Tuesday, May 16, 2023

Crypto market duality, economic expectations, blockchain appliances and more

“Ideas at first considered outrageous or ridiculous or extreme gradually become what people think they’ve always believed.” – Rebecca Solnit  ||  

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WHAT I’M WATCHING

• The US debt ceiling. The next meeting between President Biden and House Speaker McCarthy is today, and the window for an agreement in May is shrinking rapidly. Comments from Speaker McCarthy suggest that the two sides are a long way from any agreement, and Treasury Secretary Yellen is still warning that the government could run out of money as soon as June 1. Should this come to pass, it could trigger a barrage of legal issues such as which payments (if any) can go ahead, who is to blame and what exactly triggers a default? US debt default swaps are now more expensive than those for Greece, Mexico and Brazil, all of whom have defaulted several times (this is more a reflection of demand for these securities than the actual likelihood of default, but still…). And a Bank of America survey published yesterday showed that almost 30% of US fund managers expect the US to not have reached a solution by the time Treasury balances are dry. All this is quite astonishing, and should be good for “insurance” assets such as gold and bitcoin.

• Economic expectations. The latest Bank of America fund manager survey highlights a growing disconnect between rate expectations, economic data and investment positions. More on this, as well as what it could mean for crypto, below.  

• Oil price. The US government yesterday announced plans to buy 3 million barrels of oil for the emergency reserve. This is a tiny amount compared to the approximately 200 million barrels they need to replenish, but in theory it should be enough to tighten markets. But we’re not seeing that – prices barely moved on the announcement – which signals expectations of weakening global demand in the face of weakening economic activity.

• Crypto froth. There have been some signs recently of crypto market frothiness (BTC fees, meme coins) but there are many more of a stagnant market – this is a strange duality. More on this below.