Bitcoin (BTC) has now been within a persistent market downtrend for ten months since the all-time high in November 2021. This week, Bitcoin spot prices touched the $18,649 level, marking the second lowest low at a 72.5% drawdown from the cycle top. Compared to prior bear cyclical bottoms, the 2022 contraction has not been as significant on a percent drawdown perspective. The lows in 2015, 2018 and 2020 reached over 77%+ drawdowns from all time highs. With Bitcoin trading 72.5% below the Nov 2021 all time high this week, the market has many similarities to the latest phase of the 2018-19 bear market. The recent bear market rally sold off from $24.5k down to below $18.5k, plunging a significant volume of short-term holder supply back into an unrealized loss.
Ethereum’s (ETH) long awaited Merge has finally happened. At 02:43 EST Thursday September 15, Ethereum transitioned to proof-of-stake in what’s being called one of the most significant events in crypto history. Transaction fees and speeds for ETH will remain the same for now, however the ETH network is better positioned for future upgrades to its performance. The network’s electricity usage is now 99.9% lower and 0.2% of the entire world’s energy consumption was reduced.
Compound (COMP) Treasury announced a new crypto loan service which enables institutions or accredited investors to borrow US dollars or USDC using Bitcoin, Ethereum, and supported ERC20 tokens as collateral. These loans are managed by smart contracts making them completely transparent to the public.
The market was caught offside by a significantly hotter-than-expected August inflation report. The core index re-accelerated to a gain of 0.6%, driven by shelter costs. The increase in the owners’ equivalent rent index climbed 0.71%, which is its largest monthly gain of the cycle to date. The upside pressures were broad-based, though, with medical care services, car insurance, and maintenance and food service prices all posting above expectations. As a result, some are forecasting the Fed could hike interest rates by 100 basis points next week; a move not seen since the likewise inflationary 1980s.
Stocks and bonds came under pressure after the CPI release. Prior to the report, equity markets and risk assets in general had been riding a wave of momentum as market-based inflation expectations had been retreating into an inflation report that was expected to show declining headline prices on a month-to-month basis.
The other economic data released this week was overall mixed, led by retail sales figures which also saw last month’s numbers revised lower. Jobless claims suggested the labor market remains surprisingly robust, while manufacturing data painted more of a softening picture and, encouragingly, prices paid components continued to show signs of disinflation.
In the USA, an industry gauge of average fixed 30-year mortgage interest rates climbed to 6.01%, according to weekly Mortgage Bankers Association data. It marks the first time since November 2008 that the trade group’s measure of mortgage rates was higher than 6%.
Equities, Fixed Income, FX and Commodities
This Friday’s quad witching options expirations can generate a lot of market volatility. At the end of each quarter, the options markets’ align, and the options for futures, stock futures, indexes, and individual stocks expire on the same day. During quad witching options expiration, trading volumes are heavy, and volatility often spikes as options traders simultaneously cover or roll their options. Friday’s option expiration of equity options is unusually large; about $3.2 trillion notional of options are expiring. Almost two-thirds of the contracts directly impact the S&P 500. Market moves days before quad witching may be exaggerated due to options expiration.
Fixed Income, FX & Commodities
The International Energy Agency kept its 2023 oil demand growth forecast unchanged, after lowering China forecasts but lifting those for the rest of the world. The 2-year U.S. Treasury note now yields 3.9%, up from 0.7% at the start of 2022. Inventories of key commodities such as Nickel, Copper, and Aluminium are running below 5 year averages. At the time of writing, Crude fell sharply while the dollar was largely flat outside of the USD/CNY. Gold prices slipped to the lowest levels in nearly two years.
News we’ve been reading
- The CME launched options on ETH futures this week. Contracts are based on delivering one ETH futures contract, which represents 50 ETH. Genesis announced it executed the first block trade of the options with Cumberland DRW.
- Lawmakers in Uruguay have proposed a bill aimed at regulating crypto in the country. The bill builds on an existing charter which appoints the Central Bank’s Superintendence of Financial Services as the regulatory authority over crypto service providers such as custody, exchange, and other financial services.
- An arrest warrant has been issued against Do Kwon, co-founder of Terraform Labs, by a South Korean court. Five other individuals were included in the warrant, which alleges they violated capital markets law in the country. During an interview with Coinage last month, Do Kwon said he planned on cooperating with authorities .
- Crypto mining pool Ethermine announced it shut down its Ethereum pool once the network transitioned to proof-of-stake. At that point, the pool switched to ‘withdrawal-only mode,’ to distribute remaining mining rewards to its participants. The platform redirected participants to pools of other proof-of-work chains, including Ethereum Classic, Ravencoin, Ergo, but not EthereumPOW.
- AllianceBernstein said the Merge is a catalyst for institutional investment in ETH, according to a research note cited by CoinDesk. The firm’s analysts referenced the network’s ‘economic transition’ and ‘scalability roadmap’ as points that will facilitate its institutional adoption.
- Thailand’s Securities and Exchange Commission (SEC) is considering prohibiting crypto firms from offering ‘deposit taking’ and lending services. In a notice published today, the SEC outlined its aim to increase investor protections with the decision, and will accept public comment until October 17.
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.
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.