Weekly Market Update: In Smart Contracts We Trust
In this weekly macro review, we highlight the banking situation in the US, along with global economic updates.
The original title of this week’s update was “when the facts change”. But due to the rapidly evolving situation in the US banking sector we’ve had to update this quite a bit!
Early this week market news was dominated by Fed Chairman Powell’s speech where he said the obvious; if inflation is still high, we will keep raising rates.
This was on the back of persistently strong US labour data coming through and higher than expected inflation in January’s numbers.
Then the facts changed, three crypto friendly banks – Silvergate, Silicon Valley Bank and Signature all rapidly went into liquidation resulting in all sorts of second order effects flowing through all markets.
To be clear, Easy Crypto has no exposure to any of the US banks, however liquidity providers and exchanges the world over are feeling the impact.
Stay tuned as we cover the macro news around the world and the crypto space.
Starting with global news
Macro news TLDR: Stronger labour markets and higher inflation could mean more rate rises, but banks are hurting!
The cost of freight, a solid barometer of supply chain costs, is down 83% year on year, and back to near normal levels. Analysts are saying this is due to falling demand and a catch up from the Covid backlogs finally taking place.
Another major index, the global wheat price, is back to 2020 levels, indicating that food price inflation may be declining.
Now the US economic news
A very Hawkish Fed Chairman Powell told US Congress the Fed is considering increasing both the size and pace of rate hikes, because the data shows a stronger American economy which has been unresponsive to the rate hikes so far. Stocks immediately dropped on the news.
The markets were pricing in a terminal rate (top end) higher than previously expected and the chances of a 50bps rise at the next FMOC had risen significantly.
On the back of this, the US bond market hit the highest rate of 2 year/10 year inversion since the Volcker years of the ‘70’s, raising fears of a hard landing. Inversion normally ends in a recession.
On Friday, the US Non Farm Payroll data came out, against a forecast of 205,000 added jobs, the data came in at 311,000, down on January’s 500,00 jobs. Unemployment ticked higher to 3.6% and wage growth is also down.
Then the banking issues of Silvergate, Silicon Valley Bank and finally Signature came out, with some saying this is the result of too many rate hikes too fast.
Already some analysts are predicting a pause in rate rises. At the time of writing, markets are predicting a much smaller rate rise in March.
In Canada, they appear to be closer to taming their inflation, with their central bank holding the cash rate at 4.5% as inflation declined to 5.9% in January.
What is happening in Europe?
European Q4 GDP came in at 0%, which was marginally better than the -0.2% the ECB had expected, but it’s still not great.
German factory orders, which were expected to decline, actually grew 1%, however this could actually be inflation rather than true volume growth. The German industrial output also surprised positively.
In Ukraine News. This week all the talk is about the battle for Bakhmut with it appearing to be the focal point of the war currently. The geopolitical maneuvering continues, with President Xi announcing he is planning a visit to Russia as early as next week.
Moving on to Asia…
Chinese exports fell 6.8% in the first part of 2023, indicating a potential global slowdown is underway. And more news from the people’s congress this week see China shaking up its regulatory bodies to enable greater self reliance on Science and Technology.
A direct response to Geopolitics. Chinese CPI fell dramatically in February to 1%, reflecting big falls in prices internally.
Meanwhile, India’s industrial production is humming along, growing at 5%. Malaysia’s central bank held their cash rate steady at 2.75%. Japan also left its monetary policy unchanged.
The New Zealand Purchasing Managers’ Index (PMI), came in at 51.5 for February, up from January’s 50.6. In good news, both Manufacturing and Services showed healthy increases. Meanwhile, economists are predicting even more food price increases due to the flow through of supply costs.
Highlights from the crypto space
The biggest news item this week was in traditional finance and its impact on crypto was profound.
As noted above three (count them) banks have gone into liquidation this week. Thursday saw Silvergate go into voluntary liquidation.
The flow on impact was an immediate decline in USD deposits leading to a drop in asset prices.
Then over the weekend, Silicon Valley Bank was seized by the FDIC due to liquidity issues. USDC issuer Circle had $3.3bn in cash with them and this caused a depeg. Exchanges also halted withdrawals of USDC. Circle has said they will stand behind USDC.
The last of the crypto friendly banks, Signature, was shut by New York regulators on Sunday evening their time.
What this means is still being worked through, but there are definite signs that some OTC desks and exchanges are already feeling the combined squeeze of regulators and banking collapses leading to the suspension of US deposits or moving to other jurisdictions. Crypto.com is a case in point.
Ethereum developers have pushed back the much anticipated Shanghai network upgrade to early April. Staying with Ethereum, the New York attorney general alleged ETH is a security in a lawsuit against Kucoin.
Kraken is still trying to get a bank license. It won’t be fractionally reserved, and apparently the regulators are dragging their feet on approvals.
Bitcoin daily volume saw declines due the shut down of the Silvergate SEN network.
Amazon is reportedly working on an NFT market place garnering much coverage this last week.
In another potential overreach, the SEC is claiming that mining equipment sales are securities.
Markets reacted positively to news that DCG’s arguments for a Bitcoin ETF against the SEC were strong. Willy Woo is not convinced that it’s good for BTC.
1Inch has launched their new wallet to market, and Coinbase launched their wallet as a service.
Some Celsius customers have finally been able to withdraw their crypto which is good news. US Government linked BTC addresses have reportedly been moving and selling a lot of BTC lately.
Proposed budget from the Biden administration is looking to close a tax loophole, tax harvesting, while doubling the capital gains tax on those who make over $1m on long term investments. There are also plans to tax mining for its electricity use.
The Reserve Bank of Australia’s CBDC trials continue and include some big brands like Mastercard and ANZ. They also announced the 14 pilot use cases for its CBDC.
In terms of price sentiment, it’s been a whipsaw week with market sentiment flat week on week but there was a massive drop over the weekend. Right now we are steady in Neutral territory.
At the time of writing this report, most of the large cap assets were in the green for the week. BTC bounced 14% overnight to close the week up 8%, while ETH and BNB were both up 7% respectively. XRP and ADA had relatively stable weeks up 2%.
Kava (KAVA) led the pack and was this week’s biggest gainer, up 36%. Dash (DASH) and EOS were the biggest losers, going backwards 14% last week. Check out our Top Gainers page to find out more.
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Disclaimer: Information is current as at the date of publication. This is general information only and is not intended to be advice. Crypto is volatile, carries risk and the value can go up and down. Past performance is not an indicator of future returns. Please do your own research.
Last updated March 16, 2023