Monday, Nov 7, 2022
“We tend to use a new technology to do an old task more efficiently. We pave the cow paths.” – Paul Saffo ||
Hi all, and happy Monday! I hope you had a good weekend. You’re reading the premium daily Crypto is Macro Now newsletter, where I look at crypto and macro markets and pick at themes that highlight the growing overlap between the two. Nothing I say is investment advice, but nevertheless I hope you find this useful – if so, please consider sharing with your friends and colleagues.
MARKETS
Now that we have Fed officials able to speak in public again after the FOMC meeting’s “dark period”, we have plenty of words to parse for monetary policy sentiment, and there are signs that a slowdown of the pace may not be far off. Kashkari stressed on Friday that the jobs data (which included the unemployment rate edging up slightly to 3.7%, still around pre-pandemic levels) showed that more rate hikes were needed – this sentiment was echoed by Collins and Barkin, but both suggested that they could be at a slower pace. Talking to the Wall Street Journal, Collins said:
“I think that in the near term, deliberate and more measured increments make a lot of sense as we’re assessing all of the pretty noisy information that we’re gathering.”
(chart via the Federal Reserve of St. Louis)
The probability of a 50bp increase in December, according to CME futures pricing, is now at 57% vs 44% just a week ago.
(chart via the CME FedWatch)
This is an encouraging move but far from a sure thing, and Thursday’s CPI release for October could swing these probabilities the other way. Forecasts suggest an 8.0% year-on-year rise vs 8.2% for September, although consensus tends to underestimate the actual figure. Data from the housing market – which accounts for approximately a third of the CPI basket with a notable lag – is not encouraging: the average price of purchased homes has started to moderate slightly, but an index that includes appraisal data (and therefore is more influential in the CPI owners’ rent equivalent component) shows an accelerating climb from Q1 last year that has yet to slow down.
(chart via the Federal Reserve of St. Louis)
Over the weekend, BTC consolidated its 1-week and 1-month outperformance of the S&P 500, briefly trading above $21,000 before gently declining to around $20,600. ETH followed a similar pattern, rallying to $1,660 before drifting down to $1,580. While implied volatility remains low for both, the differential in 30d realized volatility has continued to widen, hinting at a coming shift in options pricing.
(chart via Coin Metrics)
Both options volume and open interest positioning continues to be more bullish for ETH than for BTC, perhaps largely because of the relative volatilities and potential mispricing.
(chart via Deribit)
NEWS
Tech layoffs. Hefty layoffs in Twitter and Meta announced last week (although Twitter seems to be walking some of them back in an astonishing reminder that decisions involving staff reductions should never be done in haste) paint a bleak picture of how companies view the coming months. Strong cost reductions after the stock market has fallen over 20% from its recent high and recession indicators have been flashing red for months suggest a conviction at the boardroom level that the coming slowdown is going to be long and difficult. The number of companies that went through layoffs in Q3 is as high as during Q2 2020.
(chart via layoffs.fyi)
The crypto industry has also seen a spate of painful announcements recently: just over the past week, we had reports of layoffs at BitMEX, Dapper Labs and DCG, and possible layoffs at Galaxy Digital. Does this also signal expectations of a long, drawn-out winter? Not necessarily. While it is natural to read industry outlook messages into sweeping layoff decisions, they are costly in both monetary and reputational terms and so are rarely undertaken lightly. On the other hand, hiring late last year in all tech sectors but particularly in crypto, given the surge in prices and institutional interest, was unusually aggressive. We could be seeing the expected adjustment to that frenzy. It can be argued that the crypto winter is closer to its bottom than that for the broader tech sector, and that the upswing will be sharp when it comes – given the competition between large market infrastructure participants vying for institutional inflows, we could see the hiring frenzy come back too soon. On the bright side, there is plenty of strong talent in the market now.
Mobile data. Nova Labs, the company behind the rollout of the decentralized Helium Mobile network (expected to launch in Q1 2023), will provide SIM cards and free trials to owners of Solana’s Saga phones. This caught my attention not for the potential impact on Solana or the Helium token, but for the progress this could mean for decentralized data transmission. I’m not knowledgeable enough about the tech to comment on whether this trial would move the needle significantly, but I am intrigued to see what kind of apps can be built on top of this service, and how that could influence the development of markets which, no matter how decentralized the back-end, still have possible choke-points on mobile devices.