Equities Stumble, But Bitcoin Soars: Is Crypto the Safe Haven from FOMC Uncertainty?
Equities Stumble, But Bitcoin Soars: Is Crypto the Safe Haven from FOMC Uncertainty?
Digital Asset Market: FTX, a crypto exchange that filed for bankruptcy in November 2020, has filed a lawsuit against Sam Bankman-Fried's parents, Joe Bankman and Barbara Fried, alleging that the couple fraudulently transferred and misappropriated millions of dollars in company funds. Sam Bankman-Fried is currently facing multiple charges of fraud and conspiracy and is due to go on trial Oct. 3. Attorneys for Bankman and Fried have denied the allegations, calling the lawsuit "completely false" and an attempt to manipulate the jury process. If successful, FTX will be able to recover some of the funds that Bankman-Fried moved out of the company prior to its collapse.
Macro Economics: Oil prices rose to 10-month highs on Tuesday morning, with Brent on the verge of triple-digit prices, as Azerbaijan announced the launch of “anti-terrorist” operations within the Nagorno-Karabakh region, an ethnic Armenian region which is internationally recognized as part of Azerbaijan. Tensions between Azerbaijan and Armenia have been mounting in recent months as the former increases its blockade on the region. Meanwhile, oil prices were also up on Tuesday as the OPEC+ alliance of producers has been withholding oil supply from the market. There is potential for further price increases if the tensions between Azerbaijan and Armenia escalate.
Equities: The major U.S. indexes all declined on Tuesday amid investor caution surrounding the Fed's two-day meeting beginning on Tuesday. Deere was downgraded by Evercore ISI, and while the Fed is not expected to raise rates when it announces its decision on Wednesday, traders are eyeing the economic forecast to gain insight into the future of monetary policy. Oil prices rose, which helped energy stocks within the S&P 500 mitigate losses in the session, while leadership of the striking United Auto Workers union said more workers may be called on to withhold labor if progress is not made by Friday.
The Fed and the Banks: This week economists and market strategists will be focusing on the Federal Reserve's monetary policy announcement on Wednesday, even though no rate change is the most likely outcome of the current meeting. Investors will be looking to the new economic forecasts and projections from the Fed for insight into what will happen in November. It is widely believed that the economy is still accelerating, and recent data including consumer and wholesale inflation and the Labor Market highlights this. This week, other economic data such as housing market reports, the LEI, and government budget negotiations will also be monitored.
Geopolitical: Azerbaijan has launched a major offensive on Nagorno-Karabakh, breaking a fragile regional peace that had lasted since the 2020 war. Armenia has accused Azerbaijan of 'violating the ceasefire' with missile-artillery strikes and killed two people, including one child. As a result, Armenia is urging its ally Russia to take action, as well as calling for an emergency meeting of the United Nations Security Council. It is thought that Azerbaijan had previously sought to conduct a "slow genocide" of Nagorno-Karabakh's Armenian population by cutting off food, medicine, and humanitarian aid. The conflict itself dates back to post-Soviet times, when Christian Armenia and Muslim Azerbaijan fought a war for the region in which over 200 people were killed.
View from our desk
Bitcoin's price has experienced notable gains today, surging by over 2.5% to reach a September high of more than $27,400. This bullish movement comes on the heels of a relatively flat weekend, during which Bitcoin successfully maintained a crucial support level at $26,000. This stability has bolstered trader and analyst confidence, and the likely driver appears to be investors seeking refuge from the uncertainties plaguing traditional markets ahead of the Federal Open Market Committee (FOMC) meeting. We anticipate that these supportive price levels will hold steady throughout the week.
In contrast, the equities markets have shown a lack of activity and even a decline today. However, our outlook remains optimistic that the Federal Reserve will maintain current interest rates. We have held this view for an extended period and expect rates to stay within the 525-550 basis points range for a considerable time. A rate drop is anticipated, but not until the second quarter of next year.
Clarity in the Federal Reserve's communication strategy during this cycle will be crucial. Clear and consistent messaging can help mitigate market uncertainties, thereby fostering a more conducive environment for economic activity. As both the cryptocurrency and traditional financial markets navigate through these volatile times, the role of clear policy communication cannot be overstated.
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The 1Konto Team
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