Market Summary

Bitcoin Price: US$ 22,622.98 (-0.86%)
Ethereum Price: US$ 1,607.96 (-0.63%) 

The Fed’s Invisible Moving Target

• A general rule of thumb when trying to navigate a complex macroeconomic environment is to take the simplistic approach: “Don’t Fight the Fed.” In today’s environment, it seems as though any small comment from Mr. Powell can move global markets. This dynamic was once again on display last week. Given everything that has been occurring in both traditional markets and crypto markets, it can be easy to get caught up in the noise. The point here is to not neglect the bigger picture and to not only pay attention to what the Fed says but more importantly what they do and why.
• Last week the Fed raised interest rates by 75 BPS and markets exploded upwards… doesn’t this seem counter-intuitive?
• Indeed, this market reaction may seem counter-intuitive considering the weakening economic data being reported. The Fed has now hiked interest rates by 75 BPS in back-to-back meetings (with both matching the largest rate hikes since 1994). Despite Jerome Powell stating that another ‘unusually large’ rate hike may be necessary for September, this isn’t what traders clung to following last week’s presser.
• There is one comment in particular that likely gave investors much-needed confidence: “We are now at levels broadly in line with our estimates of neutral interest rates and after front-loading our hiking cycle until now we will be much more data-dependent going forward.” In other words, the Fed is removing its forward guidance and will strictly rely on economic data for future interest rate adjustments. With this change of approach by the Fed and their disposition that interest rates have now reached a level of neutrality, markets immediately responded as the perceived takeaway was that the Fed may begin to temper restrictive action.
• When the Federal Funds Rate is below the estimated neutral rate, then monetary policy is considered to be expansionary. The economy tends to experience higher growth and inflation while unemployment falls. On the other hand, when restrictive policy is in place, the economy tends to see the opposite: slowing growth, lower inflation, and a tick-up in unemployment. Over the past 20+ years, when the Fed enacted restrictive policy, notable economic downturns arrive, which have transpired into recessions.
  • How restrictive will the Fed be? It all comes down to inflation. Since they have conceivably reached neutral interest rates, in theory, there should be fewer hikes now with fewer cuts later.
  • The Fed stating that they will be fully data-dependent moving forward is a double-edged sword. If they can not engineer inflation to fall aggressively, then they will be forced to hike until something breaks.
  • Predictive markets tell us to expect a 50 BPS hike in September and then four 25 BPS hikes thereafter. This would bring the Fed Funds Rate to 3.75% by early 2023 and put it 125 – 150 BPS above the neutral rate (a comparable range experienced to that of the Great Financial Crisis).
  • At the end of the day, the Fed is still facing an inflation monster. July’s CPI print of 9.1% registered as the highest since the 1980s.
  • Within the last 20 years (before Oct-2021) the highest inflation has reached is 5.6% and during the three recessions outlined above, average inflation was only ~3%.
  • What remains to be seen is if the prior actions from the Fed and the implied smaller, periodic hikes can significantly put a dent in inflation.
  • It is reasonable to assume that a target rate of 3.75% might not be enough.

Meta enables Instagram NFT integration in over 100 countries

• According to a Meta newsroom post updated on Thursday, the Mark Zuckerberg-led company has begun its nonfungible token (NFT) expansion across 100 countries in Africa, the Asia-Pacific, the Middle East and the Americas. This includes adding support for wallet connections with Coinbase Wallet and Dapper as well as the ability to post digital collectibles minted on the Flow blockchain. The initial rollout targets the popular social media app Instagram.
• One needs to simply connect their digital wallet to Instagram to post an NFT, the company said in its updated post. Third-party wallet integrations with Rainbow, MetaMask, Trust Wallet, Coinbase Wallet and Dapper Wallet are either complete as of Thursday or are coming soon. Supported blockchains at this time are Ethereum, Polygon and Flow. There are no fees associated with posting or sharing a digital collectible on Instagram.

CME Group plans to launch euro-denominated Bitcoin and Ether futures

• Major derivatives marketplace Chicago Mercantile Exchange Group aims to launch trading for Bitcoin euro and Ether euro futures contracts starting on Aug. 29.
• In a Thursday announcement, CME Group said that subject to regulatory review, it plans to launch contracts for euro-denominated Bitcoin (BTC) and Ether (ETH) futures that will be sized at 5 BTC and 50 ETH per contract. Both contracts will be listed on CME, cash-settled, and based on the CME CF Bitcoin-Euro Reference Rate and CME CF Ether-Euro Reference Rate.
• “Ongoing uncertainty in cryptocurrency markets, along with the robust growth and deep liquidity of our existing Bitcoin and Ether futures, is creating increased demand for risk management solutions by institutional investors outside the U.S.,” said CME Group global head of equity and FX products Tim McCourt. “Euro-denominated cryptocurrencies are the second highest traded fiat behind the U.S. dollar.”

Coinbase partners with BlackRock to create new access points for institutional crypto investing

• According to a new blog post published on Thursday, cryptocurrency exchange Coinbase said it is partnering with BlackRock, the world’s largest financial asset manager, to provide its clients with direct access to crypto, starting with Bitcoin (BTC). Users of BlackRock’s institutional investment management platform Aladdin will receive crypto trading, custody, prime brokerage and reporting capabilities should they also elect to sign up for Coinbase Prime.
• Coinbase Prime is an institutional trading solution that provides trading, custody, prime financing, staking, data and reporting services on over 300 digital assets. The service is tailored to entities such as hedge funds, asset allocators, financial institutions and corporate treasuries. Over 13,000 clients use Coinbase Prime.

Twitter chases Citadel’s founder, Binance in a race of subpoenas

• As the failed acquisition of social platform Twitter by one of the world’s richest men, Elon Musk, turned into a protracted court conflict, both sides are filing subpoenas to gather information ahead of the first hearing. 
• Recent reports claim that Twitter has made an effort to serve subpoenas to Ken Griffin, the founder of hedge fund Citadel, and to major crypto exchange Binance.
• According to Bloomberg on Aug. 1, the delivery was attempted at both the Citadel office on Lexington Ave., New York, and at Griffin’s Manhattan residence. The company reportedly refused to accept the legal papers on Griffin’s behalf, alleging that the only option was to deliver the subpoena to the Chicago office.
• As Yahoo Finance reports, on the same day Twitter directed subpoenas to Binance and a dozen of Musk’s other advisers and potential lenders in the deal. The subpoenas demand the receivers hand over communication evidence that might support or refute Musk’s suggestion that the social network has under-reported the number of fake or “spam” accounts present on the platform.
• Justifying his decision to exit the deal, Musk accused Twitter of concealing the actual number of fake/bot accounts, which in his estimate exceeds 5% of monetizable daily active users (mDAUs) — the mark claimed by social network’s management.
• Twitter agrees that this number might be incorrect, but insists that it acknowledged possible errors before the negotiations were terminated by Musk. The company believes Musk’s grievance to be an artificial pretext for backing out of the deal.

After four years, Japan brings back its first crypto ATM

• Crypto ATMs — or BTMs according to local terminology — are back in Japan after a lengthy four-year hiatus.
• Local crypto exchange firm Gaia Co., Ltd announced on Tuesday that it will soon roll out BTMs that support Bitcoin (BTC), Ether (ETH), Bitcoin Cash (BCH) and Litecoin (LTC).
• Despite Bitcoin ATMs having made their debut in Tokyo as early as 2014, the country has not seen any active digital asset ATMs since the crypto winter of 2018, which saw local exchange Coincheck hacked for $530 million, bringing the local sector to its knees and souring interest in crypto ATMs.
• Initially, the BTMs will be installed in locations across Tokyo and Osaka, but the firm has outlined plans to set up 50 BTMs across the country within the next 12 months. The company said it hopes to increase the installed base to 130 BTMs within the next three years.
• The BTMs will allow users to withdraw a max of $747, or 100,000 Japanese yen, per transaction, with a max withdrawal cap of $2,243, or 300,000 yen, per day. The limited withdrawals are part of Anti-Money Laundering (AML) compliance measures.