The Rake Review: July 2022
Welcome to the Stormrake monthly Australian crypto market & education update.
For sophisticated investors who want to expand their crypto knowledge.
Summary:
If you are a busy investor that doesn't have time to read this whole newsletter here is a brief summary:
* The FED, ECB, and RBA all raise rates between 0.5% and 0.75%.
* Inflation continues to run hot across the globe with Australia recording the highest rate of 6.1% since 1990 and the annual inflation rate in the US accelerated to 9.1% in June of 2022, the highest since November of 1981
* Crypto Credit Contagion settles as market finds an answer
* Ethereum merge is very close
* Geo-political situation worsens with overthrow in Sri Lanka and Farming protests in Europe
or read below for all the details.
The US official inflation rate hit 9.1% and the US Fed raised its target rate by a further 0.75% today. In Europe the ECB, traditionally reluctant to raise rates, pushed their target up 0.5%. In Australia the RBA raised by 0.5% and yesterday's CPI figure came in at the highest level since 1990 (6.1%). Amazingly this was actually below consensus expectations at 6.2%. This makes it the first time in living memory that a 1% increase in the CPI over the previous reading was actually below expectations.
Why does inflation lead to interest rate rises? Well, many reasons, for one, inflation causes real earnings to decrease and that's untenable.
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Why is inflation here and who is responsible? Well Milton Friedman (the most important economist of US origin) explains best, while governments will use any scapegoat they can for inflation it always boils down to how much money your country has printed: Milton Friedman (1912-2006) - Former National Medal of Science winner, Nobel Memorial Prize winner and Presidential Medal of Freedom was at the US Treasury for 3 years |
As we've been calling it, the outsized money printing of the covid era (In Australia, the US Euro area and elsewhere) led to inflation and in turn higher rates. On the plus side the Central Banks can't keep raising rates forever. Eventually we will hit the reality of recession.
Eventually, consumers work out that we are in a recession long before central banks actually admit it. The Biden administration has recently said that the usual definition of recession (2 quarters of negative real growth) no longer applies and they don't believe we are in a recession. But of course people know that this is just spin.
As I listened to talk back radio this morning I heard an interesting call. A pensioner called in and talked about the pain of rising prices (or falling purchasing power) while any pension increases lagged behind. She reeled off multiple staples such as milk and bread and the price she used to pay and what she was faced with now. The host asked if that meant she reduced her spend via buying less items. To everyone's surprise she answered that she was actually stocking up more non-perishables in expectation of higher prices. You see this particular lady lived through the depression of the 30's and the experience of living on food stamps in the 30's helped her understand the impact of inflation and economic collapse.
While the media wants you to concentrate on COVID-19 and the weekend's footy the reality is that people are waking up to the much more concerning threat of inflation as illustrated below;
Meanwhile, crypto markets stabilised this month with most coins well off their cycle bottoms as we noted in our Thunder Trading update. Part of the reason for higher prices is that the credit contagion caused by the LUNA debacle has settled down. Sam Bankman-Fried the FTX founder has emerged as the white knightand provided a floor by buying up equity in failing companies and guaranteeing customer funds. Celsius has filed for bankruptcy and we expect their customers to get back a portion of their funds once administrators can finalise assets vs liabilities.
The market also absorbed some massive selling over the last 2 months in further evidence that the bottom might be in but don't jump in with euphoria just yet as there are plenty of dark clouds around. Accumulate with caution. (Not financial advice).
Let's get in to the rest of the report:
Eventually, consumers work out that we are in a recession long before central banks actually admit it. The Biden administration has recently said that the usual definition of recession (2 quarters of negative real growth) no longer applies and they don't believe we are in a recession. But of course people know that this is just spin.
As I listened to talk back radio this morning I heard an interesting call. A pensioner called in and talked about the pain of rising prices (or falling purchasing power) while any pension increases lagged behind. She reeled off multiple staples such as milk and bread and the price she used to pay and what she was faced with now. The host asked if that meant she reduced her spend via buying less items. To everyone's surprise she answered that she was actually stocking up more non-perishables in expectation of higher prices. You see this particular lady lived through the depression of the 30's and the experience of living on food stamps in the 30's helped her understand the impact of inflation and economic collapse.
While the media wants you to concentrate on COVID-19 and the weekend's footy the reality is that people are waking up to the much more concerning threat of inflation as illustrated below;
Meanwhile, crypto markets stabilised this month with most coins well off their cycle bottoms as we noted in our Thunder Trading update. Part of the reason for higher prices is that the credit contagion caused by the LUNA debacle has settled down. Sam Bankman-Fried the FTX founder has emerged as the white knightand provided a floor by buying up equity in failing companies and guaranteeing customer funds. Celsius has filed for bankruptcy and we expect their customers to get back a portion of their funds once administrators can finalise assets vs liabilities.
The market also absorbed some massive selling over the last 2 months in further evidence that the bottom might be in but don't jump in with euphoria just yet as there are plenty of dark clouds around. Accumulate with caution. (Not financial advice).
Let's get in to the rest of the report:
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Video of the MonthThe White House is in damage control as they deny a recession by arguing about the definition. |
Markets
Prices have started to lift off the June capitulation lows and are generally up across the board putting in double digit % gains in this bear market relief rally. Global Market Cap is back above $1Trillion USD.
BTC has battled with 20k multiple times over the last month and is now 15% above that key level.
ETH is hovering just above $1,600 USD and has been the best performing blue chip and has put in a massive 85% rally from its June lows.
BNB has continued to be a stalwart of the top 5 and has kept up with BTC and ETH as crypto kingpin CZ has been working hard on Twitter to ensure healthy public relations.
Overall sentiment has improved but total crypto market cap is still down approx. 65% from all time highs and has plenty of room left to the upside.
* Top 10 coins by market cap thanks to CoinGecko
In the NEWS
Contagion after-effects
- Crypto contagion continues with Australian crypto exchange, Zipmex now halting withdrawals
- 3AC co-founders have broken their silence and provided an interview to Bloomberg
- Vauld has also paused withdrawals citing "tough market conditions" and financial struggles of counter-parties
Stormrake has identified the common thread between all of these trading halts and withdrawal freezes, we will be covering it in detail in our next Thunder Trading Update.
Ethereum Merge Endgame
Finally after what has taken literally years and has been one of the most contentious areas in all of crypto, Ethereum developer Tim Beiko has proposed September 19th as a tentative date for 'The Merge' - this is where Ethereum transitions from Proof-of-Work to Proof-of-Stake.
More details on the Ethereum merge here
Bitcoin mining profitability under pressure
- The current slump has put pressure on Bitcoin mining operations
- Decliningproduction costs has provided some relief
Coinbase vs SEC
- Coinbase SEC Probe Into Listed Tokens Has Crypto Traders Rattled
- Ex-Coinbase Manager Arrested in US Crypto Insider-Trading Case
Tesla lacks Diamond Hands
- Tesla sells 75% of its Bitcoin holdings
- Elon was quoted saying this isn't an indictment on Bitcoin more a reflection on Tesla requiring cash liquidity
- Diamond hand jokes aside, Bitcoin is made for individuals, corporations and nation states to store their value and then remit or redeem when needed
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