Bitcoin, Dollar and Jackson Hole - The Aftermath #7
In our Wednesday edition, we prepared our readers for the Jackson Hole Summit. Today we analyse what unfolded at and the implications of the Summit. We also dive into Chainlink and...
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The Jackson Hole Summit has been the talk of the week. In our Wednesday edition, we prepared our readers for the events. Today we analyse what unfolded at and the implications of the Summit.
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Jackson Hole Summit, the Aftermath: What Happened and So What?
Trump Pitches Second Term With Selective Retelling of His First
Shinzo Abe to Step Down as Japan’s Prime Minister.
One Record-Breaking Payment Stock up 150% This Year Could Have Even More Upside, Traders Say
Bitcoin Pops and Drops After Powell Introduces Average Inflation Targeting.
Voyager to Pay Interest on Defi Tokens to Gain Brokerage Clients
Coinbase, Circle Unveil New Upgrades to Usdc Stablecoin
Crypto Tax Software Provider Starting to Support Defi Protocols, Including Uniswap v2
Keeping an Eye on Chainlink
Zen Mind, Beginner’s Mind
Jackson Hole Summit, the Aftermath: What Happened and So What?
A notable feature of Day 1 of the Jackson Hole Summit (yesterday) was Jerome Powell’s presentation, Q&A and press release. We are currently on Day 2 of the Summit, with Andrew Bailey (Governor of Bank of England) being an exciting speaker. The market and Market Meditations (in the previous letter) had their preconceptions about what Powell would announce to the world; for the large part, Powell’s speech was in line with expectations.
For those who were unable to live stream the event, Powell’s announcement can be found here. A no nonsense summary for those who would prefer not to read 22 pages:
In the past, the Fed has let bygones be bygones - if inflation was below target for a period of time, the committee did not take that into account when formulating monetary policy, aiming only to return inflation to 2%.
Now, however, the committee has explicitly indicated that ‘following periods when inflation has been running persistently below 2%, appropriate monetary policy will likely aim to achieve inflation moderately above 2% for some time.’ Intentionally targeting an overshoot, even if only temporarily, is new for the Fed.
Basically, the Fed is willing to allow inflation to run hotter than normal in order to support the labor market and broader economy.
Higher inflation may seem like an odd goal to anyone who buys milk or pays rent, but excessively weak price gains can actually have damaging effects on the economy. A circle of stagnation has played out in countries including Japan, in which lower price gains leave less room to cut rates, limiting policymakers’ ability to stimulate the economy and resurrect inflation.
The announcement is generally being viewed as positive in stock markets. In essence, markets think that Powell’s comments indicate that the central bank won’t play any part in moderating growth and will continue to provide liquidity until the U.S economy is outperforming expectations. The Dow and S&P 500 have gained ground since the opening minutes of trading and last traded 0.9% and 0.5% higher, respectively.
Typically, these types of speeches and announcements are analysed by rates traders to try and suss out what the Fed plans to do with monetary policy. U.S. stock index futures jumped as Powell announced a new inflation approach that would keep interest rates lower for longer. Dow futures gained 100 points or 0.35%. S&P and Nasdaq 100 futures were also about 0.3% higher. Of course, this doesn’t come as a huge surprise - that is, investors had already penciled in years of rock-bottom interest rates.
The dollar index, a measure of the currency against six developed market peers, fell 0.8% today as investors weighed up the move. The currency suffers when the market believes that lower interest rates will persist for longer. Sterling rallied to $1.33, its highest level of 2020, while the euro advanced to $1.1914. MSCI’s measure of emerging market currencies railled to its highest level since early March in a sign of the buck’s broad decline.
In fixed income markets, there has been an aggressive selloff and steepening in global fixed income markets which has been led by the US 10 year treasury yields trade 7.7 bp higher since yesterday morning.
Interest rates remaining low for a prolonged period of time and inflationary pressures are a bullish development for bitcoin and gold. Largely on account of their anti-inflation linked properties and characteristics (more detail on this in my previous newsletter). The top cryptocurrency rebounded back above $11,450 on Friday, erasing nearly 70% of the decline from $11,594 to $11,141 that occurred after a speech by Fed Chairman Jerome Powell setting out a new direction for the central bank. Gold, too, has risen back to $1,960, having dropped from $1,976 to $1,910 after the event.
And there you have it, the immediate market responses to the Jackson Hole announcement. Of course, monetary and fiscal policy may not behave the way it always does given the impact of the fears/hopes around a coronavirus vaccine so there will be plenty to watch for. However, given a quiet month of August in legacy markets, certainly an exciting series of developments and a good effort from the Fed to signal to markets.
Trump Pitches Second Term With Selective Retelling of His First. President Donald Trump painted Joe Biden as a radical who will undermine law and order as he accepted the nomination. He portrayed Biden as the ‘Trojan Horse of socialism’ going on to say Biden ‘is not the savior of America’s soul. He is the destroyer of America’s jobs, and if given the chance, he will be the destroyer of America’s greatness’ . His 71 minute speech largely sidestepped the pandemic and instead pitched a second term based on a curation of his economic victories and themes popular with his base. With the conventions at an end, it’s uncertain whether Trump’s gambit, playing on division and fears of unrest, will pay off or backfire come November. It was an uncharacteristically low energy address, strewn with misstatements and exaggerations about Biden’s record and his own. Read more.
Shinzo Abe to Step Down as Japan’s Prime Minister. County’s longest serving leader announced resignation after relapse in illness. His departure will set off a race for the leadership of Mr Abe’s ruling Liberal Democratic party even as Japan struggles to deal with the impact of Covid-19, a deep economic downturn and disputes with its neighbours in China and South Korea. The BoJ said its policy for bond buying a key complement to ‘Abenomics’, will continue in September. Tokyo’s Topix index reversed gains of more than 1% to close 0.7% down on Friday. Japan’s yen, often a haven in times of uncertainty, strengthened 0.5% to ¥106.06 to the dollar. Read more.
One Record-Breaking Payment Stock up 150% This Year Could Have Even More Upside, Traders Say. With cash transactions and ATM withdrawals on the decline, fintech is on fire. In particular, digital payment companies Square and Paypal are up 149% and 89% year to date while credit card giants Mastercard and Visa are up 19% and 12%, respectively. CNBC reports ‘the continued rise in digital payments is something we’re going to see a lot more of, especially in the new normal where we’re trying to stay away from each other as much as possible’. Read more.
Bitcoin Pops and Drops After Powell Introduces Average Inflation Targeting. Jerome Powell’s speech at the annual Jackson Hole event was the most anticipated event in financial markets this week. Like I wrote on Wednesday, the Fed announced a major shift in their inflation policy and will let inflation run higher than the 2% target before raising interest rates. Although this was expected and thus priced in short-term, this is bullish news for inflation hedges like gold and potentially bitcoin and will likely put more downside pressure on the US dollar in the coming months and years. Read more.
Voyager to Pay Interest on Defi Tokens to Gain Brokerage Clients. Canadian cryptocurrency broker Voyager Digital is trying to attract investors that are participating in the latest decentralized finance craze. Voyager said that it will offer interest payouts on three additional tokens, namely Chainlink (LINK), Kyber Network (KNC) and Basic Attention Token (BAT). Polkadot’s native token (DOT) was also added to Voyager earlier this week. Read more.
Coinbase, Circle Unveil New Upgrades to Usdc Stablecoin. Centre Consortium members Circle and Coinbase announced a major upgrade to the USD Coin (USDC) yesterday. The announcement stated that the upgrade will be ’making it significantly easier for people to use USDC in payments, commerce and peer-to-peer transactions.’ The fastest growing regulated stablecoin, still far below the controversial Tether (USDT) project, recently exceeded the $1 billion mark, with numbers as high as $1.4 billion as of today. Read more.
Crypto Tax Software Provider Starting to Support Defi Protocols, Including Uniswap v2. Making sense of capital gains on decentralized protocols like Uniswap will be a nightmare for most accountants around the world. Good news this week as automated crypto tax software TokenTax is said to start supporting DeFi protocols, including Uniswap V2. Users will have to connect their Ether addresses and their Uniswap transactions would automatically be imported into their TokenTax accounts. Read more.
Keeping an Eye on Chainlink
$16.7 - Key structural Level. This level was our trigger for the drop to $13 and it will be our first trigger for continuation
$16 - Key Psychological Level. With two supporting data points and the psychological appeal of the round number, this level will be a significant claim. Between this level and $16.7, we will be presented with a high-risk entry
$13.9 - Key Structural Level. Below here bears take control
$12.6 - Danger Zone. Below this level, we will have retraced more than half our current run and I expect a drop to $10
Zen Mind, Beginner’s Mind
“A True Master Is an Eternal Student” - Master Yi
The above quote is from a childhood game, League of Legends, but don’t let the source distract you from the content. The lesson is invaluable when understood and applied. Our brains are cluttered with subconscious biases that influence our every action. These develop as we gain expertise on a topic, or we get used to certain ways of doing things.
We start projecting feelings, thoughts, habits and judgements on things we encounter. These preconceptions distract from the present. Trying to learn something while convinced you’re an expert on the topic leaves you with blind spots and an aversion to accepting new ideas.
The beginner’s mind is about dropping our expectations and preconceived ideas regardless of our expertise. It is the practice of approaching things with an open mind, like any beginner would do because he has no prior knowledge to connect the material to. Beginner’s mind is not limited to things you haven’t done before and is applicable to almost anything in life.
No matter how long I trade, meditate, workout, build businesses or pursue any interest in life, I make sure to keep an open mind. Aristotle famously wrote
“The more you know, the more you realise you don’t know”
This alone is enough to sustain humility in all endeavours. This humility allows us to recognise that there is always an infinite amount more to learn. This can be further enhanced with a consistent meditation practice. Staying true to our name, I look forward to further exploring meditation in future editions.
Now as you go about your weekends, be mindful of your preconceptions and expectations, try to notice how they affect your every action and endeavour. You’ll notice you function with greater enjoyment and efficiency.