In this week’s discussion, we talked about the 75bps rate hike at FOMC (to no one’s surprise), the unemployment rate, as well as the upcoming US Midterms. Within crypto, we saw Bitcoin move up and break past $21k, but has since dropped down to the $19k range. At the time of this piece going live, there is also a crypto war going on between two behemoths in the industry, CZ (Binance) and Sam Bankman-Fried (Alameda/FTX). We’ll share our thoughts on this once we have more info around the situation, but do we have another Terra-like situation on our hands?
Market-moving Macroeconomic Events In The US
One macro event that happened last week was the Fed’s decision to raise rates by 75bps, given that inflation is still an issue. Many in the market expected this, but what seemed to grab more attention was Powell’s statement regarding rates moving forward. What Powell essentially said was that restrictive tightening would probably still be on the cards moving forward as inflation still has come in hotter than expected; interest rates would probably move higher than previously expected. Despite these hawkish comments, there was a tiny hint of dovishness in the sense that slower rate hikes could begin in December, meaning rate hikes of less than 75bps. To support this, we saw the unemployment rate tick slightly higher to 3.7%. A slower economy is something that the Fed also considers when looking at rates and their hikes as well.
Albeit we won’t see a pause in rate hikes for now on, it could spell for short term and temporary bullish price action. However, at the end of the day, a slower increase in rates is still an increase in rates and fundamentally could still damage the economy. A continuous increase of rates would then have its contagion effects and impact on other aspects of the market (ie: mortgage rates).
Some food for thought - the Fed would pivot once inflation seems to have tapered, and/or we see the unemployment rate go up which would indicate that stimulus in the economy would be needed. Fundamentally, this would mean that market participants would want a relatively bad economic condition, because that would imply the economy needs help, the Fed to step in, thus be bullish for markets. But wouldn’t a bad economy be bearish? Fed pivot = economy is bad = bearish. We would be interested to hear your thoughts on this.
With the US midterms coming up, we shall see how the political landscape gets impacted, and its impact on financial markets and crypto. As we mentioned in a previous discussion, confidence in Biden is low, so many would expect for him to not be re-elected in the next elections. Something to watch as this develops over the next week or so.
Will We See Bitcoin Miners Fall?
Despite the sideways and down trending price action that we’ve seen with crypto and Bitcoin in the last few months, we have seen the Bitcoin hash rate continue to increase and make it harder for miners to mine. This has impacted the revenue generated by these miners, to the point where some miners seem to be struggling to stay afloat. Bitcoin analyst Dylan LeClair mentioned two Bitcoin mining companies who have expressed their financial struggles. One of the larger mining firms, Core Scientific, shared that they will be pausing their debt payments, which indicates a lack of cash resources on hand.
The effects of Bitcoin miners shutting down are 1) Possible sell pressure on Bitcoin, driving the price lower and 2) Inability to repay their loans. Although we do not feel that this is something overly concerning, it is just a point that we should keep in mind in the current market. The inability to pay off loans could impact lenders in the space, especially if they were loans of notable size.
Layer 1s Everywhere
After the recent mainnet launch of Aptos and imminent launches for Sui and Sei Network, it got us thinking about the current Layer 1 landscape. With major existing players in the Layer 1 space such as Ethereum, Avalanche, BNB, Solana, Cardano, Polkadot, Aptos, Wax, and more, it got us wondering how the future would play out for a lot of these Layer 1s. It is difficult for us to predict who will come out as the main L1s, but a huge factor would depend on how many applications are still being built on these chains today. Steady and increasing developer activity only serves as a good sign for the future of these L1s. However, let’s be real, to a normie or a new entrant into crypto, many of these L1s are very similar in how they operate and their benefits. With that said, we have a slight thought that we may start to see Layer 1s focus on specific verticals within crypto, rather than trying to be a general Layer 1-for-all. Example - WAX is already known as a GameFi L1. Could it be that this categorization and Layer 1 “specialty” plays out? Maybe we will see Ethereum and BNB be the L1 for DeFi, Avalanche and WAX be the L1 for GameFi, and so on for the other chains and verticals within crypto. What are your thoughts on this?
What’s Going On, Sam?
At the time of writing, fresh news is the whole “war” going on between CZ of Binance and Sam Bankman-Fried of Alameda Research (and FTX Exchange). For those who have not been keeping up, Coindesk recently leaked Alameda Research’s balance sheet. This caused many to question the validity and liquidity of their assets, given that the majority of it is made up of FTT (FTX’s Token). Trust in the crypto industry was already damaged with the whole Terra, Celsius, and 3AC collapse earlier this year. Naturally, when rumors around SBF’s empire and their potential liquidity issues started circulating, it instilled fear in the market. On the day of publishing this piece, we saw FTT (FTX’s Token) drop 30% in the span of 3 hours and we have seen it continue to fall into the $16-$18 range. Given that it is no secret to those in the crypto space that SBF has also been a big advocate for Solana and Solana ecosystem coins, Solana has also seen a big price drop, prompting people to question whether SBF has been selling off Solana to hold up and protect FTT. At this point, there are a lot of speculations going around and we will be closely monitoring the situation as it continues to play out over the week. Stay tuned for our thoughts on this.
That’s it for our roundup of TRR’s weekly discussion this week. If you enjoy our content, don’t forget to subscribe to our Substack and give our Twitter account a follow! If you have any comments, feedback, or suggestions, do feel free to leave them in the comments below. We want to continuously improve and provide the best possible content for our readers!
TRR Weekly Meeting Recap: Week Of October 31st
TRR Weekly Meeting Recap: Week Of October 31st
TRR Weekly Meeting Recap: Week Of October 31st
In this week’s discussion, we talked about the 75bps rate hike at FOMC (to no one’s surprise), the unemployment rate, as well as the upcoming US Midterms. Within crypto, we saw Bitcoin move up and break past $21k, but has since dropped down to the $19k range. At the time of this piece going live, there is also a crypto war going on between two behemoths in the industry, CZ (Binance) and Sam Bankman-Fried (Alameda/FTX). We’ll share our thoughts on this once we have more info around the situation, but do we have another Terra-like situation on our hands?
Market-moving Macroeconomic Events In The US
One macro event that happened last week was the Fed’s decision to raise rates by 75bps, given that inflation is still an issue. Many in the market expected this, but what seemed to grab more attention was Powell’s statement regarding rates moving forward. What Powell essentially said was that restrictive tightening would probably still be on the cards moving forward as inflation still has come in hotter than expected; interest rates would probably move higher than previously expected. Despite these hawkish comments, there was a tiny hint of dovishness in the sense that slower rate hikes could begin in December, meaning rate hikes of less than 75bps. To support this, we saw the unemployment rate tick slightly higher to 3.7%. A slower economy is something that the Fed also considers when looking at rates and their hikes as well.
Albeit we won’t see a pause in rate hikes for now on, it could spell for short term and temporary bullish price action. However, at the end of the day, a slower increase in rates is still an increase in rates and fundamentally could still damage the economy. A continuous increase of rates would then have its contagion effects and impact on other aspects of the market (ie: mortgage rates).
Some food for thought - the Fed would pivot once inflation seems to have tapered, and/or we see the unemployment rate go up which would indicate that stimulus in the economy would be needed. Fundamentally, this would mean that market participants would want a relatively bad economic condition, because that would imply the economy needs help, the Fed to step in, thus be bullish for markets. But wouldn’t a bad economy be bearish? Fed pivot = economy is bad = bearish. We would be interested to hear your thoughts on this.
With the US midterms coming up, we shall see how the political landscape gets impacted, and its impact on financial markets and crypto. As we mentioned in a previous discussion, confidence in Biden is low, so many would expect for him to not be re-elected in the next elections. Something to watch as this develops over the next week or so.
Will We See Bitcoin Miners Fall?
Despite the sideways and down trending price action that we’ve seen with crypto and Bitcoin in the last few months, we have seen the Bitcoin hash rate continue to increase and make it harder for miners to mine. This has impacted the revenue generated by these miners, to the point where some miners seem to be struggling to stay afloat. Bitcoin analyst Dylan LeClair mentioned two Bitcoin mining companies who have expressed their financial struggles. One of the larger mining firms, Core Scientific, shared that they will be pausing their debt payments, which indicates a lack of cash resources on hand.
Another miner, Argo Blockchain seems to also be struggling given that they made a statement regarding the need to complete further cash financing.
The effects of Bitcoin miners shutting down are 1) Possible sell pressure on Bitcoin, driving the price lower and 2) Inability to repay their loans. Although we do not feel that this is something overly concerning, it is just a point that we should keep in mind in the current market. The inability to pay off loans could impact lenders in the space, especially if they were loans of notable size.
Layer 1s Everywhere
After the recent mainnet launch of Aptos and imminent launches for Sui and Sei Network, it got us thinking about the current Layer 1 landscape. With major existing players in the Layer 1 space such as Ethereum, Avalanche, BNB, Solana, Cardano, Polkadot, Aptos, Wax, and more, it got us wondering how the future would play out for a lot of these Layer 1s. It is difficult for us to predict who will come out as the main L1s, but a huge factor would depend on how many applications are still being built on these chains today. Steady and increasing developer activity only serves as a good sign for the future of these L1s. However, let’s be real, to a normie or a new entrant into crypto, many of these L1s are very similar in how they operate and their benefits. With that said, we have a slight thought that we may start to see Layer 1s focus on specific verticals within crypto, rather than trying to be a general Layer 1-for-all. Example - WAX is already known as a GameFi L1. Could it be that this categorization and Layer 1 “specialty” plays out? Maybe we will see Ethereum and BNB be the L1 for DeFi, Avalanche and WAX be the L1 for GameFi, and so on for the other chains and verticals within crypto. What are your thoughts on this?
What’s Going On, Sam?
At the time of writing, fresh news is the whole “war” going on between CZ of Binance and Sam Bankman-Fried of Alameda Research (and FTX Exchange). For those who have not been keeping up, Coindesk recently leaked Alameda Research’s balance sheet. This caused many to question the validity and liquidity of their assets, given that the majority of it is made up of FTT (FTX’s Token). Trust in the crypto industry was already damaged with the whole Terra, Celsius, and 3AC collapse earlier this year. Naturally, when rumors around SBF’s empire and their potential liquidity issues started circulating, it instilled fear in the market. On the day of publishing this piece, we saw FTT (FTX’s Token) drop 30% in the span of 3 hours and we have seen it continue to fall into the $16-$18 range. Given that it is no secret to those in the crypto space that SBF has also been a big advocate for Solana and Solana ecosystem coins, Solana has also seen a big price drop, prompting people to question whether SBF has been selling off Solana to hold up and protect FTT. At this point, there are a lot of speculations going around and we will be closely monitoring the situation as it continues to play out over the week. Stay tuned for our thoughts on this.
That’s it for our roundup of TRR’s weekly discussion this week. If you enjoy our content, don’t forget to subscribe to our Substack and give our Twitter account a follow! If you have any comments, feedback, or suggestions, do feel free to leave them in the comments below. We want to continuously improve and provide the best possible content for our readers!
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