Monday, Apr 17, 2023

Conflicting recession signals yet again (or still?), ETH headwinds and more

“What is great in man is that he is a bridge and not a goal.” – Friedrich Nietzsche

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Hi all! Yet another Monday, a start to yet another no-doubt eventful week… You’re reading the premium daily Crypto is Macro Now newsletter, where I focus on the growing overlap between the crypto and macro ecosystem. Thanks so much for being a subscriber! Nothing I say is investment advice. Nevertheless, I hope you find it useful – if so, please consider hitting the ❤ button at the bottom and sharing with friends and colleagues.

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WHAT I’M WATCHING

Are we in a recession already? The numbers say probably, even though unemployment does not yet seem to have noticed, and inflation is still nowhere near target. This matters for the US rates outlook. More on this below.

ETH’s performance is catching up. The BTC/ETH ratio has dropped sharply over the past week (as the value of ETH has risen faster than that of BTC), but ETH still has some headwinds ahead of it. More on this below.

National crypto holdings. Recent crypto bankruptcy filings have revealed that the government of Bhutan over the past year accumulated millions of dollars worth of cryptocurrencies through its $2.9 billion sovereign investment arm. This only came to light because the Bhutan sovereign fund was a client of Blockfi and Celsius. What are the chances there are other frontier or emerging nations who have been diversifying their reserves and investments?

A blockchain IPO. Smart contract platform Chia Network – founded by Bram Cohen, who was behind BitTorrent – has submitted a draft registration to the SEC for a proposed IPO. This is interesting because it will be the first (that I’m aware of) blockchain platform to go public – on its website, Chia calls itself the “new standard in blockchain infrastructure”. Other public crypto-related companies are exchanges or miners, but the market has not yet had to get its head around how to value a blockchain (Coinbase, a listed crypto exchange, recently announced the development of a proprietary blockchain, but that is a teensy tiny part of its overall footprint).

MARKETS

Recession yet?

The conflicting signals in US economic and market data continue to astound.

• Last week, we saw US retail sales in March fall on a month-on-month basis for the second month in a row, with core retail sales falling much more than expected (-0.8% vs -0.3% forecast).

• US factory production fell for the first time this year.

• The US core producer prices index (PPI) for March fell by 0.1% month-on-month, instead of the expected 0.3% gain, while the headline year-on-year figure came in at 2.7%, much lower than February’s 4.9%.

• The number of initial jobless claims ticked up.

• The rate of growth of US core CPI actually went up on a year-on-year basis, signaling more margin squeezes and probable rate hikes ahead.

• And yet the S&P 500 rose by almost 1.4% on the week.

Why is the stock market proving so resilient? Credit conditions are weak, margins are being squeezed, and the release on Friday of the latest University of Michigan Survey showed that inflation expectations one year out jumped to 4.6%, the steepest jump since May 2021 (last month’s reading was 3.6%).

(chart via Investing.com)