News Updates October 12, 2022
1. How Bitcoin and Crypto Prices Will React to FOMC Minutes, CPI Inflation – is the Market Bottom Near?
Bitcoin, and crypto prices more generally, have been treading water this week, but that could change from today as producer price index (PPI) inflation data and FOMC minutes are released.
First up to disturb the market from its slumber is the US PPI data, a measure of inflation at the factory gate.
Any sign of cooling will be treated as confirmation of the need for the Fed to ease off on interest rate rises. Such an outcome would light a fire under stocks and crypto prices.
Conversely, if producer price inflation continues to heat up, then expect risk assets to resume their sell-off.
PPI inflation comes in lower than August reading
Well the data is in and Core PPI month-on-month rose at double the level expected, by 0.4% as opposed to the 0.2% forecast.
Meanwhile, year-on-year headline PPI was 8.5%, hotter than the 8.4% forecast, although that is down from 8.7% in the previous month (August) – and that last point seems, initially, to be the key takeaway for the market.
The S&P 500 is up 0.2% to 3595, the Dow 61 points higher and the Nasdaq 0.38% the better at 10468.
Elsewhere, the UK 30-year government bond sell-off has picked up, with yields accelerating upwards 23 basis points to 5.00% (more on the UK financial crisis below)
But the PPI data is the warm-up act for the main show, which is the US consumer price index (CPI) inflation data release on Thursday.
FOMC minutes could stir up the crypto market
However, even before those hotly anticipated numbers are released, market participants will be provided with plenty to ruminate over when the Federal Open Market Committee (FOMC) releases the minutes from its 21 September meeting at 18:00 UTC.
The minutes will likely show that there is a firming consensus around the need for a 75 basis points rates hike in November.
According to Refinitiv data, the consensus forecast for the terminal rate now stands at 4.45%, way-off the earlier projections made in August that targeted 3.7%. The date for the terminal rate is assumed to be the 22 March 2023.
2. Bitcoin is holding its value better than UK government inflation-linked bonds right now
Perhaps the most striking observation to be made on market conditions in crypto over the past few weeks, has been the relatively stability, especially when appraised alongside that of other asset classes.
Take UK government bonds for example, where the trauma in those markets continues, perhaps coming to ahead on Friday when the Bank of England says – although the signals are confusing the market – that it will end its bond purchase at the long end of the curve (30-year bond maturities).
Take a look at this chart from a recent Financial Times story.
The chart shows the bitcoin price is down 67% since November 2021 but the UK inflation-linked maturing in 2073 is down nearly 80%.
That is an amazing juxtaposition. It underlines how a maturing bitcoin market actually competes well in the volatility stakes up against previously solid asset class instruments such as UK inflation-linked government bonds, or 'linkers' as they are known.
Bitcoin volatility may spike soon, but overall volatility is on a declining trend
Our second point to consider is the weakening volatility of the bitcoin price.
This of course matters because volatility is another way of expressing risk – and it is becoming less risky to hold bitcoin.
We can see this in the descending peaks of the Bitcoin Volatility Index illustrated by the orange line on the chart below .
3. How will the FOMC minutes and inflation data play into the bitcoin's ongoing bottom formation?
And what we all want to know is how might the news from the economic statisticians and the Fed feed into the calculations as to whether the bitcoin price is near its bottom?
On that, the bitcoin accumulation trend score might help to clarify matters.
It is a relatively new (March 2022) Glassnode metric and here is a helpful definition:
The Accumulation Trend Score is an indicator that reflects the relative size of entities that are actively accumulating coins on-chain in terms of their BTC holdings. The scale of the Accumulation Trend Score represents both the size of the entities balance (their participation score), and the amount of new coins they have acquired/sold over the last month (their balance change score). An Accumulation Trend Score of closer to 1 indicates that on aggregate, larger entities (or a big part of the network) are accumulating, and a value closer to 0 indicates they are distributing or not accumulating. This provides insight into the balance size of market participants, and their accumulation behavior over the last month.
Glassnode highlights, among other things, how "the Accumulation Trend Score for whales holding 1k-10k BTC highlights aggressive accumulation since late September":
In our current market structure, and noting an approximate 10x in BTC prices, we can see very similar behavior occurring in large entities, however driven more so by the 100-1k BTC cohort during the August rally.
In addition to the relative neutrality across small to medium-address cohorts, the Accumulation Trend Score for whales holding 1k-10k BTC highlights aggressive accumulation since late September. Whales owning >10K BTC are biased towards weak distribution over recent months.
If the apparent fractal is the right interpretation, then whatever happens in terms of near-term volatility, bitcoin is in a good place.
Cost-averaging into the market under the $20k level could be a relatively good entry point, especially if you are buying the BTC/GBP pair.
Portfolio diversification – go green
And it you fancy fishing among some of the up and coming altcoins, a good diversifier if you already hold bitcoin might be a green eco-friendly crypto such as IMPT, which is currently on presale.
It is worth a mention because it is the only coin out there that is targeting shoppers by enabling them to offset their carbon footprint.
The presale allocation is selling at an impressive clip, with $3 million worth of tokens snapped up in a week, but do your own research.
4. Crypto Exchanges Still Available to Russians Despite Latest EU Sanctions, Report Unveils.
A list of crypto exchanges, including global platforms, have not introduced new restrictions on Russian users after the EU’s most recent sanctions round, Russian crypto media reported. The latest European penalties target an array of crypto-related services to increase pressure on Russia amid an escalating conflict in Ukraine.
Major Exchanges Continue to Work in Russia Following EU’s Ban on Crypto Services
The European Union adopted a wide range of sanctions last week, aiming to hit Russia’s government, economy, and trade harder. Along with other measures, the eighth package of EU restrictions banned the provision of all crypto wallet, account, or custody services to Russian residents and entities.
While some companies from the industry have quickly reacted and already suspended operations with Russian accounts, a number of crypto exchanges have not conformed to the European requirements yet, the crypto page of leading Russian business news portal RBC revealed in a report.
Among them is Binance, the world’s largest digital asset exchange by daily trading volume, which has not made an official statement regarding the new sanctions and continues to operate as usual, according to its support service. In early April, Binance limited services for account balances exceeding €10,000 ($11,000 at the time), as required by the EU’s fifth round of restrictions, which affected only “high-value” crypto services.
Another exchange that complies with the previous European crypto sanctions is Coinbase, the leading American crypto trading platform, while U.S.-based Kraken did not impose restrictions on Russians in the spring and has not announced any changes with regard to the new set of EU measures.
5. Senior House Republican: Biden administration holding up stablecoin bill.
A comprehensive a stablecoin bill can still pass this Congress, despite little time remaining on the calendar, but the Biden administration is holding up an agreement, top House Financial Services Committee Republican Patrick McHenry, R-N.C., told The Block.
“I’m optimistic that we can still get something done this Congress. It’s up to the administration to come to the reality of votes on the Hill,” McHenry said. "I’m grateful for the willingness of Chairwoman Waters to compromise. Democrats are in the majority, she doesn’t have to compromise with Republicans. But on this matter I think it’s important to have bipartisan legislation.”
McHenry added, “The administration and Hill policymakers are in different places. I think there’s goodwill on the Hill to come up with a reasonable product, for those of us who are serious policymakers.”
Legislation to create clearer rules around stablecoins has been on the front burner since the collapse of TerraUSD this past spring, but progress between McHenry, House Financial Services Committee Chair Maxine Waters, D-Calif., and the Biden administration stalled over the summer. The Financial Stability Oversight Council, a collection of financial regulatory agency leadership led by Treasury Secretary Janet Yellen, recently repeated a call for legislation around stablecoins.
6. Fed governor in charge of financial oversight warns banks about crypto.
Hacktober surprise: Worst month in worst year of hacks, Chainalysis says
Senior House Republican: Biden administration holding up stablecoin bill.
SEC's Hester Peirce voices support for new crypto laws in Congress citing agency focus on enforcement
Fed governor in charge of financial oversight warns banks about crypto
Aptos CEO's motion to dismiss $1 billion Glazer lawsuit denied by court
Hacktober surprise: Worst month in worst year of hacks, Chainalysis says
Senior House Republican: Biden administration holding up stablecoin bill
SEC's Hester Peirce voices support for new crypto laws in Congress citing agency focus on enforcement
Fed governor in charge of financial oversight warns banks about crypto
Aptos CEO's motion to dismiss $1 billion Glazer lawsuit denied by court
In a Wednesday speech, Federal Reserve Vice Chair for Supervision Michael Barr said that there could be additional guidance from regulators on crypto-related bank activity.
The senior financial regulator told a Washington audience that he doesn’t want to discourage banks from doing business with the crypto industry, but that some digital assets and related services may present “novel risks” to bank stability and the financial system.
Traditional banks are increasing their use of distributed ledger technology, as well as exposure to digital assets, and regulators are paying close attention, said Federal Reserve Vice Chair of Supervision Michael Barr.
The Fed “is working with our colleagues at the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation to ensure that crypto-asset-related activities banks may become involved in are well regulated and supervised, to protect both customers and the financial system,” Barr said. “This effort is not intended to discourage banks from providing access to banking products and services to businesses associated with crypto assets.”
That could include further regulatory guidance in coming months and years from the Fed and other banking agencies, according to Barr.
Barr delivered his remarks Wednesday at the Georgetown University Law Center’s D.C. Fintech Week in Washington.
The lead financial regulator on the Fed’s Board of Governors, Barr told an audience of lawyers, lobbyists, and policymakers that he sees potential parallels between the expansion of financial innovation, including cryptocurrencies, and lead up to the 2008 global financial crisis. Barr also warned banks seeking to launch their own stablecoins and engage in other crypto-related projects that it’s an “open question” whether some of those projects comply with current law due to “novel risks inherent” in digital assets.
