Bitcoin Bounces Back as Markets Hit Record Highs: But Is the Economy Really Keeping Up?
Digital Asset Market: Treasury Secretary Yellen stated that the U.S. needs better regulation of stablecoins and a federal regulator should have the power to determine if a stablecoin issuer should be allowed to issue their asset. This would create a minimum standard of compliance that all states would have to follow. Yellen made these remarks during a hearing with the House Financial Services Committee. Meanwhile, Cathie Wood, CEO of ARK Invest, believes investors are shifting from gold to Bitcoin after the launch of spot Bitcoin ETFs. She sees Bitcoin as a potential alternative to gold as a "risk-off asset" during periods of banking sector weakness, citing its price surge during a past regional bank crisis in the US.
Macro Economics: The issuance of Canadian building permits saw a steep decline in the final month of 2023, dropping to the lowest level in over three years as concerns persist regarding the pent-up demand for housing in the country. According to Statistics Canada, the total value of building permits fell by 14% from the previous month to 9.25 billion Canadian dollars or $6.83 billion, after seasonal adjustments were made. Meanwhile, in China, a substantial number of real estate projects are expected to receive financial backing under the government's newly implemented "whitelist" program, aimed at providing aid to the struggling property sector. Chinese stocks experienced a rally overnight following reports that regulators would be updating President Xi Jinping on the state of the financial market, and that state-run entities such as Central Huijin have pledged to purchase more ETFs to stabilize the market. Despite these developments, some experts anticipate continued instability in the market until a strong bottom is established.
Equities: On Tuesday, US stocks moved higher as investors considered the possibility of interest rate cuts and awaited new earnings reports. The S&P 500, Nasdaq Composite, and Dow Jones Industrial Average all rose. However, Monday's rally was stalled following Federal Reserve Chair Jerome Powell's cautious stance on policy. Investors are now hoping that corporate results can boost the market. So far, share prices for Spotify and Eli Lilly have surged, while Ford is expected to report later in the day. The focus is also on whether other Fed officials will disagree with Powell's stance on policy. Loretta Mester and Patrick Harker are scheduled to speak on Tuesday.
Amongst others Nvidia has added $10.7 Billion in market cap per day for the last 70 trading days. Goldman Sachs and other analysts have raised its price target for Nvidia, a semiconductor company, from $625 to $800. This represents a potential upside of 21% from Friday's closing price. The analysts believe that Nvidia's Data Center revenue will continue to increase through the first half of 2025 due to continued investment in AI infrastructure by the cloud service providers and new product cycles. Nvidia's stock has already seen a 218% rally over the past year and jumped 5% on Monday to a record valuation of $1.7 trillion.
The Fed and US Treasury: The Federal Reserve's decision to cut rates has been influenced by the strong economy, job creation, low unemployment rate, and persistent inflation. However, there are concerns that the real economy may be weaker than it appears, with below pre-pandemic levels in key measures and negative real wage growth. The bullish market sentiment is based on expectations of rate cuts, but the Fed may delay due to potential negative impact and political considerations. The high public debt used to inflate GDP may lead to future economic troubles. Small businesses and families are bearing the brunt of inflation and rate hikes, while the government deficits may continue to rise.
Geopolitical: Two major European banks, Llpyds and Santander UK (which is based in Spain), are at the heart of a highly complex scandal involving Iran sanctions evasion. The incident has been spurred by President Trump's decision to abandon the nuclear deal previously established by Obama, prompting Tehran to intensify its efforts at bypassing US sanctions. While"ghost tankers" sailing to China have received significant attention, the hidden cooperation between reputable European banks and their sophisticated roles in facilitating large Iranian transactions is a crucial element of the scandal. This has caused shares of both Lloyds and Santander UK to plummet on Monday as investors become aware of the potential for hefty fines.
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In recent market developments, the trend indicates a shift beyond the initial reaction to 'sell the ETF news,' with Bitcoin prices stabilizing around the $43,000 mark. The uptick in USDT to BTC transactions suggests a renewed confidence among investors, who had previously sought refuge in USDT amidst the volatility following ETF announcements. This movement signals a willingness among market participants to re-engage with the cryptocurrency market, underpinned by a belief in its resilience and potential for recovery.
From a broader economic perspective, expectations for interest rate reductions by the Federal Reserve are being tempered by the latest economic indicators. Despite market predictions hinting at a potential rate cut as early as March 2024, with over 50% likelihood by May 2024, our analysis suggests a more conservative timeline with the first cut possibly occurring in the June 2024 cycle. Although the economy shows signs of strength, evidenced by robust job creation and low unemployment rates, there are underlying concerns. These include a decline in labor force participation and sluggish growth in government employment, which may prompt a cautious or even hawkish approach from the Federal Reserve in the near term.
In an intriguing turn of events within the business sector, Adam Neumann, the controversial figure behind WeWork, is reportedly seeking funds to repurchase the company. This development highlights the tech and investment communities' capacity for optimism, often looking past previous setbacks to embrace potential opportunities for redemption and growth. Such moves not only reflect the dynamic nature of the investment landscape but also underscore the recurring themes of resilience and the willingness to take calculated risks in pursuit of innovation and success.
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