The market demanded and the Fed delivered, albeit the back and forth caused a degree of confusion and uncertainty going forward. The Fed cut both the funds (by 25bps to 1.75%-2.00%) and IOER (by 30bps to 1.8%) rates as expected, but does not anticipate any more rate cuts in 2019; the terminal rate was kept unchanged at 2.5%. The decision was not unanimous, with a 7-3 vote to cut; Esther L. George and Eric S. Rosengren voted to keep rates unchanged; Bullard voted for a 50bps rate cut; 7 FOMC members predicted another cut this year, while 10 say hold or raise. There was no mention of POMO or permanent repo ops, with consensus shifting rapidly to expect some major liquidity injections from the Fed namely POMO. As a result, risk assets and gold tumbled, while the dollar surged. Interestingly, Fed’s Powell did hint that some sort of easing measures may be necessary, noting that “it is certainly possible that we’ll need to resume the organic growth of the balance sheet sooner than we thought.” In short, the market will likely demand more and it remains to be seen whether it will force the Fed’s hand in announcing yet another QE program…
Staying with the macro theme, it is worth remembering that European Central Banks have ditched a 20-year-old agreement to coordinate their gold sales, this agreement is set to expire on 26 September 2019. 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 and, over the subsequent years, prices surged from less than $300 to a high of almost $2,000 in 2011. Now of course, in spite of suggesting that there is no desire at the moment to sell significant amounts, only time will tell whether this will be the case, but who would blame them for wanting to capitalize on price appreciation, especially in the face of slowing economic growth and deteriorating finances.
Looking at the crypto markets, the reaction to the latest announcement by the Fed has been rather muted and, as it stands, we are looking at yet another day of Ethereum outperforming its big brother Bitcoin. Despite the lack of activity in the secondary market, the booming lending market saw another positive day of inflows, with the total value locked (USD) in DeFi now just shy of $600mln, with the record-high notched in the $680mln area back in late June. Interestingly, dYdX protocol dominated the flow over the past 24 hours, accounting for 41% of total loans originated. By assets, DAI accounted for 58%, USDC for 30% and ETH for 12%. It is also worth pointing out that USDC reference rates have started to creep higher again, though still way off highs observed in early August.
In other news, the Litecoin Foundation has tapped the Celsius Network, a blockchain-based crypto lending program, to become its preferred crypto wallet. As part of the deal, the Foundation will allocate an undisclosed portion of its treasury to the Network. LTC holders can receive up to 10.53% annually back on their crypto holdings and get dollar loans for as low as 4.95% as well.
Elsewhere, Craig Wright, the self-proclaimed inventor of Bitcoin (BTC), has asked for another extension of a deadline to settle his case involving his late partner Dave Kleiman. Wright’s attorneys filed a new 30-day extension for all discovery and case deadlines, citing the need to facilitate the ongoing discussions with Dave Kleiman’s estate as the parties have entered “extensive settlement negotiations.” According to the document, Wright’s lawyers and Kleiman’s estate have reached a non-binding agreement to settle the matter and are continuing to negotiate and finalize all relevant terms.
Thank you for reading,
The BeQuant’s Analytics team