Mt. Gox Moves 140,000 Bitcoin! How Did the Market Absorb the Shock?
Mt. Gox Moves 140,000 Bitcoin! How Did the Market Absorb the Shock?
Digital Asset Market: Mt.Gox, the defunct Bitcoin exchange, transferred over 140,000 bitcoin to an unknown address in thirteen transactions, worth around $9 billion. This is the first movement of assets from Mt.Gox's cold wallets in over five years and is likely part of a plan to repay creditors by October 31, 2024. The market reacted bearishly to these movements, with bitcoin dropping by 1.4% after reaching a high of over $70,000 on Monday. It is expected that most of the transferred bitcoin will be held by creditors, rather than being sold on the open market.
Macro Economics: Consumer confidence in the US rose unexpectedly in May after declining for the past three months. This was mainly driven by optimism about the labor market, with consumers feeling hopeful about employment opportunities. However, concerns about inflation persisted and many households expect higher interest rates in the coming year. Even though there are worries about a potential economic downturn, consumers are still positive about the stock market and intend to purchase major household appliances in the next six months. Despite a projected slowdown in the economy due to recent interest rate hikes, economists and business leaders do not foresee a recession. This is supported by the strong labor market and overall stable consumer confidence, which has remained in a narrow range for the past two years. While consumers are aware of rising prices, particularly for food and groceries, they still plan to spend on major purchases such as appliances. However, their plans to buy homes have decreased due to higher mortgage rates and elevated home prices. Inflation and interest rate concerns have also influenced consumers' expectations of a recession in the next 12 months. Overall, the economy is expected to remain stable, with a strong labor market and positive consumer confidence. However, there are concerns about rising inflation and potential interest rate hikes, which may lead to a decrease in consumer spending. The housing market also remains tight, with low supply and high demand contributing to increasing home prices.
Equities: The stock market retreated on Tuesday as concerns over rising yields dampened investor sentiment. The Dow Jones Industrial Average fell 307 points, or 0.8%, while the S&P 500 lost 0.3%. The Nasdaq Composite, however, traded up 0.2% thanks to a jump in Nvidia's stock. The rise in the 10-year Treasury yield above 4.5% after a weak government auction and comments from the Minneapolis Federal Reserve President also weighed on stocks. Despite the day's losses, it has been a strong month for the market, with all three major indexes reaching record highs. Investors are now waiting for the personal income and expenditures report on Friday for more clues on inflation.
JPMorgan CEO Jamie Dimon spoke at the JPMorgan Global China Summit and said that he cannot rule out the possibility of a "hard landing" for the U.S. economy. He warned that a "stagflation" scenario, where inflation rises but growth slows, would be the worst outcome for the economy. However, Dimon noted that the consumer is still in good shape, with low unemployment rates and increasing wages, home prices, and stock prices. He also mentioned that the Fed may still raise interest rates, despite market expectations for rate cuts. Dimon believes that the world is not well-prepared for higher inflation.
The Fed and US Treasury: The Federal Reserve is unlikely to cut interest rates in the near future due to a recent batch of stronger-than-expected economic data and comments from policymakers. Data such as weekly jobless claims suggest a stable or even growing economy, while inflation remains a concern for both consumers and the Fed. Even some policymakers who were previously open to rate cuts are now hesitant. The upcoming release of personal income and spending data will be closely watched, but it is unlikely to show enough progress towards the Fed's 2% inflation target. As a result, markets have shifted their expectations from multiple rate cuts to just one, and Goldman Sachs has even pushed back its prediction of the first cut to September. The Fed is not currently feeling any urgency to cut rates. The US sold $70 billion of five-year notes at a higher rate than initially expected, leading to extended Treasury losses. The release of a report showing increased consumer confidence in May was tempered by growing fears of a recession
Geopolitical: Various Western leaders, including EU foreign policy chief Josep Borrell and NATO Secretary-General Jens Stoltenberg, are calling for an escalation in Ukraine by allowing them to attack Russian territory with West-supplied weaponry. NATO's newest member, Sweden, has also permitted Ukraine to use their donated military weapons to strike into Russia. This move is seen as an attempt to influence other nations to do the same and defend Ukraine's right to defend itself against Russia's "unprovoked and illegal war of aggression."
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he selling pressure resulting from Mt. Gox's transfer of 140,000 Bitcoin to an unknown address appears to have been well absorbed by the market. Buyers eagerly jumped in at the $68K level, buying the dip. Additionally, there was above-normal activity in USDT, which we attribute partly to transactional volume following a banking holiday and partly to investors cashing in after the recent rally from ETH ETF approval. Although the market reacted lightly to the Mt. Gox news, assuming most creditors will not liquidate their holdings, we believe this situation is far from over.
The broader market has finally accepted the scenario of no rate cuts, aligning with our steadfast view since the beginning of the year. Minneapolis Fed President Neel Kashkari stated that while a potential interest rate hike is not ruled out, it is more likely that rates will remain at their current level for an extended period as the Fed waits for inflation to drop. We don’t expect rates to increase, but we also recognize that inflation is not going away anytime soon.
Kashkari's and other Fed statements clearly indicate that no cuts should be expected until inflation reaches their target. The market's acceptance of this stance suggests a period of stability in interest rates, but ongoing concerns about inflation persist. Investors should remain cautious and stay informed about the evolving economic landscape and its impact on the financial markets.
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