Traditional Market Commentary
- Signs of economic slowing emerge despite strong holiday sales and travel
- No sign of dovish reversals in Fed rhetoric based on recent comments
- Zero COVID policies in China could lead to supply chain disruptions
US economic data, including initial jobless claims and freight shipping costs, has continued to reveal signs of generalized post-pandemic slowing. Inverted yield spreads also continue to grow, with the 2/10 spread reaching -0.80% last week, heightening the inevitability of recessionary conditions for 2023. However, despite the current inflation conditions, Black Friday and Cyber Monday sales still reached $9 billion, per Adobe Analytics. Additionally, Sunday the 27th was the busiest post-pandemic travel day on record, according to TSA data.
Current economic conditions are leaving many investors optimistic and wondering if and when the Fed will slow the current hawkish stance. Based on recent comments from several Fed Governor’s, the hawkish rhetoric and tone is likely here to stay well into 2023. Although a 50bp hike is currently being priced in for the December 13th FOMC meeting, the rates journey is less important than the Fed fund’s rate final destination. The Fed continues to espouse that tighter monetary policy has only begun to cool demand and return economic conditions to pre-pandemic normalcy. Unemployment also remains near historic levels, giving the Fed more room for continued hikes. An upcoming CPI print, also on December 13th, may bring continued investor optimism as the Fed shrugs off the decline, until the job is done.
To muddy the waters further, reports in China of protests against zero COVID policies have sparked renewed concerns for supply chain disruption. Although difficult to truly gauge the scale and severity of the protest from a Western vantage point, China appears to have eased lockdowns in some areas, including the Foxconn campus in Zhengzhou.
On-Chain Commentary
- Crypto lender BlockFi has filed for Chapter 11 bankruptcy, citing FTX exposure
- More FTX contagion may contribute to Genesis Global Capital’s woes
- Many users continue to hold digital assets and move coins off of exchanges
What ended as a relatively quiet holiday week has started with a bang as crypto lender BlockFi files for Chapter 11 bankruptcy protection. Based on the first day declaration, BlockFi’s bankruptcy was made worse thanks to significant exposure to the now defunct FTX exchange. Additionally, BlockFi appears to have recently liquidated $265 million in digital assets on hand to cash, and reports liabilities of $1-10 billion.
Spreading FTX contagion has many asking when the next shoe will drop, suspecting Genesis Global Capital is not far behind BlockFi. The Genesis lending desk halted withdrawals on November 16th, leaving the Gemini Earn program out to dry for an alleged $700 million. Over the past week, Genesis has been on a mad dash to raise capital, with seemingly little luck. Time is running out on keeping the creditors at bay, leading to a likely announcement for a plan going forward from Genesis over the next few weeks.
Retail and institutional investors have continued to react to the spreading contagion by removing assets from centralized exchanges and moving to self-custody. According to Glassnode, this period of exchange outflows has been the most dramatic on record, with nearly 200,000 BTC leaving exchanges since November 11th. In contrast, the Bitcoin price drop in late 2018 saw a nearly equal amount of Bitcoin being deposited to exchanges. Broadly speaking, this dichotomy suggests that holders are not so much concerned with price as they are for the potential of insolvent exchanges. The faith in the Bitcoin protocol itself, and the underlying cryptography securing the network, remains as strong as ever.
