be too late for Binance.US, though, which pulled out of its $1+ billion deal for bankrupt lender Voyager's assets, citing the United States' "hostile and uncertain regulatory climate".
With a lower chance of success, Do Kwon asks for SEC charges against him to be dismissed on the grounds that the US regulator does not have jurisdiction. The reason? UST is a currency, not a security, he says.
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