Last week started sideways movement in the markets with the week ending in a good run up to the CPI data and interest rate hike coming in positive. While both of these created a good environment for markets to run up, a slight drop post the rate hike was seen owing to higher than expected terminal rate of more than 5.1 for next year. This reaffirms our commentary of extremely low chances of soft landing and a grave rise in economic slowdown for markets across the board. This week also saw the Cap on Oil prices by G7 and a news tussle amongst Russia competitors for grabbing the piece of buyers’ wallets like EU. While the current sanctions are limited to a few specific categories, a bigger friction to use diesel trade is expected for February 2023. Amidst these developments and China’s economy opening up, the oil prices are sure to rally hard and drop in a volatile manner depending on stances from various officials in power. The uncertainty has never been so certain.
Revelations from FTX’s house committee hearing
Sam Bankman Fried (SBF) was nabbed by Bahamian authorities the night before he was supposed to testify for the hearing of FTX’s collapse and subsequent bankruptcy. Subsequently, the actual testimony draft was leaked and then was shared within the hearing. The draft didn’t capture much attention in public, because the questions by members of the panel and the following answers to those, had some ugly hard-hitting truths. In the view of this, finding an official action would have been prioritized.
Cracks between the SEC and CFTC were evident in authority to regulate cryptocurrencies. Different panel members had strong views for and against the digital asset space with few resilient, genuine, and sharp voices echoing the value of decentralized platforms and ethos. Overall the hearing will help in bringing regulations sooner than expected. The direction of those will be interesting to monitor.
BTC: Mine while you can
U.S. Senators Ed Markey and Jeff Merkley, along with Rep. Jared Huffman, unveiled a measure on Thursday that, if passed, would mandate that the Environmental Protection Agency do research on the energy requirements and environmental effects of cryptocurrency mining. The measure would mandate that US cryptocurrency miners utilizing more than 5 megawatts of electricity disclose their energy source and greenhouse gas emissions. The threat of carbon credits being non-sufficiently applicable for crypto mining can soon be a reality. This will affect the network’s hash rate and take the prices and network connectivity to further lows.
Tough times ahead
Following the meeting of the Federal Open Markets Committee on Wednesday, during which the U.S. central bank decided to increase its benchmark interest rate by 0.5%, bitcoin experienced increased volatility. This year, the Fed finally did something to slow down the hawkish trend of monetary policy, and the announcement, which was in line with what the market expected, shows that. At 14:00 EDT, when the Federal Reserve announced its decision, Bitcoin immediately dropped from $18,300 to $17,850 in less than five minutes. This potential rate hike of 50 basis points was covered in our last week’s newsletter.
New economic projections (SEP) and a “dot plot,” which represent the forecasts of top Fed officials for the following year, were also made public by the FOMC. The dot plot reveals that ten out of the committee’s 19 central bankers anticipate the terminal rate to be higher than 5% but lower than 5.25% by the end of 2023.
According to the Fed, tighter financial conditions are desired. They are telling us that earnings estimates are likely too high and that investors should pay a historically high multiple to buy stocks. They also expect the economy to slow to stall speed. In 2023, it doesn’t appear to be the best scenario for stocks and other risky investments. The worst predictors of their own future votes are Fed voters. However, there could be brief bear market rallies.
December Decline
Historically, the last week of December has been moderate to little negative for bitcoin (except for halving years). Although currently early in its cycle, the asset mostly ended the last month of year in green, while the second half has witnessed the inverse effect. Now the positive collaborations like PayPal integrating with Metamask bring bullish developments for the space, important metrics like Terminal rate and employment data continue to have a huge effect on market reaction. Data on state employment and unemployment for tomorrow will have a significant impact on the broad US indices, as it is likely that broader unemployment numbers will increase in coming quarters.
Bitcoin returns were 4.8% for this week. The Alpha Blue Chip Focused Strategy
returns were -0.1% during the same period (24 NOV – 1 DEC ). The Top Cap Digital Assets Strategy and Arbitrage and Balanced Opportunities Strategy returns were 1.73% and -0.1%, respectively.
