The Wolf Den #888 - Trump Vs. Biden
The Voters Have Spoken
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In This Issue:
Trump Vs. Biden
Bitcoin Thoughts And Analysis
Legacy Markets
Penguins vs Apes…Who Wins?
No Cold Wallets Are Perfect—Trezor Breached
Options Are Coming
Did BTC and SOL Dominate The 2023 NFT Market?
Invest As Much As You Can In Bitcoin | Brian Estes
Trump Vs. Biden
If your impression from the title of this article is that today's newsletter is going to be political, you're about to be fairly disappointed.
Unless there are drastic changes in the political landscape, it seems likely that either Trump or Biden will become the 47th president of the United States.
The chances of either becoming major crypto proponents are slim, but there is a glimmer of hope that Trump aligns with our community. Only time will tell.
In other news, the question now arises regarding how markets will react to either of these candidates in office. Markets and investors are familiar with both of these candidates, so the degree of uncertainty isn't as high as it would be with a challenger.
Markets hate uncertainty.
During Biden’s tenure, markets experienced whipsaw-like volatility. The S&P 500 delivered impressive returns of 28.7% in 2021 and 26.29% in 2023. Amidst these substantial gains, there was a challenging period with a harsh bear market in 2022. At its lowest point, the S&P 500 experienced a 25% loss of its value during that year.
The performance of the S&P 500 during the four years of Trump's presidency, from January 20, 2017, to January 20, 2021, was also a mix of ups and downs. Here are the annual returns for each year:
2017: The S&P 500 had a positive return of approximately 19.4%.
2018: The market experienced a negative return of about -6.2%.
2019: There was a strong rebound with a positive return of around 28.9%.
2020: The year marked by the COVID-19 pandemic, resulting in a return of approximately 16.3%.
So, what does this mean for markets come 2025? First off, if the S&P 500 has an average performing year, the 67th president will be taking office with markets at an all-time high. But what about the idea that a party flip will mean something substantial for markets? Or is falsely attributing politics to markets an age-old mistake that we just keep perpetuating?
You have probably heard by now that “a Democratic win will crash the market.” Let’s the review history.
The notion that markets perform better or worse under any specific party is simply false. The best-performing markets since the 80s were during the 2 Democratic Presidencies. I am not saying you attribute those markets to the Presidents, but you certainly cannot draw the opposing conclusion.
Obama (Democrat) came into office following 8 years of a Republican, inherited a recession and finished his term with markets up 50%.
George W. Bush (Republican) assumed office after 8 years of a Democratic presidency. He inherited a swift 50% drop on the S&P and concluded his two terms with an overall decrease.
Neither Bush nor Obama are clear examples of the market’s reaction to an election. The timing makes it too difficult to tell - there are other factors i.e. market cycles, war, housing, etc. that make the election’s effect unclear. However, both are strong examples of party change coinciding with a market downturn over the last 30 years.
What the past 30 years have shown us is that, when the market is either oversold or overbought, a party change is often a catalyst to steer the market back to equilibrium.
Mean reversion.
If there was truth to the assumption that a Democrat elected after a Republican ‘crashes the market,’ everyone would know, and we would all be rich. And Clinton and Obama would have had a far rougher 1000 first days.
It’s probably far simpler. With party change comes both political and economic uncertainty, and during these times investors and traders are more likely to move money based on the prevailing narratives. These heightened emotions lead to strength in selling or buying at particular levels, causing major market swings.
Fortunately, markets can find comfort in the assurance that they are fairly familiar with what they can expect from both Biden and Trump. There's much yet to be determined in this election cycle, so I'll strive to keep everyone informed without delving too far into the political aspects.
The positive news is that crypto is finally here to stay, regardless of the political outcome, although some challenges will definitely arise if Democrats gain further control. That’s just the facts. Anyways, let’s have a great week, I’m excited to see where the ETFs take us.
Bitcoin Thoughts And Analysis
Last week's candle close was a small doji, showing indecision and a lack of movement. The candle opened and closed within a $200 range. That usually shows that the market is pausing and that the next candle will likely give clarity.
The $40,000 area has become increasingly more important, as price tests the area repeatedly.
Bulls want to see this line in the sand hold.
Price is still trading below meaningful MAs on lower time frames, including the 50 MA on the daily.
Not much to see here, but I still contend that bears are temporarily in control until people stop selling GBTC and that pressure leaves the market.
Legacy Markets
Stock markets worldwide are rallying, with US futures indicating that Wall Street is set to reach another record high, fueled by expectations of falling interest rates and a robust earnings season. Europe’s Stoxx 600 index and the tech-heavy Nasdaq 100 index both saw gains, with the S&P 500 reaching a record closing high. The market's optimism is driven by a resilient US economy, predictions of upcoming rate cuts by central banks, and the continued growth in artificial intelligence.
In the US, tech stocks, including Western Digital Corp. and Paypal Holdings Inc., experienced premarket gains. Big Tech, particularly the 'Magnificent Seven' companies, is expected to deliver significant profit growth. European markets, despite being less tech-oriented and lagging behind their US counterparts, saw notable stock movements, driven by mergers and acquisitions.
Investors are closely watching the upcoming Bank of Japan and European Central Bank meetings, anticipating no major policy changes. The US fourth-quarter GDP data, due later in the week, will provide insights into the potential timing of the Federal Reserve's first rate cut. The bond market remains cautiously optimistic, with US Treasury yields steady, despite recent pushback against early rate cut expectations. The mix of high consumer confidence and lower inflation expectations is seen as a positive sign.
In Europe, Italy’s yield premium over Germany narrowed significantly, indicating increased investor confidence in the region's debt market. Meanwhile, Chinese shares faced declines, and Japanese stocks continued to rise. In the commodities market, oil prices fell as Libya resumed production at its largest field, easing global supply concerns despite ongoing Red Sea shipping tensions.
Key events this week:
US Conference Board leading index, Monday
Bank of Japan rate decision, Tuesday
Eurozone consumer confidence, Tuesday
Netflix Inc. to report earnings; the streaming service is set to post a strong finish to 2023, Tuesday
Japan trade, Wednesday
Eurozone S&P Global Services & Manufacturing PMI, Wednesday
UK S&P Global / CIPS Manufacturing PMI, Wednesday
US S&P Global Services & Manufacturing PMI, Wednesday
Tesla Inc., International Business Machines Corp. (IBM) to report earnings, Wednesday
European Central Bank rate decision, Thursday
Germany IFO business climate, Thursday
US GDP, initial jobless claims, durable goods, wholesale inventories, new home sales, Thursday
LVMH, Northrop Grumman Corp., SK Hynix Inc. to report earnings, Thursday
Japan Tokyo CPI, Friday
Bank of Japan issues minutes of policy meeting, Friday
US personal income & spending, Friday
In China, the holiday rush starts ahead of next month’s Lunar New Year, Friday
Some of the main moves in markets:
Stocks
The Stoxx Europe 600 rose 0.5% as of 9:58 a.m. London time
S&P 500 futures rose 0.3%
Nasdaq 100 futures rose 0.6%
Futures on the Dow Jones Industrial Average rose 0.2%
The MSCI Asia Pacific Index rose 0.1%
The MSCI Emerging Markets Index fell 0.6%
Currencies
The Bloomberg Dollar Spot Index was little changed
The euro was unchanged at $1.0898
The Japanese yen was unchanged at 148.12 per dollar
The offshore yuan was little changed at 7.2029 per dollar
The British pound was little changed at $1.2705
Cryptocurrencies
Bitcoin fell 2.6% to $40,693.25
Ether fell 3.4% to $2,388.49
Bonds
The yield on 10-year Treasuries was little changed at 4.12%
Germany’s 10-year yield declined four basis points to 2.30%
Britain’s 10-year yield declined three basis points to 3.90%
Commodities
Brent crude was little changed
Spot gold fell 0.4% to $2,021.88 an ounce
Penguins vs Apes…Who Wins?
There are two ways of looking at the occupants of our industry: a constant state of power struggle or a growing ecosystem with collaborative opportunities and shared advancement. The reality is that both states of existence are accurate. If the NFT space is your forte, I came across an interesting article comparing Pudgy Penguins to Bored Apes. For as long as I can remember in the NFT space, Bored Apes has been the go-to collection, but now it seems sentiment has shifted to Pudgy Penguins. In some respects, this situation reminds me of the ETH vs. SOL debate. Both appear to be solid options in the NFT space, and the success of one doesn't hinder the success of another. If it takes Solana to revive the altcoin market and Pudgy Penguins to rejuvenate the NFT market, then so be it. All sturdy boats are going to rise with the tide.
No Cold Wallets Are Perfect—Trezor Breached
Do you recall the situation back in December when there was a Ledger hack, with many people urging a mass migration to Trezor? This past weekend is proof that neither Ledger nor Trezor can be considered flawless or guaranteed to provide absolute security for your assets.
Over the weekend, Trezor announced an ongoing investigation into a security incident that took place on January 17. The breach occurred on its third-party support ticketing portal, resulting in the compromise of data belonging to 66,000 customers. While all assets on the wallet remain secure, customers who engaged with Trezor Support since December 2021 are potentially at risk of data exposure.
Trezor is currently uncertain about the extent of the compromise, but their ongoing audit suggests that the hacker(s) may have gained access to contact details, specifically limited to email addresses and names/nicknames. While this represents a relatively better outcome, the concern lies in the potential resale of this captured data, eventually leading to sophisticated phishing scams that could result in financial losses for the victims.
The moral of the story is that there is no perfect cold storage option in crypto, and incidents like these sometimes fairly prompt the question if exchanges are a better alternative. I don't believe that to be the case, but I acknowledge the argument. Multi-sig is probably the safest option but isn't feasible for a large subset of holders. Crypto is still young.
Options Are Coming
Once the floodgates are opened, closing them becomes a challenging task. Last week, the SEC took a significant step by acknowledging proposals from Nasdaq and the Cboe regarding options trading on existing spot ETFs. While I don't anticipate an immediate material change, major institutions are likely to leverage these products for hedging, bringing increased capital, attention, and security to the market. In essence, the proliferation of products contributes to the further development of this asset class, creating a win-win for Bitcoin and TradFi. Furthermore, the approval of options trading on the current ETF further pushes the needle for an Ethereum spot ETF. May is the month to mark on your calendar.
Did BTC and SOL Dominate The 2023 NFT Market?
To some degree, the answer is yes, but only if you are measuring by NFT deployment. However, in terms of overall dominance, Ethereum has clearly emerged victorious. A glance at any NFT marketplace or tracker makes it evident that Ethereum reigns supreme in the NFT market. It’s really that simple. While there's potential for Ordinals and Solana NFTs to establish meaningful markets, Ethereum undeniably stands out as the prevailing winner. The largest debate in the NFT community is currently centered on whether Bored Apes or Pudgy Penguins is the most dominant collection, both being ETH collections.
Invest As Much As You Can In Bitcoin | Brian Estes
Brian Estes, the CIO of Off the Chain Capital, tells how he became a Bitcoin believer and explains why you should cut your extra costs and invest in Bitcoin.
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