Headline of the Week - YTD Currency Returns
Markets trended downwards for yet another week as dollar dominance came to the forefront yet again. Above is a chart showing major currencies performance year-to-date. At one point, the GBP nearly fell to parity with the USD, hitting a ratio of 1.03 USD/GBP, off from the start of the year where the exchange rate hovered around 1.40.
In rapid-fire fashion, here is a quick look at what happened this week:
Markets flatlined this week as Powell’s war against the labor market raged on, with jobless claims falling to a five-month low. While this sounds like a good thing, the Fed has recently decided that increasing unemployment is the key to lowering demand and quelling inflation. By this logic, a solid jobs report is actually a further signal to the Fed to keep the rates a’hikin’.
In the last few months we have learned that nothing is truly inflation-proof, with one exception: the Costco hot dog combo. Costco’s CFO echoed the founder’s sentiments from earlier in the year by saying that the famous $1.50 hot dog combo will stay where it started in 1985.
The United Kingdom has paradoxically, amidst an interest rate hiking cycle, taken contradictory actions, ranging from sweeping tax cuts in their mini-budget last week to Wednesday’s quantitative easing to keep down long-term bond yields and apparently save their pension funds.
Leaks in Nordstream 1 and 2 were identified this week over the surface of the Baltic Sea. Several European officials hinted that this leak was a deliberate attempt by a foreign entity, with Russia being pegged as the prime suspect. This further heightens the severity of Europe’s impending energy crisis and also creates a unmitigatedly serious climate disaster that must be promptly dealt with.
The far-right won their election in Italy, potentially paving the road for two key things. 1) Potential room for fragmentation in the European Union and 2) Italy’s first female PM.
German inflation rose from 7.9% in August to 10% in September due to rising energy prices. Also, in what is likely the first of many of these measures, Germany announced a $200 billion aid package to help businesses and consumers navigate the energy crisis this winter.
Reports have come out saying that China has been telling state-owned banks to get ready to sell dollars and buy yuan to prop up their currency. At this moment, the yuan is on track for its worst year relative to the dollar since 1994.
In Other News
London-based investment firm Fasanara Capital raised $350 million to deploy into fintech and Web3.
Dan Morehead of industry leader Pantera Capital shared plans while in a conference in Singapore to raise another $1.25 billion blockchain fund to deploy into tokens and equity.
Jihan Wu, founder of the largest ASIC manufacturer in the world, announced that his other venture Bitdeer Technologies is personally investing $50 million and raising another $200 million in outside capital to buy distressed crypto mining assets.
Investment bank B. Riley Financial has entered into an agreement with Iris Energy to purchase up to $100 million of their equity over a two-year period.
Mining Metrics
Bitcoin Price: ~$18,900
Hashrate (amount of computing power used by the Bitcoin network): 225EH/s
Hashprice (expected value of 1 TH/s of mining power per day): ~$0.078
ASIC Prices (the computing machines used to mine BTC): $30.86/TH
Crypto markets sputtered along for another week but surprisingly held relatively steady as the global financial system teetered ever closer to the brink. Meanwhile, hashrate and hashprice stayed flat while secondary market ASIC prices began their descent to sub $30/TH.
In light of the bear market woes, I wanted to offer a potential light at the end of the tunnel, starting with a quote:
The four most dangerous words in investing are, “this time it’s different”
- Sir John Templeton
This is a saying that for good reason has withstood the test of time. In the eternal tug of war between bulls and bears, bulls have weaponized those four words, “this time it’s different” as a form of defense against the going out of the tides as markets soured before their eyes. Another famous quote, “history doesn’t repeat, but it does rhyme” has been used as a counter by bears to advocate for impending disaster when a market environment failed to perfectly mirror a previous downturn.
With that preamble out of the way I now want to utter those dangerous four words:
This time it’s different.
As an asset class that is younger than a college student, our sample size for how crypto has behaved in previous market cycles should serve as a guideline, rather than a foregone conclusion for future performance. A typical bear market in crypto is deeply protracted over the course of roughly 24 to 30 months. In that time, interest in the asset class dwindles as the war chests of crypto companies shrink and eventually disappear. Innovative teams retreat to the darkest corners of the ecosystem and build in darkness in order to save on their electricity bills and extend their runways as much as possible. And yet, this cycle that won’t happen.
The key difference this time? Private market funding.
With billions in VC capital remaining to be deployed from 2021, and over $10 billion raised YTD by VC’s, crypto markets are in a fundamentally different landscape this market cycle. As shown below, even with capital injections into the space dwindling, around $1 billion per month is being injected into crypto-native companies that continue to innovate.
The dry powder that must be deployed by these VC firms will serve to dampen the lows of this market cycle and catalyze the products that capture investor attention in the next. With that, crypto continues to march forward, knowing that the exuberance will someday return, and when it does, there will be a great deal to show for it as builders keep building.
Until next time,
Artem