We consider factors which are boosting crypto prices, not just the Bitcoin rally. Optimistic scenarios that drove the equity market to new highs are giving way to more realistic view that the Fed will not be able to swing quickly to rate cuts in early 2024. The CME’s FedWatch shows traders expecting a 50 bps rate cut by June and at least 125 bp for 2024, in contrast with the latest Fed dot plot that shows a wide range of expectations from Fed participants, anticipating a 50 bp more modest reduction.
TODAY’S MAJOR NEWS
Is the crypto bull back?
Most crypto tokens cratered in 2022 and 2023 as a raft of legal actions were unveiled and their legitimacy was doubted. Surprisingly, many of these crypto tokens are now rallying. Is the crypto winter, shorthand for its bear market, ending? Bitcoin, accounting for over half of the crypto market cap, is the primary engine for the bullish revival, up 2.7-fold from its late 2022 low to $43,346 per token. Ethereum, described as the financial backbone of a new and more sophisticated internet, dubbed ‘Web3’, is up two-fold from its low point to $2,290 per token. Both tokens have avoided legal challenges and appear closer to financial legitimacy than most crypto assets.
Hopes for a Bitcoin and Ethereum ETF are central to their recent rallies. BlackRock is reportedly meeting with the SEC to finalize its iShares Bitcoin ETF details. Recently, it also registered an iShares Ethereum ETF, potentially widening its acceptance to retail and institutional investors. Tom Farley, the former President of the New York Stock Exchange (NYSE) and current CEO of Bullish, a leading regulated digital asset exchange, believes this will be a turning point. "Everyone acknowledges Bitcoin is not a security, including the regulators," said Tom Farley, founder of crypto exchange Bullish. "Money will flood into the industry with a Bitcoin ETF; it's just easy to buy it. People believe in Bitcoin. Bitcoin is a great invention. It is a store of value."
So much for the majors, what is more surprising are rallies in the minor leagues, where previous leaders languished after legal challenges. FTX, the crypto token created by Sam Bankman-Fried, is up almost six-fold from its low point to $4.43 per token. According to a Wall Street Journal report, the FTX exchange, previously a significant trading venue, is now in Chapter 11 bankruptcy, and is being courted by many potential suitors — including Farley’s Bullish, Figure Technologies, and Proof Group. Crypto traders believe the FTX token could be revived as a means of trading on a rebuilt FTX exchange.
Binance, the world’s largest crypto exchange, is also facing a crisis. Founder Changpeng Zhao, also known as CZ, pleaded guilty to violating US anti-money laundering rules and sanctions violations recently and agreed to pay fine. Binance itself paid a $4 billion fine to resolve violations of the Bank Secrecy Act, failure to register as a money-transmitting business, and breaching sanctions. Yet the Binance token, BNB, is up 12% from its recent low to $233.7 per token. Despite its challenges in the US market, Binance has a strong international franchise and could be an acquisition target.
Coinbase, a top-three crypto exchange that listed its shares in April 2021, has also seen a change in its fortunes. The SEC accused Coinbase in June 2022 of illegally operating as a national securities exchange, broker, and clearing agency without registering with the regulator. The crypto rally and hopes for a settlement with the SEC have seen its share price rise more than four-fold to $142.7. Supporters believe that an SEC settlement will allow Coinbase to continue to operate within the existing legal framework.
Ripple is another crypto token that has sparred with the SEC, but its supporters believe it could resolve its problems and will continue in operation. Ripple’s token, XRP, powers a real-time financial settlement system and remittance network serving global financial institutions. In December 2020, the SEC sued Ripple Labs, XRP’s creator, and two of its executives for selling XRP tokens as unregistered securities. This legal battle must conclude early in 2024, and there is recent speculation that a settlement would allow XRP to continue in operation. The XRP token has doubled from its 2022 low to $0.62 per token.
US Purchasing Managers Index (PMI) unchanged, but still indicating growth
- S&P Global PMI numbers for the US in November both came in right on expectations, with both unchanged from last month (and both still point to economic expansion)
- The PMI for Services came in at 50.8, the highest reading since July 2023 and indicated the tenth consecutive month of expansion in the services sector
- The Composite PMI came in at 50.7, as expected
- The PMI employment indicator reading at 50.2 was down from 51.7 in October, welcome labor market weakness for the Fed
Fewer US job vacancies hints at weaker labor market
- US job openings fell to the lowest level since August 2021, with the Labor Department's Job Openings and Labor Turnover Survey (JOLTS) report showing 1.34 vacancies for every unemployed person in October
- JOLTS job openings for October came in at 8.733 million, lower than the expect 9.3 million, and below last month’s 9.350 million (for comparison, there were 12 million vacancies in March 2022)
- ADP’s private jobs report tomorrow and the government’s weekly and month employment numbers on Thursday and Friday will be closely watched for more signs of a weaker jobs market
Oil price recovers, but investors remain sceptical
Crude oil prices rallied today after challenging mid-November lows. Price action is volatile with plenty of geopolitical concern in the Middle East and uncertainty about the impact of OPEC+ production cuts that are supposed to continue well into 2024. Saudi Arabia’s Prince Abdulaziz bin Salman said OPEC+ supply cuts will “absolutely” continue past March and pledged that the curbs will be delivered in full. Traders are skeptical that the reductions will tighten the market. The latest CFTC data showed large speculators combined to decrease long positions by 27% for all petroleum products. With hedge funds less bullish, oil price risks now remain to the upside. WTI speculative positioning is now at its five-month low after adding more shorts than longs.
TODAY’S MAJOR MARKETS
Russell 2000 sees profit-taking after recent rally
- The Russell 2000 was today’s market laggard, off 1.1%, while the S&P 500 was off 0.1% and Nasdaq was up 0.2%
- European markets were mixed overnight, led by the Dax up 0.8%, the Nikkei 225 off 1.4% and the FTSE 100 off 0.3%
- The VIX, Wall Street’s fear index, rose to 13.2
Bonds yields fall, Dollar rallies, Bitcoin up 4.5%
- 2- and 10-year yields fell to 4.60% and 4.18%, respectively.
- 10-year TIPS index-linked yields fell under two percent for the first time since September at 1.98%
- The dollar index rose 0.3% to 104.0 (the year-to-date high was 106.65)
- Butcoin rose 4.5% to $43,599 per token
- Versus the dollar, Sterling was off 0.2%, the Euro was off 0.3%, and the Yen was unchanged
Oil rallies, gold sees profit-taking
- Oil prices recovered after recent weakness, rising 0.6% to $73.5 per barrel
- Gold prices fell 0.4% on profit-taking, retreating from a new all-time high, and back to $2,035 per ounce, while Silver prices fell 1.9% to $24.4 per ounce
- Wheat Chicago wheat is leading the charge for the grain market this morning with the front end of that complex up double-digits as of the time of this writing.
Analysis by Matt Zeller, Commodities Analyst: [email protected]
Market outlook by Paul Walton, Financial Writer: [email protected]