Macro and geopolitical matters are back in the driving seat with Brent crude futures soaring as much as $11.73 a barrel in intraday trading, the biggest increase since the contract was launched in 1988, as market participants reacted to a strike on a Saudi Arabian oil facility that’s removed about 5% of global supplies. The global benchmark surged as much as 19.48% in percentage terms, the biggest jump since the first Gulf War in 1991. The estimated 5.7 million barrels a day of lost Saudi production is the single biggest sudden disruption on record. It surpasses the loss of Kuwaiti and Iraqi supply during the Gulf War in August 1990, and the hit to Iranian output in 1979 from the Islamic Revolution, according to the International Energy Agency (IEA). The flight to quality also saw gold prices rise by just over 1% to $1,506 but the same flight to safety is yet to be observed in crypto, with Bitcoin trading only in minor positive territory. This inconsistent reaction to global events is as much puzzling, as it is frustrating for investment managers to comprehend, as it makes the case for investment in the digital space that much more challenging to pitch. The uncorrelated nature of the growing asset class is something that the community will just have to accept.
Bitcoin continues to trade in a relatively tight range, albeit just above the $10k level, the perp-Sep contango delta widened marginally to around $60, while Dec contract is trading at over $300 premium. Despite the sanguine price action, the underlying metrics continue to improve. Bitcoin’s two-week average hash rate has crossed another major threshold, reaching 85 exahashes per second (EH/s) last Friday. Meanwhile, mining difficulty also adjusted to a new record of nearly 12 trillion. Miners in China estimated earlier this year that bitcoin’s average hash rate in the summer would break the level of 70 EH/s, which happened in August.
Interestingly, Ethereum has outperformed in early trade and remains on path to break above the $200 level. The amount of USD locked in DeFi continues to show steady growth, supported by the ongoing drop in DAI rates, while USDC rates have stabilized. ETH borrowing rates are at a 1-month high. It’s worth pointing out that Blockchain firm ConsenSus has announced the launch of a new product suite, called Codefi. ConsenSys defined Codefi as “a suite of tools and services that comprise an ‘operating system’ to help enterprises and consumers maximize the benefit from profound digital transformation in commerce and finance. Delivering Codefi provides the capability to digitize assets and financial instruments, including payments, equities, lending, and real estate.”
In other news, FT reported that Libra representatives will meet with the Committee on Payments and Market Infrastructure (CPMI), a part of the Bank of International Settlements (BIS), in Switzerland. Benoit Coeure, an ECB executive who will reportedly chair the meeting in Basel, recently said that the bar of regulatory approval for operating Libra in the European Union will be very high. Speaking after a gathering of EU finance ministers in Helsinki on Sept. 13, Coeure stated that it was time for regulators to “step up our thinking on a central bank digital currency,” hinting at the possibility of developing such an instrument for the ECB, as reported by Reuters.
Elsewhere, Germany’s largest bank, Deutsche Bank, has joined JPMorgan’s blockchain-based network, the Interbank Information Network (IIN). Launched as a pilot in 2017, the JPMorgan-led blockchain initiative now has a network of 320 banks that have entered the platform to swap global payment data using the Ethereum network. JPMorgan aims to reach 400 agreements with banks by the end of 2019 and is also expecting to announce other large banks in the near future.
Thank you for reading,
The BeQuant’s Analytics team