Market Commentary – September 9th, 2022

Crypto Market

Following aggressive distribution in the Bitcoin market earlier this week, short-term Bitcoin holders found themselves under pressure as Bitcoin struggled to hold the psychological $20,000 support amidst growing global liquidity issues. Short term investor profitability remains under pressure. However, at time of writing 7:00 am EST Friday September 9th, Bitcoin broke over $20,000 and has set a weekly higher low. 

With Ethereum’s Merge event just around the corner, the entire industry is preparing for the network’s most highly-anticipated upgrade.  The Merge is set to happen on  September 14, 2022 at around 2pm EST. The latest upgrade to the Ethereum network, known as Bellatrix, was activated at around 7:35 a.m EST on September 6, 2022. It officially kicks off the blockchain’s transition, known as the Merge, from proof of work to proof of stake. 

The proof-of-work mechanism requires powerful computers, called the miners, to secure the network and earn rewards in Ether. The new system will replace the miners to perform the same tasks with validators, who are essentially Ether holders staking their coins. The transition is expected to reduce Ethereum’s carbon footprint by 99% and pave the way for future upgrades that make the network more scalable and efficient. The next step after Bellarix will be the Paris upgrade, which boots off the miners to finalize the Merge. That upgrade is set to happen next week. The Ethereum core developers have been running the Beacon Chain, a proof-of-stake parallel to the current Ethereum proof-of-work network. The transition will be carried out through the merge of these two chains. 

The Merge has been on Ethereum’s roadmap since the blockchain’s inception in 2015. Despite multiple delays in the past several years, crypto investors are betting on the Merge finally happening this year based on developers’ updates and a few successful test runs earlier this year.

Macro

Liquidity across all asset markets continue to fade this week, as persistent dollar strength pushes the DXY Index to a new 20-year high of 110.27. The Eurozone finds itself under increasing stress, with the balance of trade in deficit, concerns over energy shortages, and the Euro falling deeper below USD parity.

Real wages (after inflation) have been declining for over a year. To maintain consumption levels, consumers are drawing down savings rapidly. Personal savings are back to levels last seen five years ago. In addition to using savings, credit card usage is growing at the fastest clip in over 20 years. Their real wages are declining. To compensate they are increasingly relying on savings and credit. Both have limits, and many consumers are likely at or near those limits. As such, it becomes increasingly unlikely that consumers’ buying habits will remain as they are. Consumers will have some tough choices to make.

The ECB raised rates by 75 basis points, as expected, while indicating more tightening is to come at future meetings. Fed Chairman Powell reiterated his succinct message from Jackson Hole, namely the job on inflation is not done and they will be wary of changing course too soon. EU rates drifted higher while US rates held largely steady. Weekly initial jobless claims were below expectations as the Chairman acknowledged the US labor market remained strong.

Equities, Fixed Income, FX and Commodities

Equities

On Wednesday September 7th, the S&P 500 added 1.8% and the Dow Jones Industrial Average rose 1.4%. The Nasdaq Composite broke a seven trading day losing streak with a 2.1% surge. Only four stocks in the Nasdaq 100 subset of the index closed in the red. The Nasdaq Composite remains down almost 7% over the past eight trading days,European stocks have been on a similar losing streak of late, with the multi-national STOXX Europe 600 index down some 5% in two weeks. That’s on concerns about the growing economic fallout from the continent’s energy crisis. Russia has been gradually reducing flows of natural gas to Europe in retaliation for sanctions imposed by the West over its war with Ukraine.

Fixed Income, FX & Commodities

The strength of the USD continued to garner more attention from investors and appeared to weigh on commodity prices in general. USD/JPY surged towards 1.45 for the first time since the late ‘90s, while the Euro moved below 0.99. The Pound dropped to levels not seen since 1985 amid a flurry of BOE speak. Brent crude closed at its lowest level since early Jan while US LNG finished near $7.85. Gold prices dipped towards $1,700 before bouncing back. Fed rate hike expectations continued to solidify around a 75 bps bump later this month, and this week’s’ Fed speakers did nothing to deter those expectations

News we’ve been reading

The Fine Print

Disclaimer

This confidential presentation has been prepared by Coinsquare Ltd. (the “Company”) solely for information and/or educational purposes. It shall not be construed as investment advice. Information contained herein does not purport to be complete and is subject to certain qualifications and assumptions and should not be exclusively relied upon for the purpose of making any investment or entering into any transaction in relation therewith. Neither the Company nor any of its representatives shall have any liability whatsoever, under contract, tort, trust or otherwise, to you or any person resulting from the use of the information in this presentation by you or any of your representatives or for omissions from the information in this presentation. The information and opinions contained in this document are provided as at the date hereof and are subject to change without notice and, in furnishing this document, the Company does not undertake or agree to any obligation to provide recipients with access to any additional information or to update or correct the document. This document has not been reviewed or approved by any securities administrator in any jurisdiction. This presentation or the information contained herein is not to be given to any person other than the person or group that was provided with the presentation directly by the Company or their advisors and is not to be reproduced in any manner whatsoever. Any further distribution or reproduction of this presentation in whole or in part, or the disclosure of any of its contents by the recipient, is unauthorized. Interested investors are not advised to rely solely on this document in forming investment decisions and are strongly advised to conduct further due diligence by requesting additional information from the company before making any such investment decisions. Unless otherwise noted, all figures expressed herein are in Canadian dollars. Coinsquare Wealth advisors cannot provide investment advice.

Forward-Looking Information 

Certain of the information contained in this confidential presentation may contain “forward-looking information”. Forward-looking information and statements may include, among others, statements regarding the future plans, costs, objectives or performance of the Company, or the assumptions underlying any of the foregoing. In this presentation, words such as “may”, “would”, “could”, “will”, “likely”, “believe”, “expect”, “anticipate”, “intend”, “plan”, “estimate” and similar words and the negative form thereof are used to identify forward-looking statements. Forward-looking statements should not be read as guarantees of future performance or results, and will not necessarily be accurate indications of whether, or the times at or by which, such future performance will be achieved. The actual results of the Company could vary from the forward-looking information contained herein, including as a result of such risks as a collapse in the market for cryptocurrencies, adverse regulatory developments and competition from other cryptocurrency custodians. Forward-looking statements and information are based on information available at the time and/or management’s good-faith belief with respect to future events and are subject to known or unknown risks, uncertainties, assumptions and other unpredictable factors, many of which are beyond the company’s control. The forward-looking information contained herein was developed based on assumptions related to, among other things, the continued growth of the cryptocurrency market, the company’s ability to obtain a license from the Alberta Treasury Board and Finance to operate a trust company or to receive a license from the applicable securities commissions as a clearing agent, grow its market share and the viability of the Company’s intended future product offerings. The Company does not intend, nor does it undertake any obligation, to update or revise any forward-looking information or statements contained in this presentation to reflect subsequent information, events or circumstances or otherwise, except if required by applicable laws. The Company is a new company with no operating history; and it may not actually achieve its plans, projections, or expectations. Important factors that could cause actual results to differ materially from the Company’s expectations include, consumer sentiment towards the Company’s products and blockchain technology generally, litigation, global economic climate, equipment failures, increase in operating costs, decrease in the price of cryptocurrency, security threats, government regulations, loss of key employees and consultants, additional funding requirements, changes in laws, technology failures, competition, and failure of counter-parties to perform their contractual obligations. Neither the Company nor any of our representatives make any representation or warranty, express or implied, as to the accuracy, sufficiency or completeness of the information in this presentation. Certain information contained herein is based on, or derived from, information provided by independent third-party sources. The Company believes that such information is accurate and that the sources from which it has been obtained are reliable. The Company cannot guarantee the accuracy of such information, however, and has not independently verified the assumptions on which such information is based. The Company does not assume any responsibility for the accuracy or completeness of such information.

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