Weekly Market Update: Volatility Comes Back with Most Assets Down

We were all expecting volatility to return, and the market certainly over delivered with one of the fastest price drops in BTC’s recent history. Speculation as to why seems to be centering on 3 key events: 

1. Elon Musk’s SpaceX wrote down its $375m BTC investment, which retail investors interpreted as Elon walking away 
2. The FOMC minutes indicated that the Fed was more inclined to raise interest rates than cut them, and this put the jitters through all markets leading to declines
3. A clear deterioration in the global macroeconomic situation, particularly in China, meant the market turned more bearish 

Whatever the cause it was rapid and caught out a lot of players who had gone long on the ETF news early in the year.

Globally conditions do appear to be worsening. China’s situation is getting bleak and, given their pre-covid role as the global growth engine, this is hurting markets around the world…milk powder anyone?

Japan and India are starting to put out some contradictory data which is being interpreted as the end of their good run by some. Europe’s growth and inflation seems to be trending ok, however the UK has a lot more work to do.

Locally, the RBA is looking for more data to see if they have gotten inflation under control, while New Zealand’s dependency on China for its milk product sales is leaving big holes in the economy. Our own inflation story seems mixed and there are split calls from banks on what the RBNZ should do. 

The continuation of the quiet, sideways action means that the sentiment in the crypto market has remained in neutral territory for the last week.

Trend highlights this week:

• The sharp market downtrend of last week means we have a sea of red in the top 30 assets with no coin or token posting gains.
• BTC and ETH are both down 11% this week.
• Optimism (OP) was our best performing asset, up 4% on last week. 
• Uniswap (UNI) was our biggest loser of the week, down 23%.

View all top gainers: Visit the top gainers page to find out more. 

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Highlights from the crypto space

Starting in New Zealand, the long overdue Parlimentary Select Comittee inquiry into Crypto is out. The key recommendation is tread lightly with regulation while the industry develops. 

Coinshares reports that crypto funds saw substantial inflows in the last week as institutional interest turns into action.

This week’s price drop saw a lot of short term hodlers (>155 days) capitulate out of the market. A bunch of key Bitcoin metrics tipped bearish as the macro economy wobbled. 

Metamask has partnered with Banxa to allow 1 click Apple pay crypto purchases. 

Coca Cola is launching an NFT collection on Base. 

USDC’s market share and circulating supply has fallen massively this year. Potential reasons for this are the US regulatory crack down, meaning USDT is more favourable… which is ironic.

Coinbase has opened for business in Canada. Despite its ongoing SEC battle, Coinbase has received approval from the Futures Commission to offer Futures to eligible US citizens. 

Coinbase is also getting a minority stake in Circle, the issuer of USDC and they are expanding to 6 new chains

CME is expanding its futures offering to Asia after identifying that 37% of its current volume falls outside US hours…. 😳

Coin Bureau put out a helpful Bitcoin ETF calendar 

Other notable highlights from the crypto space:

• Singapore has released a regulatory framework for Stablecoins which stipulates that they need to be 100% backed by low risk assets. 
• Worldcoin is being investigated by German authorities concerned about the moves into the market without correct permissions in place.
• Market Maker, GSR is scaling back its headcount citing the crypto winter and US regulatory environment.
• Binance pushed back against the SEC by filing a protective order stating that the regulator’s requests for information were “over broad” and “unduly burdensome.”
• Ledger and Paypal have teamed up. US customers can purchase crypto in Ledger Live using their Paypal account. 
• OG Custodian Bitgo has raised $100m in a series C valuing them at $1.7bn.
• Nansen reports that NFT royalties have plummeted since the glory days.

• Genesis has agreed to pay FTX $175m to settle a dispute that Genesis was a feeder fund to the exchange😕
• And finally, Tornado Cash lost its legal challenge to the OFAC ruling. 
• There are unconfirmed reports that Elon Musk’s SpaceX company wrote down $373m in Bitcoin. Given the lack of market liquidity, this may have been enough to trigger this weeks downward spiral.

That’s the summary of the crypto world, so now let’s look at other macroeconomic news and dev elopments from around the globe.

Starting off with global news 

Inflation in Argentina is getting worse, climbing to 116% last month. They are fast running out of options.

🌎 Macro news TLDR: It gets worse in China.

U.S. economic news

Inflation expectations in the US continue to ease as the economy starts to believe it’s got it beaten. Retail sales increased by 0.7% in July, which indicates consumer resilience. However, there are worries this is all credit based. 

On the interest rate front, Goldman Sachs has pencilled in the first US rate cut for June 2024. On Thursday, the FOMC minutes were released, the dot plot of voting members showed half were expecting more rate rises to come, which sent jitters into the markets.

And in Europe….

The wider EU area posted a Q2 GDP of 0.3% and was up 0.6% on Q1. Eurozone CPI continues its downward trend, declining to 5.3% in July from 5.5% a month earlier. In a potentially worrying sign, Services CPI increased. 

German investor sentiment has improved from bleak to just bad. German Producer Prices (wholesale inflation) fell 6% year on year. Excluding energy price falls, they were up 2%. 

Meanwhile, the UK’s latest CPI figures paint a challenging picture for the BoE. Topline inflation has reduced, however core inflation has remained flat at 6.9% and services inflation actually increased from 7.2 to 7.4% in July. 

The Russian Ruble continues to devalue due to sanctions activity, down 27% this year. The Russian central bank has lifted the rate 350 bps to 12% in an attempt to intervene but it’s looking tough. There is also speculation that Russia will reintroduce capital controls to bolster the Ruble. 

And in Asia Pacific…

Having said India’s economy is humming along for the best part of the year, they posted a surprise increase in inflation in July of 7.4%, way above the June number of 4.8%. This is mainly driven by food price increases.

In China, Retail sales and Industrial output are both down, with the property sector reporting its 17th straight month of declines. In response to the continued poor economic data, the PBoC cut rates on its key medium term lending to 2.5%. 

While there were growing calls for more stimulus, the cut surprised markets. If it sounds bleak, it could be even worse as China has suspended the release of youth unemployment figures, which were really bad, in the June data. And embattled property developer Evergrande has filed for bankruptcy. 

Japan’s GDP jumped by 1.5% in Q2, way above expectations. They are running at 6% GDP growth annualised! However, their exports fell for the first time since 2021 on softening global demand. CPI is steady at 3.3%. 

The Reserve Bank of Australia has said they are happy with what they are seeing but further OCR increases might be needed. 

This was all brought with a now common comment “ it is too early to declare victory”. A data point closely watched by the RBA, wage growth, ticked lower in Q2 to 3.6% annualised, down from 3.7% in Q1. 

In New Zealand, the median wage has increased 6.6% year on year. The latest Global Dairy Auction saw prices fall again. 

Prices are down 20% this year and whole milk powder prices are at the same levels they were in 2016. White gold no more, farmers will be sweating. The fall in export earnings means we posted a trade deficit of $1.1bn for July, when it was supposed to be a small surplus. 

That’s a wrap for this week. Thanks for reading!

Stay tuned for the next update.

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