The Fed cut rates for the first time since 2008, but the move, dubbed a “hawkish cut”, failed to appease the financial markets as equities slumped and the Dollar index rose to an 8-month high. Two Fed officials dissented from the decision, favoring no move on Wednesday, while the press conference further undercut market expectations going forward. Gold bugs and crypto maximalists also came out of the meeting less than impressed with the market reaction, as gold continued to head south, having touched on a 6-year high in June. As a reminder, late last week European Central Banks ditched a 20-year-old agreement to coordinate their gold sales. The so-called Central Bank Gold Agreement (CBGA) was originally signed in 1999 to limit gold sales and help stabilize the market for the precious metal. In a statement, the ECB said that the signatories confirm that gold remains an important element of global monetary reserves, as it continues to provide asset diversification benefits, and none of them currently has plans to sell significant amounts of gold. The deal, originally between 15 central banks, capped the amount signatories could sell each year. Over the subsequent years, prices surged from less than $300 to a high of almost $2,000 in 2011 ($1,400 as of now). Now, of course, in spite of suggesting that there is no desire at the moment to sell off significant amounts, who knows how long that will last? Who would blame them for wanting to capitalize on price appreciation, especially in the face of slowing economic growth and deteriorating finances? At the same time, given the market pressure on policy makers for more rate cuts and the inability to un-invert the bond curve, calls for the adoption of Modern Monetary Theory (MMT) may be revived. The theory states (among other things) that a government that can create its own money, such as the United States, cannot default on debt denominated in its own currency. A government can also pay for goods, services, and financial assets without a need to collect money in the form of taxes or debt issuance in advance of such purchases, is limited in its money creation and purchases by inflation…
Looking at the crypto markets, Bitcoin is back above $10k and the futures curve is again undergoing contango delta widening. The recent move higher (relief rally) has largely been driven by Monday’s decision by New York Supreme Court Judge Joel M. Cohen who said he needed more time to make a final decision on whether to dismiss the NYAG’s case entirely, or rule the other way and reject Bitfinex and Tether’s motion to dismiss. As such, a preliminary injunction he filed in May will be extended, probably for 90 days. The ruling means Bitfinex and Tether can continue operating their businesses as normal, but Tether still cannot lend any more funds to Bitfinex. Of course, the problem with relief rallies is that momentum tends to fizzle out, but in this instance, it is more of a bet for or against Tether and there is plenty of vested interest to preserve its longevity. In the words of Gordon Gekko - “Someone reminded me I once said, ‘Greed is good’. Now it seems it's legal. Because everyone is drinking the same Kool Aid.”
Elsewhere, in approximately five days, Litecoin (LTC) will undergo a scheduled reward halving – a process aimed at preserving the cryptocurrency’s purchasing power. The mining reward is currently set at 25 litecoins ($2,500) per block and will drop to 12.5 litecoins ($1,200) per block on Aug. 5. The mining profitability will likely drop by 50% along with block rewards, as mining difficulty – a measure of how hard it is to maintain and add to the blockchain – seldom adjusts immediately. So, some miners may shift to other blockchains, leading to a drop in the hashrate.
Finally, LedgerX has officially launched the first physically-settled bitcoin futures contracts in the US, beating the Intercontinental Exchange’s Bakkt and TD Ameritrade-backed ErisX to the punch. More importantly, LedgerX is offering the new product to both institutional and retail investors, allowing anyone who can pass KYC to trade the contracts, not just institutional clients.
Thank you for reading,
The BeQuant’s Analytics team