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.
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
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 IMF said crypto has evolved from ‘niche products’ to mainstream ‘speculative investments, hedges against weak currencies, and potential payment instruments.’ In a research paper published this month, the global agency concludes that the demise of some crypto firms ‘have added impetus to the push to regulate’ the asset class.
- The Fed’s new Vice Chair for Supervision Michael S. Barr said he plans to prioritize ‘the regulation and oversight of new forms of private money created through stablecoins.’ During a speech yesterday, Barr added that he believes stablecoins could pose financial stability risks and that Congress should pass legislation to bring them ‘inside the prudential regulatory perimeter.’
- An Ethereum wallet believed to be controlled by bankrupt hedge fund Three Arrows Capital moved millions worth of crypto yesterday, according to on-chain data. Transactions involving the wallet saw USD 33M worth of stETH, a staked-representation of ETH, removed from the DeFi venue Curve. Over USD 10M worth of BTC, USDt, and wrapped-ETH was also removed from Convex.
- KPMG said the slowed growth of crypto investments in 2022 compared to the year prior ‘highlights the growing maturity of the space.’ In its ‘Pulse of Fintech H1’22’ report, the firm claims despite this year’s sell-off, investor sentiment remains strong.
- China’s state-backed Blockchain-based Service Network (BSN) launched its ‘Spartan Network.’ The Spartan Network is an open source project which aims to help institutions implement blockchain-tech without the use of crypto. Hong Kong-based firms including Emperor Group, HSBC, Lan Kwai Fong Group and Maxim’s Group are among BSN’s first users.
- One year ago today El Salvador officially adopted BTC as legal tender. Traditional media outlets have described the asset’s adoption as slow, claiming BTC’s price volatility has prevented it from replacing the use of USD in the country.
The Fine Print
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.
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