Bitcoin Climbs to $57K Amidst Continued Housing Strength: Fed Rate Cuts in Doubt?
Bitcoin Climbs to $57K Amidst Continued Housing Strength: Fed Rate Cuts in Doubt?
Digital Asset Market: Bitcoin's price has reached a new YTD high of $57,000, fueled by consistent inflows into BTC spot ETFs and the upcoming halving. Furthermore, open interest in Bitcoin futures has surged to its highest level of the year so far, indicating increased trading activity. This price surge has been accompanied by funding rates for bitcoin perpetual futures surpassing 100%, pointing towards a strong bullish sentiment in the market and a preference towards leveraged long positions. There seems to be no end to the current bullish sentiment and potential for further gains.
Macro Economics: The global debt level has reached a worrying milestone of $313 trillion and continues to increase, leading to economic problems such as low growth, inflation, and burden on taxpayers. Governments rely on deficit spending and printing money, which erodes the currency's purchasing power and hinders private sector investment. The trend of rising debt is particularly alarming in developing economies, and the consequences include weaker economic growth and financial instability. The excessive accumulation of debt not only poses immediate risks but also has long-term consequences, such as hindering investment and burdening future generations with debt. The irresponsible actions of governments, such as relying on cheap debt, could ultimately lead to the downfall of the US dollar and major changes to the current financial and monetary system.
Equities: US stocks opened relatively flat on Tuesday, with investors eagerly awaiting economic data and Fed officials' speeches to better understand the future trajectory of interest rates. The upcoming inflation update through the Personal Consumption Expenditures Index is expected to further test the recent market rally, especially following the previous sell-off caused by a higher-than-expected CPI report. Apart from the PCE, other data releases this week will provide valuable insights into the state of the economy. The news of Bitcoin's price rising above $57,000 has led to a surge in cryptocurrency-linked stocks. However, concerns over potential disruption to Chevron's acquisition of Hess's oil stake in a project in Guyana caused the latter's shares to fall. Macy's shares were also fluctuating after revealing plans to close underperforming stores, while Zoom's shares saw a boost following strong guidance and a buyback program approval from its board. In further news, Berkshire Hathaway's annual letter to shareholders highlighted record profits and honored Buffett’s right-hand man, Charlie Munger, “the Architect.”
The Fed and US Treasury: This week in the markets will be dominated by the release of the Personal Consumption Expenditures index (PCE), as investors await clues on potential Federal Reserve monetary policy changes. Lowered expectations for early Fed easing and upbeat data have pushed out bets on the first cut, but Citigroup strategists don't believe the US equity market is in a bubble like that of 1999-2000 and predict that the recent rally could spread to other sectors. This view is based on the fact that valuation multiples for stocks are below 2000 levels and cash flow expectations for non-tech companies are not stretched. On the other hand, JPMorgan CEO Jamie Dimon believes a recession is likely on the horizon, but doesn't see any systemic issues. He disagrees with the market's optimism and warns that higher interest rates, geopolitical tensions, and the Federal Reserve's quantitative tightening program could potentially contribute to a downturn. While he expects certain sectors to be hit hard, Dimon does not anticipate the recession to be as severe as the 2008 financial crisis.
Geopolitical: European lawmakers have unanimously agreed not to send ground troops or soldiers to Ukraine after suggestions from French President Emmanuel Macron, Herme Olaf Scholz insisted there would be no European or NATO presence in Ukraine. European leaders are growing in their will to provide Ukraine with long-range missiles, though Scholz is said to be wary of Germany's promise to support Ukraine with munitions for fear of a drawn-out battle in its coalition agreeance. Now it is official and clear that while many European countries are willing to provide weapons, none are ready to really join the fight and Ukraine is alone on that end.
View from our desk
Bitcoin's recent surge past the $57,000 mark raises questions about the driving forces behind this uptrend, including ETF inflows, the anticipated supply halving, and the role of momentum traders. While the first two factors offer quantifiable support to Bitcoin's value, the influence of short-term momentum traders, who often employ leverage, introduces a significant risk of volatility. This group's impact is observable in short funding rates, discernible through perpetual contracts and lending rates. Given this backdrop, we advise our readers to remain vigilant for early signs of market shifts. The journey towards the ambitious year-end target of $100,000 promises to be fraught with turbulence, underscoring the need for caution among investors navigating these potentially choppy waters.
The broader financial markets are currently in a holding pattern, with participants keenly awaiting the release of the Federal Reserve's favored Personal Consumption Expenditures Index (PCE) on Thursday. Inflation and geopolitical tensions are identified as the predominant risks within the system, with a universal longing for a resolution to the ongoing geopolitical conflicts that exacerbate these challenges. Contrary to optimistic expectations for a quick resolution to inflationary pressures, we maintain that the Federal Reserve will likely delay rate cuts, with any action before the June meeting appearing highly improbable. This cautious stance is reinforced by current inflation levels and echoed by concerns from prominent figures like Jamie Dimon, highlighting the complex backdrop against which global markets are operating at all-time highs.
The latest residential real estate data aligns with expectations, marking the 11th consecutive month of price increases in December, albeit at a slower pace than in previous years. Despite this deceleration, home prices have reached record highs, propelled by sustained demand and slightly lower mortgage rates. Looking ahead, we anticipate continued growth in the residential real estate market, albeit at a more tempered pace compared to the explosive growth of recent years. This outlook suggests a market adjusting to a new equilibrium, where growth persists but is moderated by evolving economic and financial conditions.
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The 1Konto Team
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