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In This Issue:
Like A Phoenix From The Ashes
Bitcoin At 50 (MA)
Yields And Oil Remain Relentless
Bond Auction Gone Wrong
Inflation Remains
Time Is Ticking
Genesis Halts Withdrawals
SBF Trial Explained, Major Bank Predicts Ethereum At $8,000
My Recommended Platforms And Tools
Like A Phoenix From The Ashes
Crypto isn't volatile - we are.
While it's undeniable that the cryptocurrency market is characterized by volatility, the fundamental truth of this space remains constant: it's not so much that the market changes, but rather that we, the investors, do. I know this because I'm frequently contacted by media, followers, friends, and family, all posing a straightforward question - what should investors do with their crypto holdings in the wake of _____ ?
I always find the question a bit strange and tricky to answer, so allow me to do so here.
Crypto investors should generally maintain a position of inaction in response to 99.9% of events. While Bitcoin may exhibit short-term reactions to global market news, it has a historical track record of being uncorrelated with other markets and presents unique risks and benefits within an investor's portfolio. Over the past decade, it has consistently outperformed other assets by a significant margin.
This principle holds true for various news events, market corrections, or even bear markets. If you're an investor, the best course of action is to avoid reacting to short-term developments. Instead, adhere to your investment plan, disconnect from your computer, and patiently await the unfolding of your long-term thesis. Not reacting is the ultimate contrarian move - it goes against the grain of market expectations. This approach allows time to work in favor of the asset, rather than succumbing to our own volatile emotions that steer us wrong.
If this is news to you, here is a brief list of some of the things a long-term investor should largely ignore in no particular order: The Fed, the Middle East, geopolitics, the election, Wall Street predictions, fluctuating interest rates, national debt levels, headlines, the SEC, Gary Gensler, media coverage, lawsuits and legal developments, whale activity, individual companies, celebrities, and social media!
While it may be enjoyable to monitor the aspects listed above on a daily basis, they don't significantly alter my perspective as an investor. In fact, I'm confident enough in Bitcoin and a select few other long-term investments that I could disconnect from the outside world entirely, look at price movements once a month, and be at ease with holding these assets until a point where I decide to realize profits. If you don't share this level of comfort with your primary positions, it may be wise to revisit your investment strategy.
Before I finish, I want to end this tough week on a strong note. The ongoing conflict still remains the most important topic to me personally, but staying on track with crypto, the markets are clearly depressed and frustrated right now. The Fear & Greed Index has turned to ‘fear,’ altcoins are bleeding, and Bitcoin is flirting with support. I’m not concerned in the slightest. Take a look at the images below in the order I present them and track your reaction.
Did you feel a sense of growing optimism towards the end? I certainly did. If you've been following this newsletter closely, I've been discussing how Bitcoin this year is in the process of 'emerging from the mud' and 'breaking free from constraints.' However, after pondering this for some time, I've found a more fitting analogy - Bitcoin is akin to a phoenix rising from the ashes.
In the financial world, Bitcoin resembles a mythical creature, much like the phoenix, which cyclically renews itself from its own ashes after a fiery ordeal. Does this not perfectly capture the essence of Bitcoin? Bitcoin by definition is the epitome of overcoming substantial setbacks, adversity, and destruction, always rebounding, rebuilding, and reinventing itself in a remarkable and triumphant manner.
So I’ll end this scatterbrain intro with this final thought: do nothing! Sit back, relax, and understand that it might take a few tries, it might lose its footing or balance, but the phoenix always rises from the ashes.
Bitcoin At 50 (MA)
One blue line to rule them all…
It actually is not THAT serious, but traders should be watching the daily 50 MA because… other traders are watching the 50 MA. This is the line in the sand right now for bulls. A break, and it is likely that we revisit the $25,000 area, which is truly the most important line on the chart. Above 25K, there is little to worry about.
Yields And Oil Remain Relentless
The ongoing Israel-Hamas conflict has triggered a wave of cautious sentiment across global financial markets. Investors are flocking to perceived safe-haven assets like treasuries, leading to a significant drop in yields. Specifically, the 10-year Treasury yield fell by eight basis points, while its German counterpart also retreated by seven basis points. This shift is seen as a way for traders to hedge against escalating geopolitical risks.
Crude oil, particularly Brent, is another asset that has been impacted, surging more than 3%. The hike in oil prices is driven by concerns that the Israel-Hamas conflict could lead to broader destabilization in the Middle East, thereby disrupting global oil supplies. Bloomberg Economics has even warned that a further escalation involving Iran could skyrocket crude oil prices to $150 a barrel, resulting in approximately $1 trillion being erased from the global economy.
U.S. stock futures are also feeling the heat. Futures on the S&P 500 and Nasdaq 100 declined by 0.3% and 0.6%, respectively. European stocks followed a similar trend, with the Stoxx Europe 600 dropping about 0.9%. Higher U.S. interest rates are adding to this mix, dampening investor appetite for riskier assets. The odds for another Federal Reserve quarter-point rate hike have increased to about 40%, up from around 30% just days earlier.
In the banking sector, major U.S. banks like JPMorgan Chase, Citigroup, and Wells Fargo are bracing for the third-quarter earnings season. These institutions are poised to write off more bad loans than they have since the early days of the pandemic, owing to the potential of a prolonged period of higher interest rates and an ensuing economic downturn.
Overall, the situation has led to heightened volatility and risk-aversion in global markets, with far-reaching implications that could potentially tip the world economy into recession.
Key events this week:
US University of Michigan consumer sentiment, Friday
Citigroup, JPMorgan, Wells Fargo, BlackRock results as the quarterly earnings season kicks off, Friday
G20 finance ministers and central bankers meet as part of IMF gathering, Friday
ECB President Christine Lagarde, IMF Managing Director Kristalina Georgieva speak on IMF panel, Friday
Fed’s Patrick Harker speaks, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.3% as of 6:25 a.m. New York time
Nasdaq 100 futures fell 0.5%
Futures on the Dow Jones Industrial Average were little changed
The Stoxx Europe 600 fell 0.9%
The MSCI World index fell 0.4%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was little changed at $1.0523
The British pound was little changed at $1.2185
The Japanese yen rose 0.1% to 149.63 per dollar
Cryptocurrencies
Bitcoin rose 0.1% to $26,772
Ether rose 0.6% to $1,545.13
Bonds
The yield on 10-year Treasuries declined eight basis points to 4.61%
Germany’s 10-year yield declined seven basis points to 2.72%
Britain’s 10-year yield declined five basis points to 4.37%
Commodities
West Texas Intermediate crude rose 4.1% to $86.30 a barrel
Gold futures rose 0.9% to $1,900.30 an ounce
Bond Auction Gone Wrong
The 30-year bond auction that took place recently has been a major catalyst for the sharp intraday decline in the equity market. The auction yielded a rate of 4.837%, higher than the pre-sale estimate of 4.800%, and substantially higher than last month's rate of 4.345%. This represents a 3.7 basis points "tail," the largest since November 2021, and the long-yields are the highest they've been since 2007.
This development is a clear signal from the bond market that it expects inflation to remain persistent and interest rates to stay elevated for an extended period. This perception has reduced the appetite for longer-term bonds, leading to the uptick in yields. Specifically, the 30-year yield increased by over 13 basis points, and the 10-year yield rose by over 11 basis points.
In essence, the bond market is painting a less-than-rosy picture of economic conditions moving forward, signaling that inflation may be more 'sticky' than previously anticipated. This sentiment is cascading into the equity markets, leading to risk-off behavior and contributing to the aggressive sell-off we're witnessing.
The significance of the "tail" in the bond auction cannot be overstated. The tail reflects the appetite of buyers to purchase bonds at or near the average price. In this case, a larger tail indicates that marginal buyers wanted a greater discount to participate in the auction, a bearish sign for bonds but bullish for yields. Specifically, the tail was calculated as the difference between the highest yield at auction (4.837%) and the "when issued" yield (4.8%), resulting in a tail of 0.037% or 3.7 basis points. This was the highest the tail has been in two years.
This larger tail not only suggests a decrease in demand for longer-term bonds but also indicates that investors are requiring a higher return to compensate for the perceived risks, like persistent inflation. In summary, the larger tail, the highest yields since 2007, and the sharp uptick in 10-year and 30-year yields collectively send a strong message: The bond market is increasingly wary of inflationary pressures and expects higher interest rates to persist. This sentiment is having a domino effect on the equity markets, causing investors to pull back, which has led to the observed aggressive intraday sell-off.
Inflation Remains
From August to September, the consumer price index remained steady at 3.7%. While this might appear acceptable to those who casually skim headlines, it's crucial to recognize that these figures are year-on-year (YOY), which means they accumulate. In September 2022, inflation was a staggering 8.2%, and the year before that, it stood at 5.4%. People who aren't familiar with how these numbers work might mistakenly believe that a decrease is positive. However, these figures compound, which negatively impacts our financial situation. Doing some rough calculations, this indicates that inflation since September 2021 has added up to 17.3% (3.7% + 8.2% + 5.4%). Moreover, it's worth acknowledging how significantly the government has underestimated the true inflation rate. One final point, the CME FedWatch Tool currently indicates a mere 12.6% probability of the Fed raising rates at the November meeting
Time Is Ticking
Today marks the final day for the SEC to file an appeal regarding the ruling on Grayscale's Bitcoin spot ETF by the US District of Columbia Circuit. Whether the SEC chooses to appeal or not remains uncertain, but the prospects don't appear favorable for the SEC to continue withholding approval for much longer. It's important to note that even if the SEC refrains from appealing, it doesn't automatically translate to an immediate green light for the conversion of Grayscale's Trust. While I hold a strong belief in the likelihood of Grayscale and other filers ultimately prevailing, a victory tomorrow is not guaranteed. The only assurance lies in the SEC's declaration of approval and the subsequent launch of these products. What would be intriguing is if the SEC refrains from appealing and the court initiated a countdown for the SEC to make a conclusive decision on Grayscale's proposal. In such a scenario, my expectation is that the market would react positively.
Genesis Halts Withdrawals
The 'breaking news' surrounding Genesis is rather peculiar, considering that the company had already announced its intention to wind down its trading activities in January and reiterated this plan in September. Furthermore, the fact that Genesis had a substantial outstanding debt to FTX makes the suspension of withdrawals in its lending division less surprising. If you have funds on the platform across any service or division, it's imperative to promptly withdraw your funds, if you haven't done so already. This advice has been consistently emphasized for a considerable period. Given the complex tangle of financial obligations, I have reservations about the likelihood of the little guys recovering what they are owed anytime soon.
SBF Trial Explained, Major Bank Predicts Ethereum At $8,000
Join James Murphy aka MetaLawMan who will comment on the SBF trial and Dan The Chart Guy, to hear his technical analysis.
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.