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As Hash Rate Soars, Parallels to 2018 Arise
On October 23, bitcoin mining difficulty saw an upwards adjustment of 3.44% (after the previous adjustment of 13.55%), pushing mining difficulty to yet another all-time high as hash rate continues to soar. With the price of bitcoin stagnating at $20,000 give or take for the last few months, we have noticed some parallels between the market cycle of 2018 and the one in front of us today.
The rising hash rate dynamic seen throughout 2022 while the bitcoin price has fallen has put a lot of pressure on both public and private mining operations. Throughout the year, we have seen public miners capitulate on their bitcoin holdings, as diminishing revenue and treasury values have placed increasing pressure on balance sheets.
At their peak, public miners’ bitcoin holdings reached over 46,000 BTC but have since fallen 26% as bitcoin treasuries were sold out of necessity to access more capital, pay down debt and fund operations and expansion plans. Although estimated and rough numbers, the top public miners make up over 20% of all Bitcoin’s network hash rate. Moves from public miners to not only sell bitcoin holdings but also to expand and contract their hash rate have a significant impact on the market.
Bitcoin holdings from the top publicly traded bitcoin mining companies
As hash price continues to trend to all time lows, the probability of a miner capitulation/liquidation event probabilistically increases until a drawdown in hash rate, as certain entities cease mining and liquidate their assets (in the form of both bitcoin and ASICs).
Barring the China mining ban during 2021, the largest peak-to-trough drop in hash rate (7d MA) in the history of bitcoin was approximately 35%. In our opinion, this bear market cycle won’t end until a flush of the weakest miner participants has occurred, which will be observable by a temporary yet meaningful fall in hash rate and will subsequently decrease mining difficulty, easing conditions for the surviving participants.
While there was already a “capitulation” per se earlier this summer during the initial cryptocurrency market deleveraging in June, hash rate has since gone vertical, with new fleets of the newest Bitmain Antminer S19 XP, an industry-leading miner, just now being deployed en masse by the largest miners.
Given the current state of hash rate and difficulty, we believe that the pressure is indeed building, but the figurative burst has yet to occur.
The Mechanics Of A Race To The Bottom
We could easily see a scenario where further bitcoin price and miner industry revenue pressures force more of that held bitcoin back into the market along with a significant drawdown in hash rate. Below charts show the comparison of hash rate, price trajectory and percentage drawdown from 2018 and present day.
The comparison of hash rate, price trajectory and percentage drawdown from 2018
The current comparison of hash rate, price trajectory and percentage drawdown
If there is a case for the last last leg lower, this is it, and our data-driven approach has us leaning towards this having a decent likelihood of playing out. In the chart below, observe what happened to the bitcoin market the last time there was a price stagnation following a drawdown of this caliber as hash rate soared to daily new highs (hint: the dotted line).
The last time there was a price stagnation following a major hash rate drawdown
While history doesn’t repeat, it often rhymes, and our data-driven approach has our team on increasing alert about the pressure this mining industry and subsequently the bitcoin market will face over the short term.
While we are in no way saying this occurs with certainty, the higher that hash rate goes while bitcoin the asset itself trades with increasingly muted levels of volatility -71% from its previous all-time high (around when some of the largest CapEx investments made into mining infrastructure took place), then it is increasingly probable a final miner-induced capitulation event will occur. This is not a prediction, but rather an observation based on the data currently in front of us.
This is a transcribed excerpt of the “Bitcoin Magazine Podcast,” hosted by P and Q. In this episode, they are joined by Vijay Boyapati to talk about the “Bullish Case For Bitcoin” and how a bear market is where true conviction pays off.
Vijay Boyapati: I think we’re in a bear market. I think I called the bear market. I think I was a little bit early, but I think I called it somewhere in June or July. I thought the bear market was starting. I think it’s probably correct to say it started a little bit later in 2021.
I think what we’re seeing is a compounding of both Bitcoin’s natural cycle, which we’ve seen with these bear markets before with the macroeconomic picture. That explains why this bear market feels as painful as it does. I don’t really think this is — it doesn’t feel that long.
I’ve been observing Bitcoin since 2011. The longest bear market in my memory was the one from 2013 until the beginning of 2017. I thought that was the most painful and is still the most painful bitcoin bear market because it really did feel like, “Wow, this thing might not come back.” It just felt like crickets during the bear market. There was no interest in Bitcoin. Some of the big voices in the community had rage quit. Mike Hearn was a very well respected developer at the time and he fully rage quit. He wrote a piece in the New York Times like, “This thing is dead. I’m not interested in it. I’m out.”
There was very little interest anywhere. People weren’t talking about Bitcoin; it wasn’t being written about. That was a really tough time for people who believed in Bitcoin. I think this is actually very different. I think Bitcoin is now fully established as a macro asset. The price has dropped, yeah OK. It’s down to 20,000, but if someone had told you three or four years ago that bitcoin is gonna crash to $19,000/$20,000, you’d be like, “Whoa! That’s amazing! We’ve made it!”
This illustrates one of the aspects of money that people don’t really understand, which is path dependence. You can’t value money based on its cash flow because gold and bitcoin are monetary assets; they don’t produce cash flow. They get valued by a market process of people trying to determine — it’s a game-theoretic process — is this better money than all the other monies that are out there? Is it better than gold? Is it better than dollars? Is it better than silver? Is it better than Ethereum or all the competitors that are out there? That process works in these cycles that we’ve seen where people get really enthusiastic, and then run out of steam and then you have a crash. The point I’m trying to make about monetary assets is that they don’t have cash flow, so you have to measure their worth as a monetary asset against other competitors and along the attributes that make for a good money.
What are those attributes? They are things like visibility, portability, transmissibility — how easy is it to transmit — and most importantly, scarcity. Along this one critical attribute that all monies need, bitcoin is the best form of money that’s ever existed. This hasn’t changed. This fundamental aspect of what makes bitcoin good — or I think the best — money hasn’t changed. It’s just the market goes through these cycles of people trying to understand what it is and people getting over excited and then losing hope.
Each one of these cycles is defined by a group of people. In the first cycle, the group of people was very small. There were only people who could understand bitcoin: cypherpunks, computer scientists and maybe some hardcore libertarians. It was a very small circle of people, but each cycle that circle gets bigger and bigger and so we have gone through a cycle where we actually brought in a lot of retail investors, but there’s many more retail investors. There’s many more institutions. There’s many more nation states out there, and a lot of them got a taste of bitcoin. They may have given up and said, “Oh, this thing has failed,” but maybe they bought a little bit. Maybe they bought say, 1% of their portfolio, or maybe even $100 and they gave up on bitcoin, but those people are primed to come back in the next cycle.
I’ll give you one example of this: Stanley Druckenmiller is a very famous macro investor billionaire. [He’s] very successful over a very long period of time, investing in making macro bets. He owned bitcoin during this last cycle, and very recently I heard him say that he doesn’t own any bitcoin. Now that sounds bad: He’s given up on bitcoin. He has been mentally captured. He’s always going to pay attention to the price of bitcoin, and when bitcoin starts — as it always does in every cycle — slowly but surely coming back, he will be paying attention. He’ll be like, “Oh, it hasn’t died. It’s been stuck around $20,000,” or whatever it is, wherever it finds its plateau. “It’s been stuck around that level for a long time. It hasn’t gone away and it looks like it’s creeping up.” Now it’s $23,000, $24,000, $25,000, maybe $30,000. People like him will come back because they’ve been exposed to bitcoin, they’ve been mentally captured. They’ve had enough touch points where they’ve heard about it enough or they’ve invested a little bit and they’re gonna come back.
This is the same thing that happens every cycle. The same thing happened back in 2017 where a bunch of people got burned when they bought bitcoin at $19,000 or $20,000 and it dropped to $3,000 and they’re like, “Oh. Why did I do that? It was a terrible investment,” but then they were paying attention in the current cycle, which is finished, and they came back in because they noticed bitcoin. They knew about it; they knew how to invest. They were primed to put more capital in. So each cycle, the [amount of] people who are primed to come in is much bigger. The number of people who are ready to come in the next cycle, especially institutions and high networth individuals is gigantic. Some of the things that we saw, I think people got overly excited. They saw Michael Saylor coming in, they saw El Salvador and they thought this cycle is the cycle when we’re gonna have every high networth individual, every corporation, every nation state; they’re all gonna pile in.
I actually think what you got was just a taste of what we’ll see in the next cycle. I was really surprised to see El Salvador come in. I didn’t think a nation state would do what El Salvador did for a few cycles into the future and so what happened is what I expected, which is that most nation states will stand back and not do anything, but now I think many more of them are gonna be primed in the coming cycles to come in and do what El Salvador did. So I think there are many reasons to be bullish about bitcoin. None of the fundamentals have changed, none of the attributes that make bitcoin superior to all its competitors, none of that has changed.
The number of people who have been exposed to Bitcoin is much, much larger. What you have, if you’ve been around for a while, or you listen to people who have been around for a while is an incredible opportunity. The best time — if you are one of those people around in a bear market — to invest is right now. The best time to get exposure to learn more about Bitcoin, to do something for Bitcoin, to go and build a business in the Bitcoin space is right now. The people who are around now who are either building businesses, investing or learning about Bitcoin, they are the people who are gonna be most successful in the coming cycle.
What you don’t want to be and what always disappoints me is the people, friends and family I speak to, they only get interested right at the end of the cycle. It’s the same every single cycle; I’ve been through four of them now. People come to me at the end of the cycle and they’re like, “Tell me about Bitcoin. How do I invest in bitcoin?”
I’m like, “I’m really glad you’re interested in Bitcoin. Just be careful because Bitcoin is cyclical; it goes through cycles. Learn about investing in bitcoin; put a small percentage of your portfolio in there.” I usually think about it as they’re not really ready. They’re gonna come back the cycle after and they’re gonna get a little bit burned. I don’t want them to get too burned so they never come back. But if you are around now, if you are listening, there’s a huge opportunity. They don’t come around that often; it’s once every four years.
Eventually, these cycles are gonna stop when Bitcoin gets to complete, full adoption. And I think we’re only maybe three or four cycles away from that. So I am really excited. I think this is the best time to be interested in Bitcoin. None of the fundamentals have changed, so get out there and learn about it.
Get out there and invest. Get out there and build it. Now is the time.
Jerome Powell, chairman of the US Federal Reserve, speaks during a Fed Listens event in Washington, D.C., US, on Friday, Sept. 23, 2022.
Al Drago | Bloomberg | Getty Images
Political questioning of Federal Reserve Chair Jerome Powell about the central bank’s policy moves is intensifying, this time from the other side of the aisle.
No stranger to political pressure, the Fed chief this week found himself the focus of concern in a letter from Sen. Sherrod Brown. The Ohio Democrat warned in the letter about potential job losses from the Fed’s rate hikes that it is using to combat inflation.
“It is your job to combat inflation, but at the same time you must not lose sight of your responsibility to ensure that we have full employment,” Brown wrote. He added that “potential job losses brought about by monetary over-tightening will only worsen these matters for the working class.”
The letter comes with the Fed less than a week away from its two-day policy meeting that is widely expected to conclude Nov. 2 with a fourth consecutive 0.75 percentage point interest rate increase. That would take the central bank’s benchmark funds rate to a range of 3.75% to 4%, its highest level since early 2008 and represents the fastest pace of policy tightening since the early 1980s.
Without recommending a specific course of action, Brown asked Powell to remember the Fed has a two-pronged mandate — low inflation as well as full employment — and requested that “the decisions you make at the next FOMC meeting reflect your commitment to the dual mandate.”
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The last time the Fed raised interest rates, from 2016 to December 2018, Powell faced withering criticism from former President Donald Trump, who on one occasion called the central bankers “boneheads” and seemed to compare Powell unfavorably with Chinese President Xi Jinping when he asked in a tweet, “Who is our bigger enemy?”
Democrats, including then-presidential hopeful Joe Biden, criticized Trump for his Fed comments, insisting the central bank be free of political pressure when formulating monetary policy.
Brown’s stance was considerably more nuanced than Trump’s — though equally unlikely to move the dial on monetary policy.
“Chair Powell has made it pretty clear that the necessary conditions for the Fed to achieve its full employment objective is low and stable inflation. Without low and stable inflation, there’s no way to achieve full employment,” said Mark Zandi, chief economist for Moody’s Analytics. “He’ll stick to his guns on this. I don’t see this as having any material impact on decision making at the Fed.”
To be sure, while it’s most likely a reaction to a changing tone from some Fed officials and a slight shift in the economic data, market expectations for monetary policy have altered a bit.
Traders have made peace with the three-quarter point hike next week. But they now see just a 36% chance for another such move at December’s Federal Open Market Committee meeting, after earlier rating it a near 80% probability, according to CME Group data.
That change in sentiment has come following cautionary remarks about overly aggressive policies from several Fed officials, including Vice Chairman Lael Brainard and San Francisco regional President Mary Daly. In remarks late last week, Daly said she’s looking for a “step-down” point where the Fed can slow the pace of its rate moves.
“The democratization of the Fed is the issue for the market, how much power the other members have versus the chairman. It’s difficult to know,” said Quincy Krosby, chief equity strategist at LPL Financial. Regarding Brown’s letter, Krosby said, “I don’t think it’s going to affect him. … It’s not the pressure coming from the politicians, which is to be expected.”
A Fed spokesman acknowledged that Powell received the Brown letter and said normal policy is to respond to such communication directly. In the past, Powell has been generally dismissive when asked if political pressure can factor into decision making.
Along with the nudging from Brown, Powell also has faced criticism from others on Capitol Hill.
Sen. Elizabeth Warren, the ultra-progressive Massachusetts Democrat and former presidential contender, has called Powell dangerous and recently also warned about the impact rate hikes could have on employment. Also, Sen. Joe Manchin, D-W. Va., last year criticized Powell for what was seen as the Fed’s flat-footed response to the early rise of inflation.
“I don’t necessarily think that Powell will buckle to the political pressure, but I’m wondering whether some of his colleagues start to, some of the doves who have become hawkish,” said Peter Boockvar, chief investment officer at Bleakley Advisory Group. “Employment’s fine now, but as months go on and growth continues to slow and layoffs begin to increase at a more notable pace, I have to believe that the level of pressure is going to grow.”
Payroll gains have been strong all years, but a number of companies have said they are either putting a freeze on hiring or cutting back as economic conditions soften. A slowing economy and stubbornly high inflation is making the backdrop difficult for the November elections, where Democrats are expected to lose control of the House and possibly the Senate.
With the high stakes in mind, both markets and lawmakers will be listening closely to Powell’s post-meeting news conference next Wednesday, which will come six days before the election.
“He knows the pressure. He knows that the politicians are increasingly nervous about losing their seats,” Krosby said. “There’s very little he could do at this point, by the way, to help either party.”
LONDON — If his key appointments are any indication, the Rishi Sunak era in Britain could actually be … kind of dull.
The new U.K. leader reappointed existing ministers, brought back old hands and largely kept critics on side as he sought to reassure nervous markets, allies and enemies that the U.K. is no longer a hotbed of chaos.
But the prime minister did, at least, have room to take revenge on a number of his most vocal detractors, and refused to offer any kind of promotion to his defeated leadership rival, Penny Mordaunt.
Sunak entered No. 10 Downing Street Tuesday with a promise to “fix” the “mistakes” made by his predecessor Liz Truss, after her radical economic prospectus spooked financial markets and helped jack up U.K. borrowing costs — swiftly bringing down her government amid bitter Tory recriminations and sparking a second Tory leadership race in two months.
Emerging from the wreckage of the Conservative Party, Sunak had pledged to put politics aside and “build a government that represents the very best traditions of my party.”
Nothing to see here
The biggest news of the reshuffle was that there wasn’t much news. Multiple figures who served under Sunak’s predecessor Liz Truss, including some who backed his rival Boris Johnson in the latest Conservative leadership race, kept their posts or were moved to other senior roles.
Sunak’s most important appointment was to keep Jeremy Hunt in post as chancellor, sticking by a Cabinet veteran who Truss had brought in from the cold just two weeks earlier to rip up her failed economic agenda.
James Cleverly was kept on as foreign secretary, while Ben Wallace remained as defense secretary — keeping two key ministries tasked with shaping Britain’s foreign policy intact. Chris Heaton-Harris stayed on as Northern Ireland secretary, while Nadhim Zahawi was moved from the Cabinet Office to become the Conservative Party chairman. All four men had backed Johnson in the leadership contest last week, leaving fellow Boris supporters in the party relieved.
“At this early stage of the reshuffle it looks as if Rishi is aiming to unite the party rather than divide it,” said Tory MP and Johnson ally Michael Fabricant. “Perhaps one of the mistakes Liz Truss made was to pack the Cabinet only with her supporters. That always creates a volatile situation.”
In an eyebrow-raising move, Suella Braverman, a darling of the party’s right who made her own bid for the leadership earlier this year, returned as home secretary less than a week after being fired over a sensitive information leak. Her reappointment looked like a debt being repaid following her unexpected backing of Sunak at the weekend.
Trade Secretary Kemi Badenoch and Culture Secretary Michelle Donelan, both Truss picks over the summer, kept their jobs too.
One Cabinet minister who did not back Sunak in either leadership race said the appointments were clearly a bid for unity: “He has put people in positions with a track record of delivery.”
Senior figures from other wings of the party were impressed too. “The new prime minister is clearly serious about including people from all sides of the party in his new Cabinet,” said Nicky Morgan, a former chair of the centrist One Nation Conservatives grouping in parliament and now a member of the House of Lords. “This is a very encouraging start to his term.”
Soft revenge
Others key allies of Sunak’s opponents were handed demotions, but allowed to remain in Sunak’s top team.
Thérèse Coffey, a close friend of Truss who served as her deputy prime minister and health secretary, was demoted to the environment, food and farming brief. Alok Sharma, who backed Johnson in the second race, kept his job overseeing the COP climate summits, but will no longer attend Cabinet — a clear step down.
But it was the treatment of Mordaunt, the last candidate standing against Sunak in the latest leadership race, that most ruffled feathers. She kept her relatively junior Cabinet-attending job as leader of the House of Commons, a decision seen in Westminster as a snub given widespread expectations that she was due a major promotion.
One former Cabinet minister argued the failure to promote Mordaunt looked like “an act of revenge, or small-mindedness.” Mordaunt had refused to drop out of the latest leadership race until it was clear she did not have sufficient nominations from fellow MPs to make the next round.
Leader of the House Penny Mordaunt leaves No. 10 Downing Street following Prime Minister Rishi Sunak’s cabinet reshuffle | Leon Neal/Getty Images
Yet some argued the very act of keeping her in post was in itself an olive branch, while one person familiar with the discussions on her appointment said she had been offered a different role, but refused it. One of Mordaunt’s allies insisted she was pleased to keep her existing brief.
A Downing Street official insisted: “This Cabinet brings the talents of the party together. It reflects a unified party and a Cabinet with significant experience, ensuring that at this uncertain time there is continuity at the heart of government.”
But there were plenty of rewards too for key Sunak supporters. Close allies Oliver Dowden, Michael Gove and Steve Barclay were handed roles in the Cabinet Office, communities department and health department respectively, just weeks after Truss made clear they had no place in her administration.
Simon Hart was made chief whip, while Gillian Keegan was promoted to the Cabinet for the first time as education secretary and Grant Shapps was moved from his week-long stint heading up the Home Office (to replace the sacked Braverman) to the business department.
To make space for the new appointments, Sunak allowed himself a few ruthless sackings — although he did permit Cabinet ministers to technically resign to spare their blushes.
Ministers seen as close to Johnson, including Brandon Lewis and Kit Malthouse, were fired, as was Robert Buckland, who supported Sunak in the first leadership race only to shamelessly switch to Truss when it became clear she would win.
Jacob Rees-Mogg, one of Sunak’s most vocal critics and a cheerleader for Johnson, was also dispensed with, as well as top Truss lieutenants Ranil Jayawarenda and Simon Clarke. Rees-Mogg had once branded Sunak a “socialist” — although he hastily recanted that criticism Tuesday morning as the new PM picked his top team.
Having told the Tories at the weekend they must “Back Boris” or go “bust”, it was not enough to save him from his fate.
An earlier version of this story included an inaccurate previous ministerial brief.
The Financial Services and Markets bill passes the House of Commons, heads to the House of Lords.
Draft bill seeks to establish digital assets, such as bitcoin, as regulated financial instruments.
Lawmakers are consulting with stakeholders and industry leaders throughout the process.
Legislators in the U.K. voted to recognize bitcoin and digital assets as regulated financial instruments earlier today, per a report from CoinDesk.
The lower house of Parliament known as the House of Commons read the previously discussed Financial Services and Markets bill which seeks to establish a framework for the ongoing regulation of digital assets.
Additionally, the draft bill includes extensions for existing regulation which would apply current laws regarding payments-focused instruments to stablecoins.
“The substance here is to treat them [digital assets] like other forms of financial assets and not to prefer them, but also to bring them within the scope of regulation for the first time,” said Andrew Griffith, the financial services and city minister.
Griffith went on to explain that clause 14, a new addition to the previously existing Financial Services and Markets Act, “clarifies that crypto assets could be brought within the scope of the existing provisions.”
The minister continued to say that the Treasury will have ongoing consultations with existing stakeholders in the ecosystem, as well as industry experts to ensure the developing framework empowers the ecosystem, rather than hinders it.
Still yet, the bill has quite a ways to go before becoming established law. Next, the draft will head to the upper parliamentarian branch known as the House of Lords. Should the bill receive approval from upper parliament, the bill will land on the desk of King Charles III to receive approval.
LONDON — Rishi Sunak has promised to “fix” the economic mess wrought by his predecessor Liz Truss after being appointed the new U.K. prime minister.
In a sombre speech on the steps of No. 10 Downing Street Tuesday, Sunak — who has spent the day fleshing out a top team that includes many carryovers from the Truss administration — admitted “mistakes were made” by his predecessor and said he had been appointed “in part, to fix them.”
Truss only took office as U.K. PM last month, but was swiftly forced to resign after her radical economic plan spooked the markets, sent Sterling plunging and drove U.K. borrowing costs through the roof.
Sunak had predicted precisely these consequences during a summer-long Tory leadership contest — in which he finished a distant second place — and is now reaping the political reward.
“Our country is facing a profound economic crisis,” Sunak said, in his first major speech as PM. “I will place economic stability and confidence at the heart of this government’s agenda. This will mean difficult decisions to come.”
Sunak takes over at an intensely challenging time for the U.K. economy, with surging energy costs, mortgage rates and inflation triggering a cost-of-living crisis for millions of households and businesses. Britain also has a yawning budget deficit, and Sunak’s administration is expected to confirm a package of tax hikes and spending cuts in an emergency budget statement next week.
Key picks
In a bid to calm markets, Sunak on Tuesday confirmed he is keeping Jeremy Hunt in post as top finance minister. Hunt was brought in in the dying days of Truss’ short premiership to steady the ship, and swiftly junked much of her tax-cutting agenda.
Key Sunak ally and Cabinet veteran Dominic Raab will serve as deputy prime minister, a role he also played for Johnson.
And Sunak looks to have opted for a steady-as-she-goes approach to foreign policy, keeping in place Truss’ Foreign Secretary, James Cleverly, and her Defence Secretary Ben Wallace, who also held the role under Boris Johnson and earned plaudits for his response to the Russian invasion of Ukraine. In a remarkably swift Cabinet comeback, Suella Braverman — who left as Truss’ Home Secretary just a week ago with a blast at her boss — returns to the Home Office.
In one sign of change at the top of government, Truss ally Jacob Rees-Mogg resigned as business secretary. He had previously branded Sunak a “socialist” during the summer’s bitter leadership contest, although he recanted that view Tuesday morning. He will be replaced by leading Sunak backer Grant Shapps.
Speaking on steps of No. 10 Downing Street, the new PM insisted he was “not daunted” by the challenges ahead, adding: “I know the high office I have accepted, and I hope to live up to its demands.”
Sunak, 42, is the youngest British prime minister in modern history, and the first British-Asian to lead the country. He was formally invited to form a government by new British monarch King Charles III on Tuesday morning, having won the second Conservative leadership contest of the year the previous afternoon.
In his speech, Sunak also took a veiled swipe at his predecessor-but-one — and former boss — Johnson, who was forced to resign in July over a string of personal scandals.
“This government will have integrity, professionalism and accountability at every level,” Sunak said.
Johnson tweeted his congratulations to his bitter rival immediately after Sunak took office, insisting it was “the moment for every Conservative to give our new PM their full and wholehearted support.”
Newly-elected British PM Rishi Sunak has been formally invited to form a government by King Charles III | Pool photo by Aaron Chown/AFP via Getty Images
Truss bids farewell
In her farewell speech Tuesday, outgoing PM Truss said it had been “a huge honor” to lead the nation and showed few signs of contrition over her chaotic seven weeks in office.
“From my time as prime minister, I am more convinced than ever we need to be bold and confront the challenges that we face,” Truss said defiantly.
She even quoted the Roman philosopher Seneca, adding: “It is not because things are difficult that we do not dare. It is because we do not dare that they are difficult.”
Sunak won the latest Conservative leadership race after his rival Penny Mordaunt failed to secure the required 100 nominations from her fellow Conservative MPs to make it onto a head-to-head ballot. He also beat off a brief challenge from former PM Johnson, who decided to pull out of the contest Sunday night despite claiming — without evidence — to have secured enough private nominations to make the cut.
Sunak has only been an MP since 2015 but is well known to the British public, having served as chancellor for more than two years under Johnson before quitting in July over his former boss’ personal conduct.
Sunak had become wildly popular with the general public soon after his appointment in February 2020, having set up a multi-billion pound scheme to protect people’s salaries if their companies were struggling to keep them on during the COVID-19 pandemic.
But his approval ratings took a severe hit earlier this year after it emerged his wife Akshata Murty held a highly privileged “non-domiciled” tax status in Britain, which she later renounced. He was also criticized after it was revealed he until recently continued to hold a U.S. green card, allowing him to live and work in America — allowing opponents to suggest he might not have been fully committed to Britain.
“Fed Watch” is a macro podcast, true to bitcoin’s rebel nature. In each episode, we question mainstream and Bitcoin narratives by examining current events in macro from across the globe, with an emphasis on central banks and currencies.
In this episode, CK and I cover a large chunk of the ongoing macro news. First, we update the situation in the U.K. gilt market. Then swing over to China to cover developments from the 20th Party Congress, the real estate market and the general investment climate. Lastly, we discuss the European energy crisis and current storage situation.
Charts And Bitcoin Sentiment
Each week, CK and I lead off with a few charts including bitcoin and other currencies to center our macro conversation from that perspective.
In the week of October 17, 2022, the bitcoin chart was showing continuing strong support in the range of $17,500-$18,500 despite all the geopolitical and global economic stresses happening. The stability of bitcoin relative to most other assets must be getting noticed by people managing large capital pools in the world.
Bitcoin daily chart
CK and I also spoke briefly about the U.S. stock market and its similarly stable performance. If you were only to listen and read the mainstream financial press and never look at the charts, you might be fooled into thinking stocks were much lower, or at least falling on a daily basis. However, as it stands now, the S&P 500 is abovethe June low.
S&P 500 chart
Below is my dueling dollar indices chart, showing the DXY which is heavily weighted toward the euro and yen, and the broad trade-weighted dollar index that includes many more currencies depending on their share of trade with the United States. Importantly, this includes the Chinese yuan and Mexican peso.
As you can see, the trade-weighted dollar performed better during the initial COVID-19 crash, but has lagged the euro-heavy DXY. What this means is dollar strength has become more broad-based in the last couple of weeks.
DXY versus trade-weighted Dollar
The last currency chart we analyze is the Japanese yen, which is crashing versus the dollar, reaching 150 yen to the dollar. In the broadcast, I mention that this is an example of the dollar’s current effects throughout East Asian currencies.
USD/JPY
United Kingdom Gilt Recap And Credit Suisse
Admittedly, CK and I have not watched the crisis in the U.K. as closely as other things, so we take an opportunity to recap the timeline of what’s gone on there so far.
The Bank of England (BoE) announced intervention on September 28, after the long-term gilt market sold off from roughly 2% yields to 4.5% yields in a matter of weeks. On earlier shows, I mentioned the importance of the end of the Q3 for financial stress, which is well known, but for some reason the BoE decided to begin quantitative tightening (QT) one week prior to the end of the quarter.
On October 3, the BoE adjusted their intervention size up to £10 billion per day, and an end date for the program of October 14. Most economic commentators did not think it would be possible to end it so quickly and in such a telegraphed manner. They were proven wrong, as the “no quantitative easing” program ended on the projected date. The latest is that the BoE will resume their QT attempts on November 1.
We also spoke about the interesting coincidence of the emergency swap lines between the Federal Reserve and the Swiss National Bank (SNB) that took place during the peak of the BoE’s troubles. I speculated that this swap line could have served as an obscured bailout of these troubled financial institutions in London, routed through the SNB.
The crisis seems to be under control for the moment, but the damage may have been done. In these financial crisis episodes, confidence is broken and despite the acute panic being over, the market is shifted to a more fragile state of mind going forward. This can lead to the crisis popping back up after a few months.
China’s Economy And The 20th Party Congress
I did not pull any quotes for the show from Xi Jinping’s two-hour opening speech. I provided a link to the full transcript and I encourage people to read it for themselves. It is eye-opening to see the rhetoric, the devotion to Marxist-Leninist communism and the hubris of authoritarian central planners.
What I did cover directly in the episode was a blog post by BlackRock and a tweet thread by Michael Pettis, confirming some of my views on the state of China today and their path in the near term.
BlackRock’s words are important as they represent what large capital pools think about China. From their post, we learn that Chinese export volumes are likely to be down 6% this year and next, although in nominal dollar terms they will be up 3%. The authors also note the horrific demographic situation in China and say it precludes the needed domestic growth to counteract the effect of shrinking exports. In a country with massive debt and demographic issues, this is not a recipe for economic growth.
“Recession is looming now for the U.S., U.K. and Europe. But this time, China won’t be coming to its own, or anyone else’s, rescue.”
Michael Pettis, Senior Fellow at the Carnegie Endowment and professor of finance at Peking University’s Guanghua School of Management, seems to agree with the direction of the Chinese economy in the medium term. His tweet thread exposes the no-win situation faced by the Ministry of Finance in China.
The Ministry of Finance said that state-backed entities are strictly prohibited from purchasing land by raising debt. Pettis agrees with this prohibition, because “local governments [reversing] the decline in land-sale revenues by setting up SPVs to buy land from themselves [as] a way for them to borrow money and pretend the proceeds were actually land-sale revenues.”
Pettis, however, emphasizes the same no-win scenario facing the Ministry of Finance that the BlackRock comments did. Namely, that Beijing has no room to stimulate. They are cracking down, but not offering any help.
“The MoF stopped them from faking revenues without addressing the reasons they had to do so.”
Pettis continues:
“Beijing must know how difficult the circumstances are that local governments face, and yet isn’t doing much to help. I think we are probably seeing the beginning of what over the next few years will be a very contentious relationship between local governments and Beijing.”
This does not bode well for Beijing and Xi, especially as the U.S. rhetoric, sanctions on chip manufacturing and arming of Taiwan is picking up pace. There is a real existential threat to the Chinese Communist Party appearing.
European Energy Non-Crisis?
We had Andreas Steno on the show a few weeks ago, because I wanted to hear his sober analysis of the European energy crisis. He was the one analyst I saw pushing back against the panic narrative.
He is back in the form of a tweet thread this week and on the show I quickly read through the highlights. They are:
Natural gas storage is nearly full in Europe way ahead of schedule.
Energy prices are rapidly coming down to normal.
There is a huge backlog in liquid natural gas ships off Europe’s coasts waiting to unload.
What struck me about this analysis is how much it reminded me of the April 2020 oil futures crash. At the time, oil storage was full and tankers were loitering around the world — also full. There was simply no place to take delivery of the futures contracts, so holders had to sell at any price, causing a flash crash to zero.
Could we see the same thing in Europe this month? Not quite yet, but it is at least a possibility. What a clown world turn of events. From massive record highs to a zero price being a possibility in a matter of months.
This is a guest post by Ansel Lindner. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
LONDON — It took one bruising campaign defeat and six weeks of exile — but on Tuesday, Rishi Sunak will finally become U.K. prime minister.
He faces the toughest in-tray of any British leader since World War II, entering No. 10 Downing Street as the country hurtles into winter with energy bills, hospital waiting lists, borrowing costs and inflation all soaring.
The challenge has been magnified by Liz Truss’ brief crash-and-burn premiership. As a result of her now-infamous mini-budget, which was scrapped almost in its entirety after causing chaos in financial markets, the Conservatives are trailing the opposition Labour Party by over 30 percentage points in opinion polls.
On Monday, Sunak told MPs he was ready to hit the ground running as he addressed them for the first time since becoming Tory leader. Over the days and months ahead, he will need to carry out his first ministerial reshuffle without further fracturing his party; oversee the first budget since the last one wreaked havoc on the economy; and determine what support to offer voters with their energy bills past this spring.
Prime ministers tend to think of their first 100 days as a way to set the tone for their premierships. For Sunak, who has just over two years to govern before he is required to face a general election, that first impression is going to be particularly important.
October 25 — Meeting with the king and first speech outside No. 10 Downing Street
Sunak will become the prime minister Tuesday after an audience with King Charles III, where he will ask the monarch for permission to form a government.
Sunak will then address the country for the first time as prime minister from the steps outside No. 10 Downing Street at around 11.35 a.m.
To much of the British public, the former chancellor is a familiar face who announced the wildly-popular furlough scheme during the coronavirus pandemic in 2020.
His task now will be to reassure people that the government will support them during another difficult economic period — only this time he is in a much tougher position. The popularity he gained during the pandemic has waned, and he is taking over after a major government crisis — the third Tory prime minister to hold office within three months.
October 25 — First reshuffle
The first big political test for Sunak will be his Cabinet reshuffle. Tory MPs believe he will learn the lesson from Truss’ first and only one, where she divvied up roles between her allies and left almost everyone who didn’t back her out in the cold.
“I think his reshuffle will be more unifying, bringing in people from all wings and will not be as destabilizing as Liz’s,” an MP who did not back Sunak predicted.
Sunak’s leadership rival Penny Mordaunt is expected to be handed a major Cabinet position | Dan Kitwood/Getty Images
Sunak is likely to make at least his major Cabinet appointments Tuesday afternoon, so they are in place to line up alongside him on the House of Commons’ front bench when MPs grill him during so-called prime minister’s questions (PMQs) on Wednesday.
His biggest decision will be whether to keep Jeremy Hunt — who was drafted in by Truss in a last-ditch effort to save her premiership — as chancellor. He is also likely to hand a big job to his leadership rival Penny Mordaunt.
Close Sunak allies who are likely to get promotions include Mel Stride, the current chairman of the Treasury select committee, Craig Williams, Claire Coutinho and Laura Trott. Tory big beast Michael Gove could see a return to Cabinet.
October 26 — First PMQs
Sunak will go head-to-head as prime minister with Keir Starmer, the Labour leader, for the first time on Wednesday.
Unlike his predecessor, Sunak won’t have much to worry about from his own side — Tory MPs have largely rowed behind him since he became their leader on Monday, with many expressing relief that the perpetual state of crisis of the Truss government has ended.
But MPs will want him to demonstrate that he can land blows against Starmer at a time when Labour is streets ahead in the polls. Sunak told Tory MPs on Tuesday that their party faced an “existential threat” as a result of its low poll ratings.
October 28 — Deadline to form a government in Belfast
If a power-sharing arrangement is not in place at Stormont by Friday, a fresh set of elections to the Northern Irish assembly will have to be triggered.
Calling these elections — the second set in seven months — could be one of the Sunak government’s first acts and an indication of successive Tory prime ministers’ failure to deal with the political crisis in Northern Ireland.
The Democratic Unionist Party issued a fresh warning on Monday night that it would not participate in the assembly unless Sunak takes action on the post-Brexit Northern Ireland protocol agreed with the EU.
October 31 — First budget
The next budget was penciled in for October 31 by Kwasi Kwarteng, the Truss-era chancellor who wanted to use it to reassure financial markets still reeling from his last one.
The timing of the budget — widely derided by Tory MPs because of the optics of holding it on Halloween — was intended to give the Bank of England time to react before its own key meeting on November 3, where it will set interest rate levels for the weeks ahead.
In its biggest test so far, Sunak’s government will have to decide whether to stick with that date; what actions to take to reassure the markets; and how to fill the enormous hole in the U.K. public finances.
Carl Emmerson, deputy director of the Institute for Fiscal Studies, said: “If his chancellor is Jeremy Hunt and Sunak is comfortable with the way things are proceeding for next Monday, then going ahead has lots of advantages.
“You get the announcement out before the Bank of England makes its next inflation figure, and you get the Office for Budgetary Responsibility forecasts out there, which helps show the markets you are serious about them.
“The case for changing that date is much stronger if Sunak says, ‘Actually, I want to do something different to what Jeremy Hunt has been planning, and I need more time,’” Emmerson added.
November 3 — Bank of England rates meeting
The Bank of England’s monetary policy committee is expected to raise interest rates at its meeting on November 3, triggering a fresh hike in people’s mortgages.
This is the point when many people will realize for the first time that they will have to make much larger mortgage repayments once their current fixed-rate deals come to an end.
Sunak made combating inflation and keeping mortgages low a central theme of his leadership campaign over the summer. Reacting to the rates decision and ensuring the government works closely with the Bank of England to combat inflation will be a key test of his premiership.
November 6 — COP27 summit in Egypt
Sunak made a point of telling Tory MPs on Tuesday that he is committed to the U.K.’s goal of achieving net-zero carbon emissions by 2050.
The question now is whether he attends the COP27 climate summit in Sharm El Sheikh, Egypt. Truss reportedly planned to go, despite her skepticism of aspects of the net-zero agenda.
If Sunak does go to Egypt, it could be his first foreign trip in office (unless he decides to make a quick visit to Ukraine beforehand) and his first opportunity to present himself on the world stage.
November 8 — Boundary changes
The Boundary Commission for England will publish its new constituency map on November 8.
At this point, some Tory MPs will know with near certainty that their constituencies are being carved up between neighboring areas, with some forced to jostle with colleagues over who will get to stand where.
It will be a political headache for Sunak to deal with, and any MPs whose safe seats become marginal will sense their political careers coming to an end — and will have less of an incentive to support him in key votes in the months ahead.
November 13 — G20 meeting in Indonesia
The next big foreign trip coming down the track is the G20 summit in Bali, Indonesia.
The meeting will be an opportunity for Western powers to present a united front against Russia following its invasion of Ukraine and against China’s increased aggression toward Taiwan, but also to hold talks behind closed doors. There have been reports that both China’s Xi Jinping and Russian Vladimir Putin will attend.
Sophia Gaston, the head of foreign policy at the Policy Exchange think tank, said this was shaping up to be “one of the most extraordinary summits of modern history, with a violent war raging in Ukraine and the leading protagonist, Vladimir Putin, on the guest list alongside other autocratic leaders and outraged democratic allies.”
“As well as promoting free trade and the rules-based international order, Sunak would likely see the G20 as an opportunity to build support for his proposed ‘NATO-style’ technology alliance,” Gaston said. “He may well also debut a new U.K. message on the net-zero transition.”
Late November or early December — Chester by-election
Labour whips are preparing to trigger a by-election in the city of Chester in late November or December.
The by-election is taking place because the city’s MP Christian Matheson resigned after a parliamentary watchdog recommended he be suspended for sexual misconduct.
Matheson sits on a 6,164-vote majority, and the seat has traditionally been a swing seat flipping between the Tories and Labour. It was Conservative up until 2010.
Based on current polling figures, Labour should win a significantly larger majority than it currently has, though by-elections do suffer from small turnouts and so unexpected results are not uncommon. A dramatic Tory defeat would set alarm bells ringing in the party.
Another by-election could be triggered in the coming months if, as expected, Boris Johnson elevates his ally and MP Nadine Dorries to the House of Lords in his resignation honors. That would likely be the first by-election in a Tory-held seat fought with Sunak as party leader.
December 31 — U.K. deadline for joining trans-Pacific trade bloc
The U.K. government has said it hopes to conclude negotiations on joining the CPTPP — a trade agreement signed by 11 countries including Australia and New Zealand — by the end of the year.
Securing this deal was one of Truss’ priorities. For Sunak it would represent both a concrete foreign policy achievement and an indication that the U.K. is successfully building closer diplomatic ties with countries in the Indo-Pacific after Brexit.
Talks around the partnership have thrown up some diplomatic obstacles, with China reacting angrily to U.K. trade officials meeting Taiwanese counterparts. Both China and Taiwan have applied to join the CPTPP.
There have been suggestions that the evidence against him is so damning that Johnson could face temporary suspension from parliament or even be kicked out as an MP. The inquiry may have formed part of Johnson’s decision not to stand for the Tory leadership contest.
If the privileges committee says Johnson should be sanctioned once it concludes its inquiry, Sunak will have to judge his response and decide whether to whip Tory MPs to back its recommendations even if that provokes Johnson’s ire. There is also the risk that Sunak himself will be dragged into the probe, given he too was fined over the Partygate scandal.
Among other things, the probe will examine the impact of the economic policies that Sunak designed as chancellor during the pandemic, putting his decisions under scrutiny.
His “Eat Out to Help Out” scheme — which encouraged people to dine in restaurants during the post-lockdown summer of 2020 — could become a focus, with critics claiming it drove up coronavirus-related infections and deaths.
February — Energy support nears its end
By the time Sunak’s first 100 days are up, there will be pressure on the government to explain how it will support people with their energy bills past the spring if wholesale gas prices haven’t drastically fallen. Hunt has already rolled back the Truss government’s two-year guarantee and instead capped people’s energy bills at an average of £2,500 for just six months. That policy ends in April.
The Institute for Fiscal Studies’ Emmerson said: “We’ve got a big generous offer from the government through this winter — although prices are still a lot higher than they were last year, they will be nowhere near as high as they would have otherwise been.
“The prime minister and chancellor will spend a lot of time thinking about how they replace that scheme. In some ways, it’s very similar to the kind of furlough scheme that Sunak had during the pandemic — very generous, big scheme with lots of crude edges to it,” he said.
“It’s understandable wanting to get in place quickly to support people, but how do you get out of it? Do it too quickly and that’s too much pain for too many people — keep it in place for too long, and that’s very expensive to the government.”
It’s just one of so many enormous decisions the new PM faces in his first 100 days.
Police officers stand around climate protection demonstrator Aimée van Baalen (22) on Wexstraße. She belongs to the group “Last Generation”. After a long break, activists have now blocked numerous streets in the city today.
Paul Zinken | Picture Alliance | Getty Images
Police have arrested two climate activists who threw mashed potatoes at a Claude Monet painting in a museum in Germany to protest fossil fuel production, a stunt which caused no damage to the art.
The protestors on Sunday targeted Monet’s “Les Meules” at the Barberini Museum in Potsdam, a city on the border of Berlin. The impressionist painting, which was enclosed in protective glass, sold for $110.7 million at a 2019 auction.
The German climate group Last Generation took credit for the stunt. The group posted video footage on Twitter showing a man and a woman tossing mashed potatoes at the painting, kneeling in front of it and gluing their hands to the wall.
The incident was the latest attack on famous artwork carried out by protesters calling for action on climate change. Earlier this month, protesters from the campaign group Just Stop Oil were arrested after throwing tomato soup on Vincent Van Gogh’s “Sunflowers” painting in the National Gallery in London.
“We are in a climate catastrophe. And all you are afraid of is tomato soup or mashed potatoes on a painting,” the woman shouted in German while kneeling in front of Monet’s painting. “This painting is not going to be worth anything if we have to fight over food.”
These climate protests have received widespread attention online and varying reactions, with some people criticizing activists for conducting misguided stunts by attacking admired art in order to gain attention.
The Last Generation wrote in a statement on Twitter: “We make this #Monet the stage and the public the audience. If it takes a painting — with #MashedPotatoes or #TomatoSoup thrown at it — to make society remember that the fossil fuel course is killing us all: Then we’ll give you #MashedPotatoes on a painting!”
The Monet painting will be on display again by Wednesday, the museum said in a statement.
Cryptocurrency exchange Binance is getting closer to figuring out the identity of a hacker that orchestrated a $570 million hack on its BNB blockchain, CEO Changpeng Zhao told CNBC Monday.
After getting some tips from law enforcement on who the hacker might be, Binance is now “narrowing down” the person or persons behind the attack, Zhao said in an interview on CNBC’s “Squawk Box Europe.”
The attack in question saw a so-called cross-chain bridge targeted, allowing an as-yet unknown hacker or hackers to withdraw 2 million of Binance’s BNB tokens worth around $570 million at the time.
More than $1 billion has been lost to breaches on cross-chain bridges so far this year, tools that facilitate the swift transfer of tokens from one blockchain platform to another, according to Chainalysis data.
Popular in the world of “DeFi,” or decentralized finance, bridges have become a hot target for criminals due to faults in their underlying code.
“We’re still actually chasing … helping [authorities] to chase the bad players, working with law enforcement around the globe,” Zhao said. “Working with law enforcement is one of the ways that we can try to make the space safe.”
“Actually, in this particular instant, law enforcement gave us some tips of who they think it might be. So we’re actually narrowing down.”
Binance intervened to limit the damage of the attack, pausing activity on its BNB Chain blockchain network after coordinating with network validators — individuals and entities that sign off on transaction approvals — to enact an upgrade.
Zhao, who is commonly referred to as “CZ” online, said this meant BNB Chain was able to prevent most of the targeted funds from being taken by the hacker.
“The blockchain was able to freeze about 80% to 90% of it, so the actual loss of it was much smaller,” he said.
The “vast majority of the funds remain under control,” Binance’s BNB Chain said in a statement at the time of the hack. About $100 million was unrecoverable, BNB Chain added.
The BNB Chain, originally known as Binance Chain, was first developed by Binance in 2019. Like other blockchains, it features a native token, called BNB, that can be traded or used in games and other applications.
The French government will cover a part of companies’ electricity bills, with big energy firms asked to contribute to the cost, a minister told TV station BFM Business late Sunday.
An “electricity guarantee” for 2023 will be finalized soon, and will cover part of any amount paid above a reference price fixed by the government, according to Energy Transition Minister Agnes Pannier-Runacher.
Energy companies making large profits will be asked to provide a contribution in relation to the reference price, the minister said, adding that the relevant legal proposition will be made very soon.
The move comes amid surging energy prices across Europe following a stoppage of natural-gas flows from Russia. In France, supply has also been threatened by strikes at nuclear reactors owned by national utility Electricite de France SA.
Write to Joshua Kirby at joshua.kirby@wsj.com; @joshualeokirby
This is an opinion editorial by Mickey Koss, a West Point graduate with a degree in economics. He spent four years in the infantry before transitioning to the Finance Corps.
I love listening to Greg Foss on podcasts, especially when I’m gearing up for a heavy dead lift or something like that. His no-nonsense talks about bonds just really gets my blood flowing and my mind focused. But when I send stuff like that to my less finance-minded buddies, they often have trouble understanding what he’s talking about.
Here’s my attempt at some potentially oversimplified math to explain the debt spiral.
As of October 13, 2022, the United States has $31,144,952,729,330.20 worth of outstanding debt. This is updated daily by the Treasury. To make the math a little more simple, let’s just call it $30 trillion. After all, what’s another trillion, give or take?
This implies a $621 billion annual interest payment on the debt this year. The Washington Post estimates $580 billion. Let’s split the difference and call it $600 billion.
If you’ve been paying attention, the Federal Reserve is aggressively raising interest rates and the market is equally aggressive in bidding up yield on government debt.. Every basis point that is added to the average rate on U.S. government debt will add about $3 billion in additional interest expense. That’s if the debt stays at its current level.
That unfortunately is not going to happen. Currently, the annual budget shortfall sits at $946 billion per year with no signs of ever going to zero. Since this is the case, not only will the U.S. government have to issue more debt at a rate of nearly $1 trillion more per year, it will be doing so while interest rates are going up fast.
The higher interest rates go, the more interest on the debt will be required to be paid. The more interest on the debt required to be paid, the larger the deficit gets. The larger the deficit gets, the more debt must be issued. More debt issued, more interest on debt. Even if the Fed dropped rates back to zero, the debt would continue to grow at a compounding rate because of the nature of the deficit.
Even more concerning is the above graph depicting the debt as a percentage of gross domestic product. The upward slope of the line since the mid-1980s implies that the debt has been growing faster than the economy for decades.
The nature of the perpetual budget deficit ensures that this situation is an inevitability; the Fed is just accelerating it at the moment. Debt begets more debt as long as the deficit exists.
Hopefully you get it now. This is what Greg Foss means by a debt spiral. The debt never actually gets paid off; it just keeps getting rolled over, growing at a compounding rate. On this trajectory, it will start to accelerate.
Bitcoin Is Protection
Based on math alone, the Federal Reserve cannot continue to raise rates for much longer, nor keep them this high because the interest on the debt will become completely unmanable. There is a lot to be said about a Fed Pivot and when they will decide to taper their taper to lower interest rates back down. When will they actually do it? I’m not sure, but the Fed will have to eventually drop rates back down to try and slow the bleeding. And when it does, the rally that the bitcoin price will have is going to melt your face off.
While I am not particularly interested in the price anymore — unlike some — I am concerned with everyday people being able to hop on the bitcoin life raft before it shoots off into space.
Absolute scarcity is an absolute imperative in a world bereft of monetary scarcity. Be a good friend: help people grasp this concept, because most don’t understand what’s coming.
This is a guest post by Mickey Koss. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
NASHVILLE, Tenn. — A mortgage industry group is expecting a recession to hit the U.S. economy.
“We’re forecasting a recession for next year,” Mike Fratantoni, senior vice president and chief economist at the Mortgage Bankers Association, said Sunday during the industry group’s annual conference in Nashville, Tenn.
“The upside of that potentially for the industry is, that’s the thing that’s likely going to bring rates down a little bit,” he added.
In a statement, Fratantoni said the MBA’s forecast calls for a recession in the first half of 2023, and predicts the unemployment rate will rise from 3.5% to 5.5% by the end of next year.
“We’re beginning to see some significant signs of softening in the labor market,” Frantantoni said.
He expects companies to no longer be scrambling to fill job openings, and that hiring will eventually cool off.
On average in 2023, expect the economy to lose 25,000 jobs per month, he said, and end the year with employment at 5.5%.
“So a very, very different job market to today,” Frantantoni said. “I do expect the next couple of months are gonna be a pretty abrupt transition.”
With a recession on the horizon, expect mortgage rates to come down to close to 5.4% at the end of next year, he said, versus the 7%-plus rates that the market is seeing today.
“We are holding to our view that this is a spike right now, driven by financial-market dislocation, heightened level of volatility in the market and this global slowdown we’re about to experience, the likelihood of recession in the U.S. will begin to pull this number,” Fratantoni said.
Mike Fratantoni, senior vice president and chief economist for the MBA, speaks in Nashville on Sunday.
AARTHI SWAMINATHAN
Given the massive rise in rates this year, with the 30-year fixed rate averaging 6.94% last week as compared to 3.85% a year ago, many potential home buyers have decided to wait as their projected monthly mortgage payments have become unaffordable.
As a result of the slowdown, the MBA is expecting total mortgage origination volume to fall to $2.05 trillion in 2023 from the $2.26 trillion expected in 2022.
They’re also expecting purchase originations to drop 3%, and refinances by 24%.
Fratantoni also expects delinquencies to rise from 40-year lows.
Johnson previously enjoyed high levels of popularity until losing credibility in the final months of his premiership.
Gleb Garanich | Reuters
LONDON — Former U.K. Prime Minister Boris Johnson will not take part in the contest to replace outgoing leader Liz Truss.
Despite being ousted from office just three months ago, some Conservative MPs had backed Johnson for the top job, and he reportedly told allies over the last couple of days that he would formally join the contest.
But in a statement late Sunday, Johnson said it was “simply not the right time.” He added he had “cleared the very high hurdle of 102 nominations” to take part in the latter stages of the contest. Around 60 lawmakers had publicly backed the ex-PM but there had been question marks over exactly how many nominations he had received.
Johnson mentioned his two rivals in his statement, Rishi Sunak and Penny Mordaunt, who have both officially entered the contest.
“And though I have reached out to both Rishi and Penny — because I hoped that we could come together in the national interest — we have sadly not been able to work out a way of doing this,” Johnson said.
Former Finance Minister Sunak is now the red hot favorite to be the next British leader with around 140 nominations so far.
On Saturday, Johnson flew back from a vacation in the Caribbean amid a media frenzy he would throw his hat into into the ring. Johnson is believed to still be popular in the grassroots of the wider Conservative Party despite many Tory MPs being firmly against a return.
Former culture secretary and close Johnson ally Nadine Dorries tweeted Thursday that he was the only MP with “a mandate from party members and the British public,” having won the 2019 General Election.
“There is a very good chance that I would be successful in the election with Conservative Party members — and that I could indeed be back in Downing Street on Friday. But in the course of the last days I have sadly come to the conclusion that this would simply not be the right thing to do. You can’t govern effectively unless you have a united party in parliament,” Johnson said in the statement Sunday.
Johnson previously enjoyed high levels of popularity until losing credibility in the final months of his tenure amid political scandal around Covid-19 rule-breaking and his links to disgraced MP Chris Pincher.
British Prime Minister Liz Truss resigned Thursday, bringing to a close a brief 44-day tenure mired by “mini-budget” chaos, economic turmoil and weeks of political infighting.
Truss’ successor will once again be decided by a Conservative Party leadership contest drawn from a short-list of candidates. This time, however, the process has been fast-tracked into the space of a week, as the party seeks to salvage its credibility and reassure markets.
Candidates have until 2 p.m. London time on Monday to gain the backing of 100 MPs and therefore enter the ballot for party leader.
The threshold is particularly high given that the party is comprised of 357 MPs, and each is allowed to vote for only one candidate. That thus limits the number of possible contenders to three.
If just one candidate receives the 100 votes required, they will automatically win the race and become Britain’s next prime minister. If two or more candidates reach 100 nominations, the contest will proceed to indicative ballots on Monday afternoon and evening.
Should the process extend beyond Monday, Conservative Party members — which number around 200,000 people representing 0.3% of the British population — will have until Friday 11 a.m. to vote for their preferred candidate in an online ballot.
China’s President Xi Jinping (L) walks with members of the Chinese Communist Party’s new Politburo Standing Committee, the nation’s top decision-making body, as they meet the media in the Great Hall of the People in Beijing on Oct. 23, 2022.
Noel Celis | AFP | Getty Images
BEIJING — Chinese President Xi Jinping broke precedent Sunday by paving the way for his third term as president, and the likely appointment of a premier with no prior experience as vice premier.
Li Qiang, party secretary of Shanghai, walked out second behind Xi at a meeting with press on Sunday. Li is a known Xi loyalist and oversaw stringent Covid controls in Shanghai earlier this year.
State positions such as president and premier won’t be confirmed until the next annual meeting of the Chinese government, typically held in March.
Outgoing Premier Li Keqiang had walked out second behind Xi at a similar meeting with press after the conclusion of the party’s 19th National Congress in 2017.
In addition to Xi and Li Qiang, five other individuals were named to the new Politburo standing committee, the core circle of power in the ruling Communist Party of China: Zhao Leji, who’s headed party discipline; Wang Huning, known for his work on ideology; Beijing party secretary Cai Qi; Ding Xuexiang, known as Xi’s chief of staff, and Li Xi, Guangdong party secretary.
Xi was re-selected as the party’s general secretary and chairman of the Central Military Commission. His third title is president of China, which is likely to be formalized in March. Xi had set the stage for an unprecedented third, five-year term as president with constitutional changes in 2018.
Li Xi was named the new head of the party’s Central Commission for Discipline Inspection, state media said Sunday.
China’s President Xi Jinping (C) and other members of the Communist Party of China’s Politburo Standing Committee meet the media in the Great Hall of the People in Beijing on Oct. 23, 2022.
Noel Celis | AFP | Getty Images
In remarks Sunday, Xi emphasized the Party’s leadership in “a new journey to turn China into a modern socialist country,” according to an official translation.
He said China could not develop in isolation from the world, but that the world also needs China. Xi claimed China would open its door “ever wider” and that the country would be “deepening reform and opening up across the board and in pursuing high quality development.”
Foreign businesses and investors have turned cautious on China after Beijing’s crackdowns on internet tech companies and stringent Covid controls in the last two years.
The Chinese Communist Party’s 20th National Congress this month was watched closely for its signals on how much Xi might consolidate his power.
Four of the prior seven members of the Politburo standing committee did not make the list of the new central committee members announced Saturday. The only three who remained were Xi, Wang Huning and Zhao Leji.
That central committee determines the core leadership — the Politburo and its standing committee.
Top-level economic policy in China is largely set by Politburo members. However, Li Keqiang has been an official face and leader of implementation in his role as premier and the head of the State Council, China’s top executive body.
In addition to purging allegedly corrupt officials, Xi consolidated his power over the last decade with groups that went around the premier’s typical economic policy-making responsibilities, Reuters pointed out.
Read more about China from CNBC Pro
Notable ministry heads who remained on the new party central committee list included:
He Lifeng, head of the National Development and Reform Commission
Yi Huiman, head of the China Securities Regulatory Commission
Zhuang Rongwen, head of the Cyberspace Administration of China
The NDRC’s He was also named to the new Politburo.
Bruce Pang, chief economist and head of research for Greater China at JLL, said some of the central committee appointments have experience in finance and local government, indicating to him that “the shake-up will not lead to dramatic changes of China’s macro policies.”
“We expect that policy focus will not be on launching new stimulus, but on implementing the existing policies and letting them take effect,” Pang said. “Propping up domestic demand to support jobs thus remains key.”
Pang also noted that Li Qiang previously led three province-level areas, including Shanghai, that are known for their contributions to China’s “opening-up” and economic growth.
While Xi’s report to the congress “delivers a strong message of policy continuity,” it signals there are competing objectives and that some kinds of economic growth are preferred to others, Gabriel Wildau, managing director at consulting firm Teneo, said in a note.
“Party leaders want advanced manufacturing and technology to be the key drivers of growth,” Wildau said.
For many China watchers, the question is not how Xi consolidates power, but who his successor might be.
Under Xi, China’s bureaucracy has become less autonomous and more tied to him personally — especially since there are few checks on power, Yuen Yuen Ang, associate professor of political science at the University of Michigan, wrote in the Journal of Democracy in July.
The threat to the Chinese Communist Party’s hold on power, she said, “will be succession battles resulting from Xi’s personalist rule.”
China’s President Xi Jinping (C) gestures during the closing ceremony of the 20th Chinese Communist Party’s Congress at the Great Hall of the People in Beijing on Oct. 22, 2022.
Noel Celis | AFP | Getty Images
BEIJING — China announced Saturday its new central committee would include many known allies of Chinese President Xi Jinping, while several officials with more market-leaning tendencies were not on the list.
Four of the current seven members of the Politburo standing committee were not on the list. The only three who remained were Xi, Wang Huning — known for his work on ideology — and Zhao Leji — current head of party discipline.
Li Qiang, Shanghai’s party secretary, and his Beijing counterpart Cai Qi remained on the central committee list.
Ding Xuexiang — Politburo member and “essentially Xi’s Chief of Staff, as well as in charge of his personal security, meaning he is among Xi’s most trusted circle,” the Asia Society report said.
Chen Min’er — Politburo member and party secretary of the Chongqing municipality, a job he gained by Xi’s “abrupt ousting” of the prior secretary, Asia Society pointed out.
Huang Kunming — Politburo member and head of China’s propaganda department, who worked closely with Xi in the provinces of Fujian and Zhejiang, the report said.
Foreign Minister Wang Yi remained on the new list, despite expectations he might retire and leave room for a shift in China’s foreign policy, which has turned increasingly aggressive.
Qin Gang, China’s ambassador to the U.S., was also on the new list.
Hu Chunhua, another favorite for the premier role, remained on the list. Hu has close ties to Xi’s predecessor Hu Jintao. Promoting him would signal “leadership unity” with Xi appointing people from outside his faction, Brookings senior fellow Cheng Li said at a talk earlier this month.
Hu Jintao was escorted out from his seat next to Xi during the closing ceremony of the party’s 20th National Congress on Saturday, according to reports and multiple eyewitnesses. It was unclear why he was unexpectedly ushered out.
China’s President Xi Jinping (R) talks to former president Hu Jintao as he is ushered out from the closing ceremony of the 20th Chinese Communist Party’s Congress at the Great Hall of the People in Beijing on Oct. 22, 2022.
People’s Bank of China Governor Yi Gang was not on the list, while China Securities Regulatory Commission Chair Yi Huiman was.
Wang Yang, who is known to be more market-oriented and a potential premier candidate, was not included in the new list of 205 members of the central committee of the Communist Party of China.
Li Keqiang, the outgoing premier, was not included either.
Liu He, a vice premier who led trade negotiations with the U.S., was not on the list.
Banking regulator Guo Shuqing was not on the new central committee list.
The below is an excerpt from a recent edition of Bitcoin Magazine Pro, Bitcoin Magazine’s premium markets newsletter. To be among the first to receive these insights and other on-chain bitcoin market analysis straight to your inbox, subscribe now.
Lack Of Volatility
One of the concerning dynamics in the market right now that we want to focus on is the lack of volatility. The high period of spot volume activity and relatively lower derivatives activity has really done little to move the price and bear markets are known for testing market participants’ patience when it comes to duration. We got some volatility with the most recent Consumer Price Index (CPI) inflation print, but bitcoin’s historical volatility is still at record lows.
Now, everyone wants to see this bitcoin price range break one way or the other; a larger range accumulation usually leads to a larger breakout move. It’s really something to see bitcoin’s historical volatility below the United Kingdom gilt market, but now it’s even below the average equity and bond ETF. This is when you know the market’s completely flipped around. Either that speaks to a lack of interest in bitcoin right now with a much larger move brewing or bitcoin’s entire asset profile has changed all of a sudden. We lean towards the former and history has shown that this record-low level of volatility doesn’t last long and has led to some pretty significant price breakouts and breakdowns.
Even implied volatility in the market via options pricing is at some record lows (and falling) across different durations.
Source: Glassnode
In the four significant events of low-percentile historical volatility, we’ve seen three moves of upside breakouts and one significant down move to new lows back in 2018. It’s a small sample size from which to draw directional conclusions but a big move seems to be coming soon and the 2018 price analogue is one we’ve discussed before — especially given our expectations that the S&P 500 sees lower lows from here before this cycle is over. To quote a previous piece, “What To Expect When You’re Expecting Volatility”:
“While the lack of recent volatility in bitcoin could be a sign that much of the leverage and speculative mania of the bull market has been almost entirely washed out, our eyes remain on the outsized legacy markets for signs of fragility and volatility, which could serve as a short/intermediate-term headwind.”
Market Movers rounds up the best trade ideas from investors and analysts throughout the day. The pros discussed Snap , as the social media platform plunged 28% on Friday, a day after the company posted third-quarter results that missed revenue estimates . The experts also talked about American Express , whose stock fell nearly 1.7%, even after the credit card company reported third-quarter revenue and earnings that beat analysts’ expectations . Other stocks mentioned include Microsoft and Datadog . Microsoft is currently held in Jim Cramer ‘s Charitable Trust portfolio.
Europe, the world’s largest economic bloc, enjoyed stable trade surpluses for a decade but the war in Ukraine and the ensuing energy crisis have tipped the Continent into a spiraling external deficit unseen since the launch of the euro.
The terms-of-trade shock maxed out in August, the latest month for which trade figures are available. And, even though energy prices have since eased, European leaders are still scrambling to shore up supplies of affordable oil and gas to replace lost Russian deliveries. A harsh winter looms.
A breakdown of the trade figures shows that the EU’s manufacturing trade surplus has nearly halved this year.
Can Europe bounce back? Or will its industrial base become hollowed out as industry moves offshore? And will the eurozone, and the EU more broadly, end up being saddled with the chronic external deficits that have long plagued the United States and, more recently, destabilized Britain? POLITICO breaks it down for you:
What’s going on?
The eurozone’s negative trade balance with the rest of the world in August stood at €50.9 billion, the highest deficit ever recorded, compared to a €2.8 billion surplus a year ago, according to the latest Eurostat numbers.
The trade deficit for the EU as a whole spiraled to €64.7 billion.
The eurozone’s current account balance — the balance of all trade in goods and services as well as international transfers of capital, such as remittances — hit a €26.32 billion deficit in August, largely driven by the trade deficit in goods, the European Central Bank reported.
Is that a bad thing?
A trade deficit occurs when a country or trading bloc’s imports exceed its exports. A trade surplus is the opposite. Trade deficits are not per se good or bad, although many countries seek a trade surplus, including by setting up tariffs and quotas to artificially boost their trade balance, a practice known as mercantilism.
Is it temporary?
The trade deficit is largely driven by high energy prices, which in August hit a record €350 per megawatt hour. Prices have come down from their peak, trading at around €150/MWh, but they are still a multiple of where they were a year ago.
“Markets have gone from pricing this energy crisis as being temporary, they are now pricing it to be a much longer-term story, albeit not as elevated as it was in August,” said Kristoffer Kjær Lomholt, chief FX analyst at Danske Bank.
“We think that it is a kind of a more long-term thing that is going to weigh on the currencies of economies that are energy importers, where the eurozone, of course, stands out to a very large extent,” he added.
Others believe that the shift, being largely energy related, could resolve itself over time, said Sam Lowe, who covers trade policy at Flint Global.
An EU official also pointed to EU-Russia trade. “The peak in energy prices has made the value of our imports from Russia increase substantially (while the volume of those imports from Russia decreased), and our exports have spiralled down because of sanctions (export controls),” the official said.
Will the EU be less competitive if energy prices remain high?
A negative trade balance and consequently a weaker currency makes imports more expensive. “Net importers will have to pay more for goods and services,” said Lomholt.
On the other hand, a weaker euro could fuel exports, said Matthias Krämer, head of external economic policy at German industry federation BDI. “If the euro currency was a little bit weaker, it could also make Europe’s position on global markets better by making exports cheaper,” he said.
But there’s another way of looking at this. Lowe argued the sustained large eurozone trade surplus was itself problematic, in that it was a function of intra-EU demand being lower than it should be. “Being overly dependent on external demand also leaves the EU quite vulnerable to both external shocks, and political coercion.”
What does that mean for the euro?
“We expect the euro to decline further in coming months as part of this adjustment,” said Robin Brooks, chief economist at the Institute of International Finance.
A negative trade balance or current account deficit puts downward pressure on the value of free-floating currencies, which move with demand of goods: less demand for a country’s exports means less demand for its currency, which in turn lowers its value relative to others. Conversely, strong foreign demand for goods strengthens a country’s currency.
“Foreign investors need to be compensated via a real depreciation of the exchange rate, and generally higher real interest rates,” said Lomholt at Danske Bank.
The Danish lender has recently downgraded its forecast for the € to $ exchange rate to $0.93 in 12 months from virtual parity now, driven in part by the energy price shock. “We have for some time been arguing that €/$ looked overvalued and not undervalued … And just given the additional push to the energy crisis that we got during summer, we saw a case that the euro/dollar [exchange rate] should actually hit even lower,” he said.
Is business freaking out?
A bit.
“The data are not so surprising considering the high energy prices, but they are worrying”, said Luisa Santos, responsible for international relations at BusinessEurope. She called on the EU to try to bring energy prices down and to boost exports by opening new market opportunities via more trade agreements.
Germany, the bloc’s export powerhouse, increased its exports by 14 percent in the first eight months of the year but imports have surged by more than 27 percent, according to national trade figures.
“We’re not performing in a segment which is highly influenced by a cost driven competition,” said Krämer at the German industry federation. “But if this situation will last longer of course some parts of our industry will be more and more under pressure.”
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