Tuesday, July 11, 2023

Watch the miners, where we're at with CBDCs, NATO expansion, CPI jitters and more...

“An adventure is only an inconvenience rightly considered. An inconvenience is only an adventure wrongly considered.” – G. K. Chesterton  ||

Hello, everyone! I’m out for one day, and so many interesting things happen. Wasn’t summer supposed to be quieter?

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WHAT I’M WATCHING

CPI suspense. Tomorrow we get the latest reading on US CPI, one of the few remaining key data points before the next FOMC meeting on July 26. Forecasts have it continuing to trend lower, with the headline number dropping to 3.1% from 4.0% in May, and core CPI trickling down to 5.0% from May’s 5.3%. If these are anything like correct, they would send a signal that the Fed could take it easy the rest of the year – CME swaps pricing now points to a 75% chance of another pause in September. Any surprise to the upside, however, could trigger more turmoil.

Nato expansion. Turkey has dropped its veto on Sweden joining NATO, which expands the group’s base and military capacity in a strong signal to Russia – once Sweden becomes a ratified member, NATO will control access to the Baltic Sea and the Arctic region, both key gateways for Russia. It also gives NATO access to Sweden’s combat aircraft, naval fleet and a clear pathway across Nordic territory. The wild card is, of course, how Russia will react.

The BIS CBDC report. While papers on CBDCs and their technology networks have been flowing thick and fast from the BIS and other official global organizations, the latest one is especially worth taking a look at. It’s the annual BIS survey of global central banks on their CBDC intentions, and it throws out some surprises. More on this below.

China CBDC. Telecom companies in China will reportedly soon be distributing SIM cards linked to the e-yuan CBDC to Chinese consumers, enabling offline payments via NFC connection. This could be a significant boost to retail adoption, since China and the Far East account for the bulk of global mobile wallets, according to a recent Statista chart.

Fewer blockchain developers. I missed the Electric Capital Developer Report update when it came out at the end of last week, and have not yet have had time to go through it – I’m looking forward to doing so, since the firm’s developer research always sheds light on actual work going on behind the scenes which tends to be more interesting and send of more medium-term signals than price movements. But CoinTelegraph reports that the report shows a notable drop in “newbies” – that is, developers that started work on blockchains less than a year ago. This is not surprising: the past year has been brutal, with crypto firms laying off employees, and many developers joined hoping to participate in the 2000-21 riches. I’ll find the time today to read the report, and will probably share some insights and charts from it in tomorrow’s newsletter.

More pressure on the SEC. Paradigm counsel has filed an amicus brief in the SEC/Bittrex alleging that, since the assets traded on Bittrex have not officially been deemed securities, the financial regulator has no jurisdiction. Amicus briefs, submitted by parties not directly involved in a case, serve to inform the court ruling on the case as to some of the broader issues in question, with a view to preventing rulings with unintended consequences.

BTC hash rate. On a 7-day average, this index of the amount of compute working on processing bitcoin blocks has reached its highest level ever. This sends a signal about the likely medium-term price evolution from here. More on this below.