18 Burst results for "Alex Krueger"
The Breakdown
"alex krueger" Discussed on The Breakdown
"Going on guys? It is Thursday January 5th and today we are catching up on the macro scene. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review or if you want to dive deeper into the conversation. Come join us on the breakers Discord. You can find a link in the show notes or get a bit dot LY slash breakdown pod. All right friends well for the last couple of days as you know, we have been catching up on crypto from over the break, but today we are going into the macro realm because remember, before there was the wrecking ball of Luna and then three AC and then Sam and now maybe Barry? There was the macro environment and the fed just tanking all risk assets. In fact, this week we had something of an anniversary. Yesterday we got the fed meeting minutes from December and the meeting minutes are kind of a chance for the Federal Reserve to give extra nuggets of information to drive markets in the direction they want. It's not an accident that they're released weeks after the actual FOMC meeting. They're used as yet another tool of self fulfilling prophecy. So if the fed thinks the markets didn't get the message they were trying to send well enough or got it too well, they can recalibrate. This happened in dramatic fashion in January of last year in 2022. In December 2020 one, the fed confirmed that their FOMC meeting, what everyone anticipated, that rate hikes were coming in 2022. In fact, that confirmation drove markets higher as pretty much everyone in the market thought that the fed had waited too long to hike rates at that point. What markets didn't anticipate was that in addition to rate hikes, the Federal Reserve actually anticipated starting to reduce the size of the balance sheet in 2022 as well. In other words, a shift from quantitative easing to quantitative tightening. This was surprising because after the fed's last period of QE, it took years to actually start to move to balance sheet normalization and eventually reduction. So to do it in just months after rate hikes began would be a dramatic shift. Here's how macro analysts and trader Alex Krueger put it back then.
The Breakdown
The Fed Is Scared of Stock Market Animal Spirits
"Today we are going into the macro realm because remember, before there was the wrecking ball of Luna and then three AC and then Sam and now maybe Barry? There was the macro environment and the fed just tanking all risk assets. In fact, this week we had something of an anniversary. Yesterday we got the fed meeting minutes from December and the meeting minutes are kind of a chance for the Federal Reserve to give extra nuggets of information to drive markets in the direction they want. It's not an accident that they're released weeks after the actual FOMC meeting. They're used as yet another tool of self fulfilling prophecy. So if the fed thinks the markets didn't get the message they were trying to send well enough or got it too well, they can recalibrate. This happened in dramatic fashion in January of last year in 2022. In December 2020 one, the fed confirmed that their FOMC meeting, what everyone anticipated, that rate hikes were coming in 2022. In fact, that confirmation drove markets higher as pretty much everyone in the market thought that the fed had waited too long to hike rates at that point. What markets didn't anticipate was that in addition to rate hikes, the Federal Reserve actually anticipated starting to reduce the size of the balance sheet in 2022 as well. In other words, a shift from quantitative easing to quantitative tightening. This was surprising because after the fed's last period of QE, it took years to actually start to move to balance sheet normalization and eventually reduction. So to do it in just months after rate hikes began would be a dramatic shift. Here's how macro analysts and trader Alex Krueger put it back then. This is excerpted from a thread that he published on January 9th, 2022, almost exactly a year ago. There has been a very fundamental shift at the Federal Reserve. The fed has flipped decidedly hawkish. Their main worry is not employment. It is inflation. And to fight inflation, the fed has to increase interest rates. It all started with Powell's inflation no longer transitory comment of November 30th. And culminated with the FOMC minutes released on Wednesday, where fed officials discussed faster balance sheet normalization.
CoinDesk Podcast Network
"alex krueger" Discussed on CoinDesk Podcast Network
"Or get a bit dot LY slash breakdown pod. All right friends well for the last couple of days as you know, we have been catching up on crypto from over the break, but today we are going into the macro realm because remember, before there was the wrecking ball of Luna and then three AC and then Sam and now maybe Barry? There was the macro environment and the fed just tanking all risk assets. In fact, this week we had something of an anniversary. Yesterday we got the fed meeting minutes from December and the meeting minutes are kind of a chance for the Federal Reserve to give extra nuggets of information to drive markets in the direction they want. It's not an accident that they're released weeks after the actual FOMC meeting. They're used as yet another tool of self fulfilling prophecy. So if the fed thinks the markets didn't get the message they were trying to send well enough or got it too well, they can recalibrate. This happened in dramatic fashion in January of last year in 2022. In December 2020 one, the fed confirmed that their FOMC meeting, what everyone anticipated, that rate hikes were coming in 2022. In fact, that confirmation drove markets higher as pretty much everyone in the market thought that the fed had waited too long to hike rates at that point. What markets didn't anticipate was that in addition to rate hikes, the Federal Reserve actually anticipated starting to reduce the size of the balance sheet in 2022 as well. In other words, a shift from quantitative easing to quantitative tightening. This was surprising because after the fed's last period of QE, it took years to actually start to move to balance sheet normalization and eventually reduction. So to do it in just months after rate hikes began would be a dramatic shift. Here's how macro analysts and trader Alex Krueger put it back then. This is excerpted from a thread that he published on January 9th, 2022, almost exactly a year ago. There has been a very fundamental shift at the Federal Reserve. The fed has flipped decidedly hawkish. Their main worry is not employment. It is inflation. And to fight inflation, the fed has to increase interest rates. It all started with Powell's inflation no longer transitory comment of November 30th. And culminated with the FOMC minutes released on Wednesday, where fed officials discussed faster balance sheet normalization. The latter is worrisome enough to trigger a bear market. Raising rates are tapering quantitative easing should not be bearish enough to change the upwards trend across assets. But this goes beyond that. In less than 6 months, the fed went from expecting no rate Higgs for 2022, party goes on to expecting three rate hikes accelerated taper and discussing accelerated balance sheet normalization. Balance sheet normalization was not on anyone's radar for a long time. Not only is this now a possibility in the near term, but the fed is talking about doing so faster than in 2018. That's why crypto assets dropped 15 to 30% in two days last week. Accelerated normalization would be dreadfully bearish. What does balance sheet normalization mean? It means reversing the asset purchases conducted under QE.
The Breakdown
"alex krueger" Discussed on The Breakdown
"Stablecoin. As one of the largest, longest lasting and most secure exchanges, kraken continues to set the industry example for transparency and trust. Regular proof of reserves audits verify your balances are backed by real assets. Industry leading security keeps your funds and information safe, and award winning client engagement teams are available for support 24/7. Buy crypto instantly with fast, flexible funding options on kraken. Download the kraken app on Google Play or the Apple App Store or visit kraken dot com slash breakdown to join. Friends, that was just the first of these three interviews, which brings us to the big show the interview of Sam's present. Now for some time, Sam had been scheduled to appear at The New York Times DealBook summit on November 30th. One of the questions in the wake of all of the FTX revelations was whether that conversation would still happen. On November 23rd, Andrew Ross Sorkin wrote, a lot of folks have been asking if I would still be interviewing Sam at The New York Times steelbook summit. The answer is yes. There are a lot of important questions to be asked and answered. Nothing is off limits. Looking forward to it. I will say, I was nervous about whether shorten was going to ask the tough questions. But he started strong. Sorkin says, there are two ways to view what happened at FTX. There's a generous view that you are a young man, who made a series of terrible, terrible, very bad decisions. The less generous view is that you have committed a massive fraud that this is a Ponzi scheme, a manipulation of the system. What is this? What did happen? Sam says he was CEO, so whatever happened, he had a duty, blah, blah, blah, blah. But the key line is he says I didn't ever try to commit fraud on anyone. I was excited about the prospects of FTX just a month ago. I was shocked about what happened this month. Quickly pausing here, I think overall Sorkin did okay as we'll get into in a minute. But I believe that the main problem with a lot of these interviews is that they don't ask the questions in appointed yes or no style way. They ask it in ways that allow squirming and half truths and narrative construction. To his credit though, Sorkin tried to keep the focus on this question. He says next from a gentleman who said he had lost his life savings, the subject line is Sam bankman fried stole $2 million from me, says Andrew, can you please ask SPF why he decided to steal my life savings and the $10 billion more from customers to give his hedge fund Alameda? Can you ask him why his hedge fund was leveraging long all of these coins? Please ask him if he thinks what happened was fraud. These are the kind of letters I've been getting repeatedly over and over the past couple days. What do you tell this man? Now Sam for his part chose not to answer any of the actual questions about his decision, which was of course the question subject to give customer funds to Alameda. Instead he talks about Alameda's positions on the platform. Sorkin then cuts him off, the bigger question is where Alameda got the loan from. There is a view that this is about commingling of funds. In that letter, this gentleman actually copy and paste the terms of service for FTX into the email. None of the digital assets in your account are the property of or should be loaned to FTX trading, FTX trading does not represent a treat digital assets and user accounts belonging to FTX trading. So how is it possible that Alameda had this loan of such a large size? Sam says in one of the sleaziest answers, there's that piece of the terms of service, but there were a number of other parts of the terms of service in a number of other parts of the platform on top of that. He then talks to the borrow and lend portion and the futures portion claims that the platform could margin call all of those positions and close them when needed, but Sorkin cuts him off again and says, let's make this very straight. Was there comingling of funds? That's when it appears like. It appears like there was a genuine commingling of the funds of FTX customers that were not supposed to be commingled with your separate firm. Sam says I didn't knowingly commingle funds. I wasn't trying to commingle funds. Now the savvy observer here will note that it's not totally clear how much it matters whether he was quote unquote trying to or not. It certainly reads again like someone mounting a defensive gross mismanagement not fraud. But I wasn't trying to commit fraud might not be the strongest argument. Later on in the interview, Sorkin brings up Carolyn Ellison from Alameda, who had told staffers that Alameda used FTX client funds to cover loans that were being recalled because of the Luna triggered credit crunch. According to The Wall Street Journal, Caroline said that she, Sam and Gary were all aware of that. Sorkin asks how do you square that with what you said on Twitter that this was an $8 billion accounting mistake? Sam didn't really answer this one. Now a little later, Sorkin does push hard and lead Sam to start to reveal what sort of seems like another part of his plan, which is to pin this all in Alameda. At one point he said I wasn't running Alameda. I didn't know exactly what was going on. I didn't know the size of their position. To that, Jake stravinsky wrote, if you're Carolyn Ellison or Sam trabuco right now, I assume you're watching this and thinking very hard about your options. DoJ is only a phone call away. Another part of the interview that has gotten much coverage was when Sorkin asked Sam if he could go back to the U.S. to which Sam said to my knowledge I could, which short can then followed with how concerned are you about criminal liability at this point? Sam says I don't personally think that I have. It's a long interview so I'm skipping over a lot, but one of the more egregious seeming lies was when Sam said, I don't know the details of that house for my parents, but I know that it was not intended for their long-term property. Barf. Anyways, at the end, Sorkin asks were you truthful with us today and Sam says he was. And then Sorkin says I want to thank you for this interview. I hope that some of the answers have been helpful as we try to understand and entangle what is still a tangled story. I know this has been a difficult conversation and a tough conversation. On behalf of everyone here and on behalf of the public, I want to thank you for engaging in at a time and truth when I know you've been advised not to. At that point Sam gets a round of applause, which is just super weird. Now clips of that round of applause have caused a lot of folks on Twitter to be very angry at the interview as a whole. For me, I would give it like a solid C to C plus. Maybe graded on the scale of the rest of the media coverage up to this point, maybe it ekes into the bees, the reason for that is that Sorkin did ask some hard questions. But there can be too many points awarded for that as those are the clear questions. Second, Sorkin did try to drag Sam back to get answers when he obfuscated at least the beginning, he just wasn't really that successful. The third, there were some really big things he missed. Alex Krueger pointed out the Sorkin didn't ask about the $3.3 billion in loans to himself or the Alameda God mode where they didn't get liquidated as they were trading. Now some folks thought it made Sam look bad. Niraj from coin center says, as expected Sam looked terrible and had no answers. Slate wrote a piece called Sam bankman Friedman and other risky bet that didn't quite go as planned. With the juicy line whether the hole that the disgraced crypto Titan finds himself in is merely a reputational or legal or financial, he's now eagerly grabbed a shovel offered up by The New York Times columnist Andrew Ross Sorkin. Others though thought this was extremely calculated. Ledger status says I think the play on intent or lack thereof is extremely calculated and may even work. Jake stravinsky said I agree that's the play. It has a nonzero chance of tricking a jury if he wants to go to trial. That's a high risk play since the downside is a life sentence. But hey, Sam never was one to shy away from risk. Still, better chance if he shuts his mouth. Nick Carter took it even farther. This morning he wrote, Sam isn't behaving like a renegade who is ignoring the advice of his lawyers. He's behaving like he has a world class crisis management firm and legal team constructing a very specific and deliberate public narrative. It's not ten D underwater chest. It's just basically legal positioning. Obviously he has an interest in representing that he had no knowledge of Alameda and had no intent to commit fraud. Perceived intent matters. Manslaughter is a lot less worse than first degree premeditated murder. Even simpler Vinnie lingam echoed this point saying the SPF legal strategy is to attempt to characterize fraud as incompetence in order to stay out of jail. In any case, this was the entire conversation for all of last night, but shockingly. I think it was completely upstaged by an interview this morning with of all institutions, Good Morning America. George Stephanopoulos apparently flew to The Bahamas recently and had a two hour conversation with Sam, which was condensed down to what is for my money the best 9 minutes of any interview so far. It starts right off with George Stephanopoulos asking if FTX went bankrupt because it used customer funds to pay Alameda creditors. Sam gives a meandering answer as he is wont to do to which stephanopoulos responds, I'm no cryptocurrency expert, I'm no finance expert, but I don't think you answered my question. Did you know that FTX deposits were used to pay off Alameda creditors? And that, my Friends is the point when I sat up in my chair. Stephanopoulos didn't leave it either. He goes on, Carolyn Olsen says you all knew these funds were put into Alameda that these are funds that were owned by your depositors. Sam starts, GS cuts him off, reads the FTX terms of service, Sam tries to say in some cases it's okay, but then stephanopoulos says if Alameda is borrowing FTX users funds, that's a bright red line, isn't it? Sam tries to say there are a lot of cases where that's explicitly part of the program. But GS cuts him off again saying but not here. Here it says explicitly that these funds can't be loaned out. Now if you thought some of the answers were slow or meandering when it came to the DealBook interview. In this one there are just awkward minutes of silence it feels like. The last section may be even crazier. Again, what we have here is someone trying to say this was about negligence not criminal intent. Stephanopoulos is talking to Sam about risk management. He uses his own words against him when he said you've been in podcasts saying that your best skill is dealing with risk. Sam said, yeah, that was true and tried to defend himself saying that it wasn't that he was a bad risk manager. It's that he wasn't doing it at all. Specifically, he said, I wasn't spending any time to manage risk on FTX. To which stephanopoulos responded, that's a stunning admission. Sam said, I don't know what to say. What happened happened? So a couple notes on this one. First of all, huge kudos to George Stephanopoulos for being the first person to actually just not let up on the most important questions. I'm honestly quite glad that if there was going to be one interview like that, it was the one likely to be seen by the most people. Good Morning America has been the most watched morning show since 2012. Second I called this interview the interview of Sam's future because it feels like the one most likely to come back to haunt him in whatever comes next. Listen, entire psychological courses could be devoted to why this media tour is happening. I think the folks like Nick were identifying this as an attempt to craft a media narrative that moves away from fraud and towards negligence or even a benign version of fraud that could be plea bargained down are dead on. But boy, it's hard not to feel like Sam has given a hell of a lot of material to those who are actually investigating him right now. But apparently the media tour continues. Sam is saying that he'll show up on a Twitter spaces tomorrow and maybe Frank Chaparral's podcast too soon. Will that actually happen even after the reactions to these latest interviews? Time will tell how it all shakes out. For now I want to say thanks again to my sponsors and exo, circle and kraken, and thanks to you guys for listening. Until tomorrow be safe and take care of each other. Peace
CoinDesk Podcast Network
"alex krueger" Discussed on CoinDesk Podcast Network
"Hedge fund was leveraging long all of these coins? Please ask him if he thinks what happened was fraud. These are the kind of letters I've been getting repeatedly over and over the past couple days. What do you tell this man? Now Sam for his part chose not to answer any of the actual questions about his decision, which was of course the question subject to give customer funds to Alameda. Instead he talks about Alameda's positions on the platform. Sorkin then cuts him off, the bigger question is where Alameda got the loan from. There is a view that this is about commingling of funds. In that letter, this gentleman actually copy and paste the terms of service for FTX into the email. None of the digital assets in your account are the property of or should be loaned to FTX trading, FTX trading does not represent a treat digital assets and user accounts belonging to FTX trading. So how is it possible that Alameda had this loan of such a large size? Sam says in one of the sleaziest answers, there's that piece of the terms of service, but there were a number of other parts of the terms of service in a number of other parts of the platform on top of that. He then talks to the borrow and lend portion and the futures portion claims that the platform could margin call all of those positions and close them when needed, but Sorkin cuts him off again and says, let's make this very straight. Was there comingling of funds? That's when it appears like. It appears like there was a genuine commingling of the funds of FTX customers that were not supposed to be commingled with your separate firm. Sam says I didn't knowingly commingle funds. I wasn't trying to commingle funds. Now the savvy observer here will note that it's not totally clear how much it matters whether he was quote unquote trying to or not. It certainly reads again like someone mounting a defensive gross mismanagement not fraud. But I wasn't trying to commit fraud might not be the strongest argument. Later on in the interview, Sorkin brings up Carolyn Ellison from Alameda, who had told staffers that Alameda used FTX client funds to cover loans that were being recalled because of the Luna triggered credit crunch. According to The Wall Street Journal, Caroline said that she, Sam and Gary were all aware of that. Sorkin asks how do you square that with what you said on Twitter that this was an $8 billion accounting mistake? Sam didn't really answer this one. Now a little later, Sorkin does push hard and lead Sam to start to reveal what sort of seems like another part of his plan, which is to pin this all in Alameda. At one point he said I wasn't running Alameda. I didn't know exactly what was going on. I didn't know the size of their position. To that, Jake stravinsky wrote, if you're Carolyn Ellison or Sam trabuco right now, I assume you're watching this and thinking very hard about your options. DoJ is only a phone call away. Another part of the interview that has gotten much coverage was when Sorkin asked Sam if he could go back to the U.S. to which Sam said to my knowledge I could, which short can then followed with how concerned are you about criminal liability at this point? Sam says I don't personally think that I have. It's a long interview so I'm skipping over a lot, but one of the more egregious seeming lies was when Sam said, I don't know the details of that house for my parents, but I know that it was not intended for their long-term property. Barf. Anyways, at the end, Sorkin asks were you truthful with us today and Sam says he was. And then Sorkin says I want to thank you for this interview. I hope that some of the answers have been helpful as we try to understand and entangle what is still a tangled story. I know this has been a difficult conversation and a tough conversation. On behalf of everyone here and on behalf of the public, I want to thank you for engaging in at a time and truth when I know you've been advised not to. At that point Sam gets a round of applause, which is just super weird. Now clips of that round of applause have caused a lot of folks on Twitter to be very angry at the interview as a whole. For me, I would give it like a solid C to C plus. Maybe graded on the scale of the rest of the media coverage up to this point, maybe it ekes into the bees, the reason for that is that Sorkin did ask some hard questions. But there can be too many points awarded for that as those are the clear questions. Second, Sorkin did try to drag Sam back to get answers when he obfuscated at least the beginning, he just wasn't really that successful. The third, there were some really big things he missed. Alex Krueger pointed out the Sorkin didn't ask about the $3.3 billion in loans to himself or the Alameda God mode where they didn't get liquidated as they were trading. Now some folks thought it made Sam look bad. Niraj from coin center says, as expected Sam looked terrible and had no answers. Slate wrote a piece called Sam bankman Friedman and other risky bet that didn't quite go as planned. With the juicy line whether the hole that the disgraced crypto Titan finds himself in is merely a reputational or legal or financial, he's now eagerly grabbed a shovel offered up by The New York Times columnist Andrew Ross Sorkin. Others though thought this was extremely calculated. Ledger status says I think the play on intent or lack thereof is extremely calculated and may even work. Jake stravinsky said I agree that's the play. It has a nonzero chance of tricking a jury if he wants to go to trial. That's a high risk play since the downside is a life sentence. But hey, Sam never was one to shy away from risk. Still, better chance if he shuts his mouth. Nick Carter took it even farther. This morning he wrote, Sam isn't behaving like a renegade who is ignoring the advice of his lawyers. He's behaving like he has a world class crisis management firm and legal team constructing a very specific and deliberate public narrative. It's not ten D underwater chest. It's just basically legal positioning. Obviously he has an interest in representing that he had no knowledge of Alameda and had no intent to commit fraud. Perceived intent matters. Manslaughter is a lot less worse than first degree premeditated murder. Even simpler Vinnie lingam echoed this point saying the SPF legal strategy is to attempt to characterize fraud as incompetence in order to stay out of jail. In any case, this was the entire conversation for all of last night, but shockingly. I think it was completely upstaged by an interview this morning with of all institutions, Good Morning America. George Stephanopoulos apparently flew to The Bahamas recently and had a two hour conversation with Sam, which was condensed down to what is for my money the best 9 minutes of any interview so far.
CoinDesk Podcast Network
"alex krueger" Discussed on CoinDesk Podcast Network
"Outside of FTX, one of the institutions that people are keeping a close watch on is silvergate bank. Silvergate bank services a huge part of this industry. In fact, it's one of the only banks that does. The crypto specialized bank operated its own proprietary to crypto settlement rails, which are used throughout the crypto space. Due to fears of its exposure to FTX, silvergate stock is down 54% this month. Institutional crypto trading platform falcon X informed its clients that it would be no longer using silvergate for clearing late this week. Falcon X said this was quote out of an abundance of caution. In line with their aim to be the quote safest counterparty during these market conditions. Optimistically then, this move doesn't necessarily indicate a problem at silvergate, just crypto platform seeking to minimize all counterparty risk, but that hasn't kept the chattering class from saying that something might be wrong at silvergate as well. What's more, the rumors around silvergate were getting worse, not better. By midday Friday, silvergate stock was down 20% in the last two days. One defender Friday came in the form of block towers area David Paul. He wrote, an update on silvergate. We've done some more analysis and our confident it's solvent, with large margin for error, as confident as we can be as non bank experts performing superficial financial analysis. It's critical and valuable infrastructure to the industry, and they've always been good faith partners to the industry. Any bank can face liquidity challenges, but silvergate structured balance sheet very defensively. And so is in great shape to deal with short term liquidity challenges. Again, this has not stopped the rumor mill from flying. Now in terms of some of the other areas of contagion that we've been following when it comes to genesis in DCG, there's not really anything new as of late Friday afternoon. Alex Krueger, however, pointed out, quote, market trading as if DCG were throwing genesis lending under the bus. As indicated by the GBTC discount widening today by 6%, eth E discount by 8%. And then, of course, there was crypto VC Chris Bernice, who had recently started to allow some optimism to come back into his tweeting, only to tweet late on Thursday night, I've gotten more information unconfirmed by the primary source that makes me less aggressively optimistic than I was earlier. We should get significant clarity next week. This week and weekend is likely rumor chaos. So make of that what you will now one more thing inside crypto some updates on the regulatory landscape. Lawmakers have understandably renewed their efforts to bring crypto legislation to the table during the lame duck session following the midterms. Chief among them is a push from Democrat senator Kirsten gillibrand to ready a stablecoin Bill for a vote. At a blockchain association event in D.C. on Wednesday, she said, quote, the bill we're working on now and we hope to introduce in the next few weeks would be a comprehensive stablecoin bill that we would ask to get at least a hearing in the Senate banking committee and maybe get a vote by the end of the Congress. She mentioned that Republican senators Patrick toomey and Cynthia lummis were assisting in this effort. So far, most of the attention on stablecoin legislation has been focused on the bipartisan bill in the house, which looked promising in early reporting, but stalled out as negotiations became tense on controversial inclusions. Getting a stablecoin Bill through the Senate banking committee is likely to remain difficult, however. Committee chairman sherrod Brown this week said that in his view, cryptocurrency still don't offer quote anything useful or beneficial. In the anti crypto wing of the Democratic Party, senators Warren and Durbin are pushing for answers about the collapse of FTX. On Wednesday they wrote to former CEO Sam bankman freed, and current CEO John J ray, asking for more information about what precipitated the exchanges collapse. They said that the collapse, quote, justified our long-standing concerns that the crypto industry is built to favor scammers and designed to reward insiders into defraud mom and pop investors. Now an important aside, Sam's father, Joseph bankman, Stanford law professor, helped Warren draft her 2016 tax simplification Bill and was formerly a donor to her campaign. With the collapse of FTX happening rapidly and in a Shroud of confusion and secrecy, the senators asserted that one thing is clear. The public is owed a complete and transparent accounting of the business practices and financial activities leading up to and following FTX collapse and the loss of billions of dollars of customer funds. On this at least, I agree with them. By November 28th, both bank and freed and Rey are required to provide the senators with information and documents about FTX and its subsidiaries balance sheets, the cause of the exchange is liquidity crisis, its rationale for buying bankrupt crypto exchange Voyager digital, and whether reports that salmon other executives built a backdoor into FTX is accounting system to allow them to alter financial records and move money around without alerting other people are accurate. The CEOs are also required to provide historical data about transfers between FTX and Alameda capital. Now on top of this effort, there is also talk of a hearing in December from the House financial services committee, and I think you will all understand when I say bring it on. All right, so what about a couple of updates about what's been happening in the state of play in not crypto? Since the lower than expected inflation print markets have been doing pretty well, which of course raises the question if the fed is going to do that thing they do where they walk everything back, trotting out an endless line of fed officials to explain why the market has gotten ahead of itself. On Thursday, it was St. Louis fed chair James bullards turned to poor cold water on the market rally. He said that the fed's interest rate policy would need to rise between 5 and 5.2% from the current level at 4% to be sufficiently restrictive to curb inflation. He also flagged the possibility that more might need to be done, saying that's a minimum level. Echoing comments from other fed speakers this week, he dismissed the relevance of a single good inflation print. We have to see a lot more progress before we can be convinced that inflation is actually declining. We've been burned already two years in a row so we've got a long ways to go from here. One of the emerging side narratives out of the fed in the last month has been a renewed factional dispute between hawks, presumably led by chairman Powell, and doves, presumably led by vice chair lael brainard. The main point of difference seems to be on whether to hike fast and get there sooner or to slow down hikes and allow the economy to catch up with policy adjustments to see if the fed has already done enough. Speaking to this bullard said he would defer to chairman Powell on how much to hike at each meeting but noted quote, if you do more now, you have less to do in the first quarter of 2023. If you do less now, then you have more to do in the first quarter. Generally speaking, it probably does not make a lot of difference in terms of the macroeconomics. Markets and mayhem wrote, blurred mentioned the possibility of a 7% fed funds rate, folks. Before we dismiss him as completely insane, if inflation doesn't show signs of significant relief, the fed is likely to continue hiking until it does. Now Elizabeth Warren for her part is almost as angry at the fetish, she is a crypto. She issued a terse response to the barrage of hawkish fed speakers saying, quote, of course the fed has a role to play in getting inflation under control, but there's a big difference between landing a plane and crashing it. Her concern is that the fed has gone too far with interest rate hikes and risks a deep recession or maybe worse. Power risks pushing our economy off a cliff she wrote and who will be most likely to lose their jobs, not stock brokers and investment bankers. Nope. The people out of work will be low wage workers and those already struggling most with rising prices. The fed needs to slow down on these extreme rate hikes and remember its dual mandate of price stability and maximum employment.
The Breakdown
"alex krueger" Discussed on The Breakdown
"The breakdown is sponsored by nexo IO, circle, and kraken, and produced and distributed by coindesk. What's going on guys? It is Wednesday, November 16th and today we are catching up on FTX contagion as well as some interesting things from the macro world. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a listen, give it a review, or if you want to dive deeper into the conversation. Come join us on the breakers Discord. You can find a link in the show notes or go to bit LY slash breakdown pod. All right guys, how is everyone doing out there? Now, I mentioned it yesterday, but I wanted to tell you again about the upcoming grateful for Bitcoin series next week. I've started recording those interviews as of today, including one about Bitcoin gas flare mining today that I think you're really going to like. I also want to say welcome once again to kraken as a partner for the breakdowns back to basics theme throughout the rest of this year. Now today, I want to catch up on a few of the macro stories we've missed as we've been very understandably focused on the crypto industry, but unfortunately first we do have to look at the latest contagion from FTX collapse. Genesis trading is one of the larger players in the institutional crypto space. They're one of The Crown jewels in the digital currency group empire, which should be noted also includes coin desk. They're lending arm is called genesis global capital. And at the end of the third quarter, it had $2.8 billion in total active loans. Now, genesis has had a rough year. They suffered 9 figure losses a few $100 million through their exposure to three arrows capital and Babel finance earlier this year. In June, Michael morrow said, as we already stated on June 17th, we mitigated our losses with a large counterparty who failed to meet a margin call to us. We sold collateral hedged our downside and moved on. Our business continues to operate normally and we are meeting all of our clients needs. Now still losing a few $100 million is going to have some consequences and in the wake of all this CEO Michael morrow stepped down. Perhaps unsurprisingly then when FTX collapsed, one of the big questions was what exposure genesis had. Initially, they said they only had something like $7 million of exposure, but then that was revised up to about a $175 million in locked funds in its FTX trading account. Because of this last week, DCG decided to strengthen their balance sheet with an equity infusion of a $140 million. In spite of this, last night, rumors of solvency issues were perhaps liquidity issues, started to make their way to Twitter. Satoshi stacker wrote breaking, there are rumors about genesis trading being insolvent despite receiving an infusion of a $140 million a few days ago. The parent company of genesis DCG, which is also the parent company of grayscale. Grayscale is one of the largest holders of Bitcoin worth $11 billion. This morning it was revealed that the issue was not with genesis trading, but with genesis capital. Frank chaparro from the block tweeted genesis just held a 7 minute call with clients to let them know withdrawal requests for genesis capital have exceeded their liquidity profile. CEO says he's working on a plan with advisers to fix their liquidity profile and serve clients. Amanda cowie vice president of communications and marketing at DCG released a statement that said, today, genesis global capital, genesis lending business, made the difficult decision to temporarily suspend redemptions and new loan originations. This decision was made in response to the extreme market dislocation and loss of industry confidence caused by the FTX implosion. This decision impacts the lending business at genesis and does not affect genesis trading or custody businesses. Importantly, this decision has no impact on the business operations of DCG and our other wholly owned subsidiaries. Still one of the fallouts from the genesis capital withdrawal shutdown is the Gemini earn program. The team at Gemini released a statement this morning that says, we are aware that genesis global capital, the lending partner of the urn program, has paused withdrawals and will not be able to meet customer redemptions within the service level agreement of 5 business days. We're working with the genesis team to help customers redeem their funds from the earned program as quickly as possible. We will provide more information in the coming days. This past week has been an incredibly challenging and stressful time for our industry. We are disappointed that the earned program SLA will not be met, but we are encouraged by genesis and its parent company digital currency group's commitment to doing everything in their power to fulfill their obligations to customers under the urn program. We will continue to work with them on behalf of all earned customers. This is our highest priority. We greatly appreciate your patience. My duties from 6 man ventures said to be clear, this isn't a hit to Gemini's deposit base. But it's a hit to the market value prop and trust surrounding the concept that customers can earn safe reliable yield on their crypto via a regulated exchange. Not trying to FUD here and I expect Gemini deposits are fine. End quote still, after everything that went down with FTX, what people want is details. Jason Choi wrote no exact figures and still having issues post DCG infusion are not confidence inspiring. Bantu responded to Jason saying fully operational, but temporarily halting origination withdrawals. This seems like another way of saying insolvent. Jason responded, I don't know, just repeating exactly what was said. Could be a duration mismatch could be insolvency. If former good. If latter, pray. Want to keep more profits when trading? Get the best possible prices and trade with 50% lower fees. On nexo pro. The new spot and futures trading platform uses aggregated liquidity of over 3000 order books collected from multiple sources. Utilizing the complete nexo suite allows you to earn interest and borrow funds as you wait for the next trade setup. Visit pro nexo dot IO. That's PRO dot N EXO dot IO and sign up today. This episode is brought to you by circle. The sole issuer of USD C and a leader in crypto that's held to a higher standard. USD C is a fast safe and efficient way to send money around the globe. USD C is always redeemable one to one for U.S. dollars, and has over $45 billion in circulation as of October 13th, 2022. Plus, circle posts weekly reserve reports and monthly attestations of reserve capital, letting users know that USD C is safe transparent and compliant with regulations. Just go to circle dot com backslash transparency to see why USD C is a trusted stablecoin. As one of the largest, longest lasting, and most secure exchanges. Kraken continues to set the industry example for transparency and trust. Twice yearly proof of reserves audits verify your assets are backed by real assets. Industry leading security keeps your funds and information safe. And award winning client engagement teams are available for support 24/7. By crypto instantly with fast flexible funding options on kraken. Download the crack an app on Google Play or the Apple App Store, or visit kraken dot com to join. Now, over the last couple of hours, as I was working on the show, the situation with Gemini seemed to get worse. Numerous commentators noticed that it wasn't just earned but the entire exchange that seemed to be down. There were outages across the web UI, the mobile app that earned program the exchange trading engine, numerous APIs, and more. However, according to the latest tweet from Gemini, it was all about AWS. Quote, we experienced an Amazon Web Services EBS outage with one of our primary databases. We have restored the database and are bringing the exchange back up. Alex Krueger gives probably what's the simplest explanation saying, guessing Gemini withdrawals not working at the moment because Gemini earn got shut down due to genesis lending, leading everyone to withdraw at the same time, equals website issues. Either way, please DYOR if you have your funds in Gemini. Now obviously we will continue to keep an eye on this, but in the meantime, it is probably a good time to withdraw your assets to self custody if you haven't done so already. Now with that let's shift to some of those macro stories that I mentioned we haven't had a chance to cover. And to be clear, there's not necessarily a theme here just the latest things that are important to note. Let's start with the CPI.
CoinDesk Podcast Network
"alex krueger" Discussed on CoinDesk Podcast Network
"Of hours, as I was working on the show, the situation with Gemini seemed to get worse. Numerous commentators noticed that it wasn't just earned but the entire exchange that seemed to be down. There were outages across the web UI, the mobile app that earned program the exchange trading engine, numerous APIs, and more. However, according to the latest tweet from Gemini, it was all about AWS. Quote, we experienced an Amazon Web Services EBS outage with one of our primary databases. We have restored the database and are bringing the exchange back up. Alex Krueger gives probably what's the simplest explanation saying, guessing Gemini withdrawals not working at the moment because Gemini earn got shut down due to genesis lending, leading everyone to withdraw at the same time, equals website issues. Either way, please DYOR if you have your funds in Gemini. Now obviously we will continue to keep an eye on this, but in the meantime, it is probably a good time to withdraw your assets to self custody if you haven't done so already. Now with that let's shift to some of those macro stories that I mentioned we haven't had a chance to cover. And to be clear, there's not necessarily a theme here just the latest things that are important to note. Let's start with the CPI. One of the biggest pieces of news that got blown out of the water last week by Sam and FTX was the inflation print coming in at 7.7%. Pretty significantly under what was expected. This was a major driver of the equities rally that led to the most significant divergence between Bitcoin and risk equities in the last few years. Unfortunately, the inflation data may not be as good as it seems. A quirk in the CPI data has been causing a lot of discussion among financial Twitter. Last month's inflation data showed a 4% reduction in health insurance costs, but as a result of the annual adjustment from the bureau of labor statistics. While the reduction in headline inflation two 7.7% was a welcome change of pace, some were questioning whether the data could really be viewed as a turning point for inflation, if a significant portion of the reduction is attributed to this one time adjustment. The change cut around 8 basis points from core inflation, which held steady from the previous month and would have risen without this adjustment. Health insurance costs did not just suddenly collapse in October, leaving more questions about how real this peak and inflation will prove to be. Matt Fielder, a senior fellow at brookings institution said, no today's health insurance CPI reading does not mean that premium self 4% in October. In fact, it's not really about premiums at all. It mostly reflects events that are over one year old. Jason Furman points out that lags are actually going in both directions right now. The professor at Harvard said lags and shelter now lead the measure to overstate spot core inflation by about 20 basis points. Health insurance is the opposite as of October because CPI shifted from 2020 to 2021 utilization. The subtracts around 8 basis points for core inflation and will for 11 more months. Now, in spite of this, obviously, equities markets have been doing really well. And what we've seen over and over again is that whenever the markets get out ahead of where the fed really thinks inflation is, they tend to send out speakers to tempt them back. On Monday, Federal Reserve governor Christopher Wallace did in fact push back on markets, saying that they had responded far too strongly to one favorable CPI report. Quote, the market seemed to get way, way out in front. I just can not stress this as one data point. We've still got a ways to go. He noted that so far, rate hikes have not broken anything, and that to see significant slowdown the fed would need to see consecutive positive data points, confirming that inflation was cooling off. That said, he did acknowledge that the fed would be considering a smaller 50 basis point hike at their December meeting. Now to the extent that the fed was trying to have Waller be hawkish later that day fed vice chair Lil brainard played the dove. She said quote, I think it will probably be appropriate soon to move to a slower pace of rate increases. Now she hedged a little by saying I think what's really important to emphasize is we've done a lot, but we have additional work to do on both raising rates and sustaining restraint to bring inflation down to 2% over time. With the dollar coming off its highs in the last week and equity market staging a significant rally, questions remain about whether the fed can maintain tight financial conditions as they begin to slow rate hikes. Brainard said quote, we have raised rates very rapidly, and we've been reducing the balance sheet. And you can see that in financial conditions, you can see that in inflation expectations, which are well anchored. Former fed trader Joseph Wang said, what surprised me most about brainard's interview was that she seemed to be open to cuts next year. When asked to point blank for potential cuts, she could have suggested higher for longer or no anticipation of cuts, but did not do so. Brent Johnson wrote, is there any doubt regarding the ongoing battle for control of the narrative between Powell and brainard? Still not everyone is convinced that we should be hopeful right now. Sergey perfilyev, a former Goldman Sachs quant said, much hopium in the markets right now. If fed pivots and starts easing before inflation is firmly lower, the risks of fed's credibility are substantial, especially following their hesitation in 2021. It may not be the risk they're willing to take. They need to prove themselves. Your intimate the director of global macro at fidelity said something similar. There was an instant reaction to the hopeful inflation report, he writes. But if financial conditions ease much further, it may well force the fed to throw cold water on the rally. I expect any cautious optimism from the fed to be tempered with ongoing hawkish talk. Now let's look at some specific sectors of the economy, a new study from the Dallas Federal Reserve found that the recent spike in mortgage rates could cause the U.S. property market to dump by 20%. The pessimistic scenario from the study had a drop of 15 to 20% in house prices, which could reduce inflation adjusted consumer spending by up to 0.7%. The research article entitled skimming U.S. housing froth a delicate daunting task showed that a reduction in consumer spending this large could harm the fed's ability to avoid a recession. The paper states such a negative wealth effect on aggregate demand would further restrain housing demand, deepening the price correction and setting in motion a negative feedback loop. The fed has of course raised interest rates 3.75 percentage points this year, which has driven the average U.S.
The Café Bitcoin Podcast
"alex krueger" Discussed on The Café Bitcoin Podcast
"Tina you know so that was funny. So I'll name some names. Like I like Dan, not a chevsky a lot. He's a good dude. He's what's his prime CMS holdings. You can see CMS holdings or CMS intern on Twitter and you know he loves Bitcoin donates to Bitcoin core devs makes a bunch of money trading doesn't take long positions in centrally controlled ship coin issuance and then go on the path trying to promote it like a Kyle Simone or an Ari Paul or one of these scammers. Trying to think who else just people you guys might know from Twitter like Alex Krueger, I like that dude. I
CoinDesk Podcast Network
"alex krueger" Discussed on CoinDesk Podcast Network
"Expecting another big hike and ensured the answer is yes. The hike was a fairly foregone conclusion. Instead, what folks were really focused on was what the qualitative statements would be around how the fed was thinking about going forward. For example, heading into the meeting market indicators were split on whether to expect a 50 basis point hike or another 75 basis point hike in December. A team of Bloomberg economists said the fed is widely expected to hike rates by 75 basis points for a fourth consecutive meeting. Less certain is how fed chair Powell will communicate a potential future downshift in the rate hike pace. The degree of conviction, the risks around hike sizing and implications for the terminal rate. We expect that he will present a 50 basis point move as the base case, and clarify that a downshift in the pace of rate hikes does not necessarily mean a lower terminal rate. Now, of course, when it comes to any speculation around what the fed is going to do in December, the reality is there is a lot of economic data to come in between now and then. There are two jobs reports and two inflation reports before that next FOMC meeting. And along the chief U.S. economist at Bloomberg said, I think the most important thing to watch for is how power communicates the potential downshift in the pace of rate hikes. He will want to avoid giving the impression that a pivot is imminent, especially not when core inflation is clearly still going strong. He would be preparing the market for a 50 basis point hike in December, but which will also be accompanied with a dot plot which shows a 5% terminal rate. Now, even before the FOMC presser, this question of the terminal rate was on people's minds. Nick Timur was again says one source of confusion for some investors recently is how fed officials could contemplate, slowing the pace of rate rises even if estimates of the peak rate creep higher. The obvious dilemma for financial markets is many things can be true simultaneously. For example, strategists at FHN financial expect the fed to hike to 6% by next June. After this week's increase the fed could accomplish that without another 75 basis point rate rise. Now, the other tricky thing for the fed going into this is that markets are so desperate for a sign of a pivot. The Powell has to be extremely careful with his words. Numerous times we've seen a situation where the markets get out of the head of where the fed is. And the market rallies that ensue actually makes monetary policy harder to do its job. Greg Spence writes one way not to get a fed pivot is by taking a four week 15% parabolic rally into FOMC built on yet another flimsy pivot narrative orchestrated during fed blackout. Dubois realized this is the 6th time they've played this exact game, so at this point I think we should actually look at what news came out of the fed. The short of it is that they're staying the course. We got another 75 basis point hike with Powell saying we continue to anticipate that ongoing increases will be appropriate. We are moving our policy stance purposefully to a level that will be sufficiently restrictive to return inflation to 2%. In addition, we are continuing the process of significantly reducing the size of our balance sheet. Now, on inflation, power flag that it's sticky but expectations remain okay, but that that could change. Quote, recent inflation data again have come in higher than expected. Price pressures remain evident across a broad range of goods and services. Despite elevated inflation, longer term inflation expectations appear to remain well anchored, has reflected in a broad range of surveys of households, businesses and forecasters, as well as measures from financial markets. But that is not grounds for complacency. The longer the current bout of high inflation continues, the greater the chance that expectations of higher inflation will become entrenched. End quote. When it comes to growth, Powell said that although quote the U.S. economy has slowed significantly from last year's rapid pace, labor remains the issue. Putting a fine point on this palisade, the labor market continues to be out of balance with demand substantially exceeding the supply of available workers. And what about a pause or an acknowledgment of policy lag? On that front Powell said, it will take time for the full effects of monetary restraint to be realized, especially on inflation. That's why we say in our statement that in determining the pace of future increases in the target range, we will take into account the cumulative tightening of monetary policy and the lags with which monetary policy affects economic activity and inflation. At some point, as I've said at the last two press conferences, it will become appropriate to slow the rate of increases as we approach the level of interest rates that will be sufficiently restrictive to bring inflation down to our 2% goal. Now some of this talk was initially taken by the markets as bullish. The headline was that the fed says it will take cumulative tightening and lags into account. Alex Krueger tweeted that headline and said excellent. If Powell doesn't mess it up, should get an upwards trend out of the FOMC. By explicitly mentioning lags in the data, the FOMC statement validated the micro pivot from two weeks ago. Now waiting for the press conference, and if nothing new, clear to run. That's a big if. So did it happen? The short answer was nope. And the biggest thing that shifted the markets take on this FOMC meeting were comments from Powell that new data that they had received since the September meeting suggested that the terminal rate the peak interest rate that they believed would be required to get inflation down had gone up. This led to something of a case of fed day whiplash. The S&P 500 rose by almost 1% in the 5 minutes after the FOMC statement on interest rates was released. As I mentioned being viewed as confirmation of a dovish slowing of rate hikes on the horizon. However, when fed chair Powell took the stage half an hour later adopting a hawkish tone, the markets began to slide, dropping 3.3% to close the day down two and a half percent. Bitcoin traded in a similar way, round tripping a spike then a dump to end the day down half a percentage point. Here's how macro analyst Paulo macro some this up. Okay, quickly on the fed, no pause coming, higher terminal, four handle is off the table, sorry, Bros, harder landing lightly is what was said among many other things. What was unsaid? One, he was asked about plus 50 in December and he dodged, saying it's about the pace, what level we get to and how long we stay there. But he left it open. He also left 75 open and implicitly left 100 basis points open. He does not know the road is wide open. And that is massive uncertainty risk to the path in the context of a higher terminal. This means risk premium must go up to account for varied outcomes. When the future becomes more uncertain in terms of path, risk premier go up.
The Breakdown
"alex krueger" Discussed on The Breakdown
"Some folks made an argument that the British intervention actually worked. As Joe wiesenthal pointed out, quote 30 year guilt yields just experienced their biggest one day fall in history, right after the biggest jump in history. He also wrote bui probably pretty happy with the initial market reaction to the QT delay and long end purchases. Gil yield solidly lower while the pound is actually up a little higher. The pound in fact was up 1.26% on the day. Another question was whether we'd see something similar in the U.S.. Oil and gas investor Josh young wrote, BOE warns of risk to UK financial stability as it intervenes in gilt market. Or in other words, the UK is back to quantitative easing with inflation at 10% to avoid pension blow ups and other similar issues. Will this happen in the U.S. soon? The Bank of England is now the second Central Bank to panic in the past week. After the bank of Japan's intervention in the currency market as well. Ralph wrote stabilizing bonds markets, first the BOJ, then the BOE, next to the ECB. The markets will keep pushing until it gets what they want. More cowbell, more FX devaluation. Muhammad el irian tweeted a chart of the U.S. two year treasury yield going down and wrote the inherent optimism of U.S. markets as evident as Bank of England's intervention is seen as pointing to a more dovish fed. Alex Krueger wasn't so sure, writing bui doing temporary QE out of the blue could be a short term trend changer. But also, quote, the risk is that QE should lead to higher inflation expectations, which can not become unanchored or its game over. Makes sense for the market to get excited about the possibility of the fed doing the same. They won't do it though, they wouldn't risk. Not even remotely there. So summing up where we are in England right now. Lin Alden tweets RIP, Bank of England's quantitative tightening, 2022 to 2022. Muhammad Ali and again pointed out the difficulty that policymakers are faced with. Bank of England is off the sidelines with direct intervention in the government bond market who writes. It just announced temporary purchases of long dated UK bonds. This for a Central Bank that was on the verge of doing QT and hike, illustrating the intensification of its policy dilemma. A Nomura analyst wrote we are now finally proving that central banks are trapped into a BOJ like forever state of balance sheet expansion, as they are once again forced to bend the knee to market forces. Lin had written about this in her June 22 newsletter, sharing an excerpt from that piece she writes today, the BOE now joins the BOJ and ECB and having to print money despite high inflation in order to support their sovereign bond markets. In June, she had written, I think major central banks, including the Federal Reserve, Bank of England, European Central Bank, and bank of Japan are nearing the losing side of a CheckMate scenario, where economic realities dwindle their set of possible choices to zero. The latter two have already likely been put in CheckMate while the former two are hanging on for the moment. This is primarily due to the long-term debt cycle described earlier in this issue, where their economies were stimulated to higher and higher debt as a share of GDP and lower and lower interest rates over decades. Until they hit super high debt levels with zero or slightly negative rates. Then they grind through the low rate disinflationary period for a while until they finally work through excess capacity and reach a period of scarcity, stimulus and inflation. CheckMate in this context happens when a Central Bank encounters inflation that is above its target level, but still can't stop printing money due to lack of buyers of their country's government debt. Or due to other critical liquidity problems in their financial markets. In other words, it's what happens when a country with a super high debt ratio gets hit with acute commodity shortages. And thus has to keep doing quantitative easing on its government bonds even during high inflation. This historically only rarely happens to developed market central banks, and until recently hasn't really happened to any of them since World War II. The prior inflationary part of a long-term debt cycle. When it happened back then, it occurred to several regions at roughly the same time. And that seems to be the case today as well. Summing up where we are even more crisply, Sven Henrik wrote, we intervene so much we cause an inflation crisis, then we tighten so much, we're causing a global economic crisis. Now we must intervene to prevent a financial meltdown. And putting it in a crypto or Bitcoin context, CheckMate writes, about four hours ago, every analyst under the sun was in the there will be no pivot camps. They forgot about how big the debt problem was. Now the BOE is back doing QE, FX markets looking like a day on binance and government debt is radioactive. Fun times, laser eyes on. And that brings us to the crypto Twitter side of the story. As all this chaos was happening, there was a blaring headline from Bloomberg that said, truck and Miller says cryptocurrency could have a renaissance if people lose trust in central banks. Where this quote came from was CNBC's delivering alpha investor summit in New York City this morning where the famed hedge fund manager who has never had a down year sounded a harsh warning. A week ago, he said, there's a high probability in my mind that the market at best is going to be kind of flat for ten years. Sort of like this 66 to 82 time period. And at today's summit, he expanded on that thesis. Our central case is a hard landing by the end of 23. I will be stun if we don't have a recession in 23. I don't know the timing, but certainly by the end of 23, I will not be surprised if it's not larger than the so called average garden variety. He also said that he didn't rule out something worse. Discussing how quantitative easing and zero interest rates created an asset bubble, he said, all those factors that caused a bull market, they're not only stopping the reversing. Every one of them. We are in deep trouble. He called the transitory theory of inflation ridiculous, and said that the fed didn't do enough to fix it fast enough. Quote, when you make a mistake, you got to admit you're wrong and move on that 9 or ten months that they just sat there and bought a 120 billion in bonds. I think the repercussions of that are going to be with us for a long, long time. Chuck and Miller went on that Federal Reserve policy makers have, quote, put themselves in the country and most importantly, the people of the country in a terrible position. Inflation is a killer. To maximize employment over the longer term, you need to have stable prices. He also made a point that I think far too few people have been discussing, arguing that going after inflation now is fundamentally more difficult than it was in the 19 80s. In the storied Volcker period. Back then, he said, quote, the economy wasn't nearly as leveraged and we had not been through an asset bubble. Overall, he said, you don't even need to talk about black swans to be worried here. To me, the risk reward of owning assets doesn't make a lot of sense. Now, he still pointed out that in any environment there are ways to make money. Truck and Miller said he still bullish on biotechnology. And this is where he also said that cryptocurrencies might benefit. If distrust in Central Bank swells. And for all those who will clamor over the next day or weeks or months or however long this narrative lasts. To suggest that this is just yet another crypto narrative shift. I would only like to point out that I have said on this show too many times to count. That the thing that got me excited about Bitcoin in the first place was not as an inflation hedge and not as an uncorrelated asset in market terms at least, but is in a non state controlled hedge against unstable monetary regimes, wherever those regimes might be. I think the simple fact that there is a choice of an asset class that is currency like that isn't controlled by the government is inevitably going to be an important hedge for a growing number of people. And by the way, drucker Miller has also been on this for a while as well. He wasn't quite as loud as people like Paul Tudor Jones, but he still spent a lot of the fall in 2020 talking about Bitcoin and where it might go. Anyways, guys, another really interesting day. I think we might firmly be in it now. But for me, I want to say thanks again to my sponsors next to IO, chain Alice and FTX, and thanks to you guys for listening. Until tomorrow be safe and take care of each other. Peace
CoinDesk Podcast Network
"alex krueger" Discussed on CoinDesk Podcast Network
"Some folks made an argument that the British intervention actually worked. As Joe wiesenthal pointed out, quote 30 year guilt yields just experienced their biggest one day fall in history, right after the biggest jump in history. He also wrote bui probably pretty happy with the initial market reaction to the QT delay and long end purchases. Gil yield solidly lower while the pound is actually up a little higher. The pound in fact was up 1.26% on the day. Another question was whether we'd see something similar in the U.S.. Oil and gas investor Josh young wrote, BOE warns of risk to UK financial stability as it intervenes in gilt market. Or in other words, the UK is back to quantitative easing with inflation at 10% to avoid pension blow ups and other similar issues. Will this happen in the U.S. soon? The Bank of England is now the second Central Bank to panic in the past week. After the bank of Japan's intervention in the currency market as well. Ralph wrote stabilizing bonds markets, first the BOJ, then the BOE, next to the ECB. The markets will keep pushing until it gets what they want. More cowbell, more FX devaluation. Muhammad el irian tweeted a chart of the U.S. two year treasury yield going down and wrote the inherent optimism of U.S. markets as evident as Bank of England's intervention is seen as pointing to a more dovish fed. Alex Krueger wasn't so sure, writing bui doing temporary QE out of the blue could be a short term trend changer. But also, quote, the risk is that QE should lead to higher inflation expectations, which can not become unanchored or its game over. Makes sense for the market to get excited about the possibility of the fed doing the same. They won't do it though, they wouldn't risk. Not even remotely there. So summing up where we are in England right now. Lin Alden tweets RIP, Bank of England's quantitative tightening, 2022 to 2022. Muhammad Ali and again pointed out the difficulty that policymakers are faced with. Bank of England is off the sidelines with direct intervention in the government bond market who writes. It just announced temporary purchases of long dated UK bonds. This for a Central Bank that was on the verge of doing QT and hike, illustrating the intensification of its policy dilemma. A Nomura analyst wrote we are now finally proving that central banks are trapped into a BOJ like forever state of balance sheet expansion, as they are once again forced to bend the knee to market forces. Lin had written about this in her June 22 newsletter, sharing an excerpt from that piece she writes today, the BOE now joins the BOJ and ECB and having to print money despite high inflation in order to support their sovereign bond markets. In June, she had written, I think major central banks, including the Federal Reserve, Bank of England, European Central Bank, and bank of Japan are nearing the losing side of a CheckMate scenario, where economic realities dwindle their set of possible choices to zero. The latter two have already likely been put in CheckMate while the former two are hanging on for the moment. This is primarily due to the long-term debt cycle described earlier in this issue, where their economies were stimulated to higher and higher debt as a share of GDP and lower and lower interest rates over decades. Until they hit super high debt levels with zero or slightly negative rates. Then they grind through the low rate disinflationary period for a while until they finally work through excess capacity and reach a period of scarcity, stimulus and inflation. CheckMate in this context happens when a Central Bank encounters inflation that is above its target level, but still can't stop printing money due to lack of buyers of their country's government debt. Or due to other critical liquidity problems in their financial markets. In other words, it's what happens when a country with a super high debt ratio gets hit with acute commodity shortages. And thus has to keep doing quantitative easing on its government bonds even during high inflation. This historically only rarely happens to developed market central banks, and until recently hasn't really happened to any of them since World War II. The prior inflationary part of a long-term debt cycle. When it happened back then, it occurred to several regions at roughly the same time. And that seems to be the case today as well. Summing up where we are even more crisply, Sven Henrik wrote, we intervene so much we cause an inflation crisis, then we tighten so much, we're causing a global economic crisis. Now we must intervene to prevent a financial meltdown. And putting it in a crypto or Bitcoin context, CheckMate writes, about four hours ago, every analyst under the sun was in the there will be no pivot camps. They forgot about how big the debt problem was. Now the BOE is back doing QE, FX markets looking like a day on binance and government debt is radioactive. Fun times, laser eyes on. And that brings us to the crypto Twitter side of the story. As all this chaos was happening, there was a blaring headline from Bloomberg that said, truck and Miller says cryptocurrency could have a renaissance if people lose trust in central banks. Where this quote came from was CNBC's delivering alpha investor summit in New York City this morning where the famed hedge fund manager who has never had a down year sounded a harsh warning. A week ago, he said, there's a high probability in my mind that the market at best is going to be kind of flat for ten years. Sort of like this 66 to 82 time period. And at today's summit, he expanded on that thesis. Our central case is a hard landing by the end of 23. I will be stun if we don't have a recession in 23. I don't know the timing, but certainly by the end of 23, I will not be surprised if it's not larger than the so called average garden variety. He also said that he didn't rule out something worse. Discussing how quantitative easing and zero interest rates created an asset bubble, he said, all those factors that caused a bull market, they're not only stopping the reversing. Every one of them. We are in deep trouble. He called the transitory theory of inflation ridiculous, and said that the fed didn't do enough to fix it fast enough. Quote, when you make a mistake, you got to admit you're wrong and move on that 9 or ten months that they just sat there and bought a 120 billion in bonds. I think the repercussions of that are going to be with us for a long, long time. Chuck and Miller went on that Federal Reserve policy makers have, quote, put themselves in the country and most importantly, the people of the country in a terrible position.
CoinDesk Podcast Network
"alex krueger" Discussed on CoinDesk Podcast Network
"Give it a rating, give it a review or if you want to dive deeper into the conversation. Come join us on the breakers Discord. You can find a link in the show notes or get a bit dot LY slash breakdown pod. Also a disclosure as always, in addition to them being a sponsor of the show, I also work with FTX. All right, folks happy Monday and boy boy, the fear of last week is definitely creeping into this week's beginning as well. Last night, there were absolute fireworks in the foreign exchange and currency markets specifically around the British pound. Alex Krueger put it in historical context. Last night's GBP flash crash he writes was almost as large as the infamous Soros driven black Wednesday of 1992. September 16th, 1992, down 4.8%. September 26th, 2002, down 4.3%. The pound hit an all time low against the dollar around $1.039 to the pound. A big theme, in fact, this week that we'll be discussing is the dollar wrecking ball and what it means that the dollar is so strong versus absolutely everything right now. Another theme that continues to grow in the public consciousness is the golden handcuffs, real estate discussion that we talked about last week. This was summed up in a viral tweet from John F Carter who wrote housing supply question. Is anyone who locked in a sub 3% mortgage going to sell their home so they can get a new house with a 6% mortgage? Overall it just feels to me like there's something of a crescendo happening in financial markets where the roiling is getting louder and something is happening. Cantering Clark writes, there were little stress fractures forming for the last few months, but in the last two weeks, it looks like actual cracks have opened up. How long before an all correlations go to one event in markets? In any case, here's some of what we have to look forward to on the macro side this week as summed up by TED Talks macro. Monday, European central banks, Christine Lagarde speaks, Tuesday, fed chair Jerome Powell speaks on the future of digital assets, Wednesday, Powell speaks on monetary policy, Thursday, U.S. final GDP for Q two, Friday, U.S. PCE data. Also, there's an FOMC member speaking every day this week. So that is the preview on the macro side. And I think it's poised to be just as explosive, if not more so than last week. However, where I want to start today's show is with a surprise action in the crypto space from late last Friday. On Friday, California governor Gavin Newsom vetoed that state's crypto Bill, which would have established a licensing and regulatory scheme that was seen as equivalent to New York's bit license. For those of you who don't have the immense pleasure of being in the crypto industry from New York State. The bit license has grown to be seen as an unworkably tight licensing scheme. In its 7 years of operations, only 18 companies and 6 limited purpose trusts have been granted a bit license. Most firms have found the cost of compliance too high and instead chosen not to operate in New York State. The California bill passed their assembly in August and would have required California licensed entities to only interact with stablecoins issued by banks or otherwise state license organizations, it would have forced stablecoin issuers to remain fully backed by reserves, and it would have set up licensing and examination processes for crypto companies. In his note explaining the veto Newsom wrote, on May 4th, 2022, I issued executive order N 9 22 to position California as the first state to establish a transparent regulatory environment that both fosters responsible innovation and protects consumers who use digital asset financial services and products, all within the context of a rapidly evolving federal regulatory picture. Over the last several months, my administration has conducted extensive research and outreach to gather input on approaches that balance the benefits and risks to consumers. Harmonize with federal rules, and incorporate California values such as equity inclusivity and environmental protection. Newsom went on to explain that it would be quote premature to create a licensing regime without considering the feedback from that executive order. He also noted that future federal legislation or regulations may supersede any Californian regulatory structure. Quote, a more flexible approach is needed to ensure regulatory oversight can keep up with rapidly evolving technology and use cases and is tailored with the proper tools to address trends and mitigate consumer harm. The governor also noted that the bill would have required a multi-million dollar expenditure which had not been budgeted for. Tim grace in the assembly member who sponsored the bill expressed his disappointment in a statement. He wrote, the cryptocurrency market is under regulated at best and deliberately rigged against everyday consumers at worst. A financial market can not be considered healthy if there are no guardrails in place to protect consumers from scams and bad actors. As chair of the banking and finance committee, I will continue to work to protect California's consumers and responsible industry. The legislature overwhelmingly supported regulating digital financial assets, and I can only hope that the administration will be willing to work with us to achieve this goal in the future. Now what's notable about this veto is that the bill was extremely popular in the assembly. It received 71 yes votes zero no votes and 9 abstentions. So it's a big political deal that Newsom said no. Important context, though, the veto is one of 8 bills vetoed by Newsom on Friday. And part of the reason is a state budget crunch. After recording record budget surpluses in the previous two years, California tax revenues for 2022 are currently coming in at 4 billion below forecasts. The governor's note for this slew of recent vetoes claimed that the bills which crossed his desk this month represented $30 billion in unfunded and unbudgeted spending. Quote, with our state facing lower than expected revenues over the first few months of this fiscal year, it is important to remain disciplined when it comes to spending, particularly spending that is ongoing. End quote the budget situation in California isn't in any sort of Dire Straits, the state currently has 37 billion in reserve accounts. However, any drop in tax revenue does force tough choices. Does the government want to have access to more fiscal support and social support or does it want to burden itself with expensive regulatory departments? Now this brings us to three very different interpretations of this news. The first interpretation was that this was a victory for common sense. Taking Newsom at his face when he set a more flexible approach is needed. Jake stravinsky writes, governor Gavin Newsom deserves serious respect for making the right call by vetoing AB two two 6 9. The bit license copycat bill that passed the California legislature by a wide margin, 71 to zero in the assembly. That takes guts and he did it for the right reasons. Mike dudas of 6th man ventures writes, kudos to California governor Newsom. New York's bit license has been an unmitigated disaster, encouraging regulatory capture, harming innovation, and pushing legit businesses out of state. All while failing to protect New York consumers. A second interpretation of this really honed in on the fact of California's budget shortfall. Effectively, some people argued that this bill would have created an office with a big budget attached that would have basically been sitting around not approving things. In Newsom's note, he wrote, standing up a new regulatory program as a costly undertaking, and this bill would require a loan from the general fund in the tens of millions of dollars for the first several years. Such a significant commitment of general fund resources should be considered an accounted for in the annual budget process. Basically, Newsom is saying that there is a real question of whether these sort of regulations are a good use of funds, especially during a downturn. In California, there's also the issue of capital flight. The state has seen a fairly significant exodus of high-tech entrepreneurs and investors, especially as remote work as normalized post COVID. These are folks who don't want to deal with California taxes anymore. And so creating another reason for an entire category of industry to leave doesn't necessarily
CoinDesk Podcast Network
"alex krueger" Discussed on CoinDesk Podcast Network
"Wasn't possible yet to make a worst is over argument on either front. Now it is at least possible. Remember what has been happening in crypto is deleveraging. Leverage in the system unwinding sometimes in quite painful ways is a derisking event, and with some of that risk unwound, some participants are able to at least consider risk that they couldn't a month ago. The eth merge trade is The Shining example right now of something that seems like a really obvious and easy trade that fund managers and traders don't want to have missed. That said, this doesn't mean that August will be full steam ahead. On a fed level, there is the gamble that inflation stays elevated and the fed starts advising that they're going to be real hawkish come September. We saw a bit of that going into the opening this morning, as over the weekend, central bankers had really tried to reinforce the fact that we were going to have to stay diligent to bring inflation under control. In the crypto space, the merged narrative is getting a lot more murky. The discussion is starting to shift to the potential for chain forks, questions of DeFi breaking, which protocols will support eth two versus proof of work eth, et cetera. Kevin from galois Capital One of the loudest people warning about Luna in the months leading up to that implosion is now digging in on the Ethereum community. Alex Krueger kind of speaks to both sides. He writes, yes, this is a bear market rally for now. Thing is, if inflation comes down fast enough, which is feasible, and Europe's energy crisis is not exacerbated by a harsh winter, also feasible, this could end up being the beginning of a bull market. No one knows as of now. That's why probabilistic spectators are already long. My base case scenario is as of now this lasts at least until the end of August and to go beyond that we'll need help from August inflation data published in early September. Most important upcoming events in order. Number one, September 22nd, FOMC. Number two, September 13th CPI. Number 3 August 25th Jackson hole. Number four, August 10th CPI. Expect markets to de risk IE sell off the days before each event if market is running hot into them. Then of course we have the infamous eth merge around September 19th. Now in a different thread, Krueger noted that one thing that could tank his assessment is if Nancy Pelosi actually decides to go to Taiwan. Current reporting suggests that although that trip is not on her official itinerary, that's exactly where she's headed. My guess is that this might be the subject of tomorrow's breakdown. But for now, that's where I see things where the month was and where we are going into August. The last note is that it's worth remembering that this is historically one of the lightest months for trading. Because there is less activity in the markets and less liquidity, small moves can be more exacerbated in terms of their impact on price, particularly in crypto, which means of course that everything could look a lot more dramatic than perhaps it should. So there we are Friends that was June and July and what I'm seeing going into August, but of course we don't know and there are a lot of X factors that could change things. For now I want to say thanks again to my sponsors next to IO, chain analysis and FTX for supporting the show, and thanks to you guys for listening. Until tomorrow be safe and take care of each other. Peace
CoinDesk Podcast Network
"alex krueger" Discussed on CoinDesk Podcast Network
"Conditions? What about forward guidance? Quote, from here onwards, we are fully data dependent. Boom, he ditched it completely. Why is it relevant? It all starts from the very strong opinion the bond market has developed about inflation over the last few months. It's going to move down and very fast. Between July 23 and 24, CPI is priced to print at around 2.9%. Basically at target. So if Powell is not nearly on autopilot anymore, and markets have a strong opinion on inflation and growth collapsing, they can also price all other assets around the space case scenario. If you look under the hood, market action also validates this narrative. Who's outperforming here? NASDAQ and crypto. If the fed isn't going to force tighter financial conditions on autopilot anymore, real yields will actually start declining again. When real yields decline, value intensive and risk sentiment driven asset classes outperform. That's because the marginal return for owning cash becomes less attractive and the incentive to chase risk assets is larger. Do I think the rally has legs? I can rationalize the narrative being built post FOMC. But no forward guidance equals a very, very volatile fed ahead of us. One small hawkish turn and it's all gone. You must price in some additional risk premium here not less. Finally, what's the bond market saying? We priced away some hikes between now and December and this is how we are left. 50 in September, 25 and November, 25 and December, done. 50 basis points of cuts in 2023. A higher likelihood that peak fed hawkishness is behind us. So this is really the narrative to watch is peak fed hawkishness behind us. Macro alpha as you heard gives the thesis for why, but also argues that there are so many conditions that could change that very quickly that you have to price in some risk around it. Now one final note as relates to crypto is this new narrative creating space for investors to be seen as making mistakes by being too bearish. Is the new narrative of peak fed hawkishness behind us, creating enough space for internal crypto narratives to become the drivers again. And for investors to be seen as making mistakes for being too bearish. That's a theme being explored by people like Alex Krueger. He wrote today's upwards move so large crypto funds who missed it must now be praying for Amazon or Apple to report horrible earnings tomorrow or for a negative GDP print to load the dip. Hard for a crypto fund to explain to its LPs it missed the Ethereum merge trade because of concerns about the macro. This August shall be bear hunting season. In particular, crypto investors who learned about macro in 2022 remain way too bearish. Will we trade new lows later on? Maybe. It could be a bad winter. Who cares now? First pump forcing those in the sidelines to buy late and in anger. The key is the fed being at peak or close to peak hawkishness, rendering itself somewhat irrelevant for the time being, which is very bullish when most are panicking about the fed. So I think the theme here is that we are moving into a moment a period potentially of much greater volatility. Which doesn't really seem possible, right? Given how wild things have been for the last few months. But you have to remember volatility can be to the upside or the downside. We just don't really know. But for those of you who are hoping for not a long, extended boring crypto winter, at least for now, your wishes come true. I want to say thanks again one more time to my sponsors next to IO, chain analysis and FTX, and thanks to you guys for listening. Until tomorrow be safe and take care of each other. Peace
CoinDesk Podcast Network
"alex krueger" Discussed on CoinDesk Podcast Network
"Necessarily super surprising. It's a generalized set of investors, not just crypto investors, but CRISPR did a Twitter poll about the current market sentiment with presumably more of a focus on crypto investors given who Chris is as an investor in the space, and he also found it to be really bearish. Only 17.2% of respondents to this Twitter poll thought the bottom is in. 26.4% said we'll retest the bottom, 39.3% by far the largest category said we're going lower. Still, Alex Krueger wrote, most people out there with significant skin in the game believe capitulation is behind us. Yes, can always go lower, but the unwind is done. Meanwhile, on crypto Twitter, no way, price must drop another 80%. I think that's a pretty accurate sum up of how things are feeling out there. What about on the macro side? Well, as I said, we've got the CPI report coming up this week. We've got continued energy issues in Europe, but one small interesting thing from the very end of last week was the bureau of labor studies, jobs report for June, which came out on Friday. It showed a labor market that while cooling is still exceeding expectations. Employers added 372,000 jobs in June, which was only a small slowdown from the 384,000 jobs that were added in May. This was much higher than the around 275,000 jobs that were expected. This data suggests that the labor market is still hot, and the most likely outcome in most people's assessment at least is that this will embolden the fed to follow through with another 75 basis point hike at the FOMC meeting at the end of this month. The reason here is that one of the only things that could potentially get the fed off of their current course would be just a huge cratering in the jobs market. For now, with a fed that seems intent to not lose this decade like its predecessors lost the 1970s by easing off too soon, it's full steam ahead with more QT and more rate hikes. All right guys, as you can see, it is going to be something of a week. I'm looking forward to spending it with all of you. For now I want to say thanks again to my sponsors, nexo IO, chain analysis, FTX, and Apple labs, and thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace
The Breakdown with NLW
"alex krueger" Discussed on The Breakdown with NLW
"Fees. One of the largest exchanges in the U.S. FTX U.S. is also the only leading exchange that supports both Ethereum and Solana NFTs. When you trade NFTs on FTX, you pay no gas fees. Download the FTX app today and use referral code breakdown to support the show. With that, let's shift to something that had everyone fired up and that's Facebook or meta's fees for its new horizon worlds platform. In a blog post on Monday, meta said that it's going to be testing virtual sales inside horizon worlds. Important background context is that Zuckerberg has previously criticized Apple for its 30% in app fees. In a November post on exactly this topic, he said quote, as we build for the metaverse, we're focused on unlocking opportunities for creators to make money from their work. The 30% fees that Apple takes on transactions make it harder to do that. So we're updating our subscriptions products are now creators can earn more. Then this week from Business Insider, quote meta charges a platform fee of 30% for sales made on meta quest. It's virtual reality system, which was formerly known as Oculus. On top of that, horizon worlds met as metaverse system will charge a 25% sales fee. This means metal will take a cut of up to 47.5% from the sale price, leaving the seller with 52.5%. Insider was basically like weight, are you serious? And so reached out to the company for confirmation of this math. That math was indeed confirmed by a spokesperson. Quote, if a creator sells an item for a dollar, then the meta quest store fee would be 30 cents, and the horizon platform fee would be 17 cents, 25% of the remainder, leaving 53% for the creator before any applicable taxes. Over time we plan to bring horizon worlds to more platforms and so the platform few won't always be going to meta. S horizon world rolled out to more platforms like mobile, we expect those platforms to charge their own feet. The horizon world fee, which is 25% of the remainder would be applied after any relevant hardware platform fee has been applied. And then to top it all off Vivek Sharma met his VP of horizon, told the verge, quote we think it's a pretty competitive rate in the market. We believe in the other platforms being able to have their share. So of course, everyone was like, are you effing kidding me? Starting, by the way, with Apple. Fred sanes and Apple spokesperson said in an email, beta has repeatedly taken aim at Apple for charging developers a 30% commission for in app purchases in the App Store. And if you small businesses and creators as a scapegoat at every turn. Now meta seeks to charge those same creators significantly more than any other platform. The announcement lays bare met as hypocrisy, goes to show that while they seek to use apple's platform for free, they happily take from the creators and small businesses that use their own. The crypto crowd was even more brutal. This has definitely become a rallying cry for many, including punk 6 5 two 9. He writes in one of his classic threads, tweet one, 60 crying laughing faces, tweet two. I present to you the meta economic model. Step one pretend NFTs, centralize in game objects basically. Step two, 47.5% transaction fees. Yes, 47.5% to drop objects into here. 47.5%. 47.5%. So long as we are not regulated out of existence, IE preserving non custodial wallets, we're going to win by default. 6 5 two 9 couldn't help himself though and he just kept going. 47.5% meta take rates on digital goods are a pretty good reason to push for an open metaverse, even if you don't believe me on all the risk of dictatorship stuff. State of tech, in crypto, 2.5% transaction fees are outrageous. Let's launch ten competitors this year to drive this to zero. Web two. We think a 47.5% transaction fee on digital objects is pretty competitive to be honest. Government. How can we protect consumers from crypto? Now, I'm obviously adding the voices to match the intonation. But I think that the point is dead on. Part of the upside of unfettered markets is that they create competition that makes it impossible for this sort of virtual exploitation to take place. Something that the only possible way that Facebook wins because of this is regulation. Maya's Khan writes Mark Zuckerberg proposing a 50% cut of NFTs on meta, feels like the beginning of a prolonged regulation war between crypto natives and corporations looking to profit from it. However, this doesn't stop some people from being scared. D.C. investor writes while I enjoy trolling meta being out of touch, the proper way to assess the 47.5% zuck tax is based on total addressable markets. IE if meta offers more than two X earnings pre zuck tax potential for a creator versus a public chain that it may make sense for a creator to use it, in short, the only answer is scale. Importantly though, the web three crowd in the open metaverse kids aren't just competing with meta. It was also announced this week that LEGO and Sony are pumping $2 billion into Epic Games the creators of Fortnite to build a metaverse. Keep in mind that Fortnite has arguably been host to the biggest metaverse experiences yet, such as the Travis Scott concert in Fortnite a couple years ago, which saw 12.3 million concurrent users at the concert and 27 million overall. There is a lot more respect and fear in this announcement. 6.529 again says just in case we are wondering how much we need to scale up to be competitive. Alex Krueger writes Epic Games as officially entering the metaverse race. This will be huge. NFT trader the essay says smart money is still pouring into the metaverse and NFTs. However, they're investing in companies with proven experience, prototypes, and shipped products. Retail investors need to wisen up and hold the whole crypto and NFT industry to this standard. Finally, D.C. investor again wrote quick and dirty metaverse predictions thread starring a, meta slash Facebook, B, Epic Games, C Twitter, and D Ethereum L twos and other public blockchains. A meta slash Facebook. We'll build off of social apps and VR platform to push a controlled and mostly closed ecosystem. We'll push their own private consortium blockchain with long-term goal of global financial domination via the metaverse token Congress will probably ignore Libra redux. B Epic Games will push game centric VR metaverse targeting mostly gamers. Focus mostly on in game items and then being able to use or flaunt those in social apps. We'll probably create a more open standard for any game publisher to join. Start as a private chain, then use public. C Twitter doesn't realize it's actually the center of the current online metaverse because most of the org do not think this way. They will likely squander everything they could have from this preeminent position and will just remain a 280 characters post app. D Ethereum, et cetera, will remain the home of the organic soul pushing online economic interaction forward. We'll be home to the highest value artifacts as lower cost grows on L two and other chains. Epic will probably integrate it eventually. Facebook will only do it if forced by others. Still early days and things could change dramatically. By the way, I think trolling on metaverse means nothing is wrong. I get that it's amorphous now, but it's obviously this is going to grow into something. Crypto has shown the power of permissionless or relatively permissionless online economic interactions. There's no going back. Now I thought D.C.'s thread was interesting to close on, especially given what we've learned about Twitter's potential future since he wrote it. Would a private Twitter under the banner of Elon Musk be more or less likely to be at the center of the growing metaverse? I don't know, but it's a fun thing to think about. For now I want to say thanks again to my sponsors next to IO, arculus and FTX, and thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace. Hey breakdown listeners come join coin desks consensus 2022. The festival for the decentralized world this June 9th through the 12th in Austin, Texas. This is the only festival showcasing and celebrating all sides of blockchain, crypto ecosystems, web three, and the metaverse, and is designed for crypto newbies, investors, entrepreneurs, developers, and creators. Don't miss speakers like Kathy wood, SPF, CZ, punk 6 5 two 9 and Joe lubin to name just a few. Use code breakdown to get 15% off your pass at coindesk dot com slash consensus 2022..
The Breakdown with NLW
"alex krueger" Discussed on The Breakdown with NLW
"A lack of supply because manufacturers, supply chains that had to turn off the rails as shutdowns happened. All of that would be worked out and things would move on. And this is important because the fed doesn't want to use monetary policy to try to fight a supply chain dislocation that just doesn't make sense. But the markets never really believed, at least in my eyes that the fed was going to be able to keep its dovish stance for as long as it wanted to. Phase two was this sort of nebulous in between phase, where Powell and the other members of the fed started to acknowledge that maybe this inflation wasn't so transitory. They thought that it was probably still largely due to supply chain disruptions and that supply demand mismatch, but it kept persisting and it kept lingering longer than they thought. What's more it was getting harder and harder for them to justify keeping such dovish policy because so many people had dropped out of the workforce and that was leading to challenging calculations around the other side of their mandate, which is maximum employment. Phase three, which I believe really started around Powell's renomination was the we will fight inflation phase. It was an end to the whole transitory talk. It was an acknowledgment that this could go on a lot longer, and it was an acknowledgment that there were political ramifications because the U.S. population was seeing consumer prices rise, and it was a commitment that this group of people had the tools and was going to use the tools to make sure inflation wasn't an ongoing concern. That got us to the last FOMC meeting of the year where the fed signaled that there could be three rate hikes in 2022 and that tapering would wrap up faster than anticipated. Now this was quite a hawkish turn in the September meeting there was only one anticipated rate hike in 2022, and there wasn't even full universal conviction around that. However, the tone of the presser afterwards with Jerome Powell very much signaled that he was not going to be on some sort of anti inflation crusade. And so the market's largely sloughed it off, actually responding well to having a little bit more clarity around what they could expect in 2022. However, yesterday, the meeting notes from that December FOMC meeting were released, and there were a couple new things that market actors honed in on. First was the timing, many took the minutes as a signal that as Neil Dutch head of U.S. economics at renaissance macro put it, the fed is on a glide path to a march rate hike. Most people were expecting these rate hikes to be the second half of the year, march was a little earlier, and march made it possible to see a fourth rate hike in 2022 depending on how things went. The second and much bigger discussion was around the balance sheet. In December after the FOMC meeting concluded, the discussion was all around the speed of the taper and interest rate hikes, but it didn't get into discussions of the balance sheet. Notes, however, show that there was a briefing from staffers relating to the normalization of the now $8.8 trillion balance sheet. And by the way, this new term balance sheet normalization used to be called quantitative tightening. So keep your eye on that sort of marketing shift as well as we talk. Now, during the last rate hike cycle, which came in the 2010s, the fed waited two years after lifting rates to begin trimming their assets. This time, from the notes, quote, participants judged the appropriate timing of balance sheet runoff would likely be closer to that of policy rate liftoff than in the committee's previous experience. And also quote that some participants judged that a significant amount of balance sheet shrinkage could be appropriate over the normalization process. So this is what really has markets going badly. So let's look at some of the reactions. Mac ten suburban drones points out that this shows a pattern. This is the third month in row the fed has escalated their hawkish policy stance. In November they were on a single taper, December brought double taper now per the FOMC meeting, they're talking about balance sheet reduction. Lisa abramowitz tweets the fed had a hawkish tilt in the December meeting, but the meeting minutes showed that members were even more inclined to remove accommodation than many expected, especially given the extensive discussion of the balance sheet. Scott minerd, everyone's favorite person to ignore his Bitcoin predictions and the CIO of Guggenheim said fed minutes much more hawkish than I'd expected. Fed seems intent on raising rates and shrinking the balance sheet simultaneously. Clearly the recipe for a financial accident. Ross Gerber tweets fed causing a taper tantrum. They did this before. We expect them to change their tone with all the issues from Corona. A fed induced recession would be a disaster. Yellen needs to take power for a walk. If that isn't going to solve things by creating a recession. We'll have stagflation with this recipe. Powell did this in 18 and it was a bad year. Hence the sell off. CNBC showed a chart with their polling suggesting that 40% of respondents thought it was likely to see a fourth rate hike in December, something that no one was really anticipating before these minutes were released. Alex Krueger tweets markets may be overreacting short term, but looking beyond hard to overestimate how hawkish the fed minutes were. QE reduction plus three hikes okay, but three hikes plus accelerated quantitative tightening was not on anyone's radar. And the fed is likely to deliver in less inflation subsides faster than expected or credit markets collapse. There's of course a political dimension to this as well. Luke Grumman said today we got more evidence that the fed is no longer operating a dial. It is operating a switch. Global economy on and global economy off. If the fed keeps us up, Dems try to just may want to start asking what polls better in November midterms. 6% inflation or U.S. recession. Zero hedge tweets has someone explained to Biden with the fed crashing the market will do to his polls, and the 6 poppy says if the fed crashes the market this year, combined with the handling of the pandemic, this is going to be the biggest political massacre we've ever seen for Dems come midterms this fall. But there is a different perspective as well. So let's look to a slightly more sober and different take from Mark Dow, who writes feds barking to buy time to try and get a better handle on how much inflation is likely to come down on its own. They don't want to hike only to find out they've overestimated overheating part of inflation story, but still want to be in a position to hike enough if need be. So this goes back to that Jeff Snyder argument that I mentioned at the beginning. That was basically saying by showing off and surprising the market with extra hawkishness actually getting into the QT quantitative tightening balance sheet normalization discussion. Earlier than expected, it buys the fed some time to actually see how things play out in the markets without having to actually do anything. He reinforces exactly this, saying, barking about quantitative tightening is a freebie for the fed. Easiest way to dampen sentiment without hiking, reverse placebo effect. Give them more time to see how soon and how much supply constrained prices increase in some prices start to decline. I actually think there's something to be said for this perspective that there's a lot of value for the fed in trying to throw the market in one direction based on what they might do to give themselves more time to actually let markets resolve without them having to do anything at all. But let's shift over now to the Bitcoin side. I gave my two cents before about why Bitcoin is more correlated than it was before and why that correlation shouldn't seem unexpected. And I'm also quite sure I don't need to get into prices. As you've no doubt been checking them on the way down a little bit more than is healthy. But as we sit here under 43,000 currently, let's again look at some community reactions. Alex Krueger again points out a funny foible in 2020 investors by Bitcoin as they worry about inflation. 2021 and 22, investors sell Bitcoin as they worry about the fed worrying about inflation. This reinforces to me the idea the reality that will help you understand Bitcoin that it exists as both a risk asset and a flight to safety asset at the same time in different timelines and for different people. You have Bitcoin holders who view it just as a speculative game, the farthest thing out on the risk spectrum who are going to flee at the first sign of trouble. You also have an ever growing set of toddlers who view it as a lifeline in whatever storm is to come next. And then frankly, you have a lot of people in the middle who have long-term conviction but who are working with personal or institutional mandates that force their hand in short term movements. Anyway, moving to more reactions, there have been a lot that I've seen with conviction that the fed is just going to have to reverse course. Dylan Leclair tweets honestly would love to see Bitcoin inequities continue to grind down over the next month. Max opportunity is when not if the fed blinks and reverses course. It's anyone's guess when that comes. There's also a lot of sentiment out there that people IE the fed shouldn't have this much power. Reinforcing the fundamentals of Bitcoin for so many. Dennis Porter from the smart people shit podcast tweets, even rumors that the fed will raise rates causes massive panic selling across the globe. A 7 member board of humans shouldn't have this much power over our lives. We need a monetary policy that is predictable and controlled by code. There are some who are pointing out that although the market is tanking, people aren't really freaking out. Checkmated from glass node posted a tweet showing the divergence between Bitcoin's illiquid supply and its price and said thanks for the cheap stats anon. Bitcoin sent straight to cold storage just like all of these coins. Love me a good old divergence. Let it run as hot and as deep as you want, the reversals will be swift and powerful, have seen this movie before. And of course, what he's referring to is the fact that more and more Bitcoin is leaving and has been leaving exchanges even with recent turbulence. Bitcoin leaves exchanges when people have long-term conviction and it moves back onto exchanges when they're getting ready to sell. The fact that the market is going down while the illiquid supply of Bitcoin, IE the supply of Bitcoin not on exchanges is going up, suggests that nothing has changed ultimately in terms of HODLer conviction. Still, not everyone is convinced that this is going to be an easy time for all crypto assets. Adam Cochrane wrote a great thread and I'm going to read the back half of it. Hopefully it's a market over spook in the fed does this softly, but clearly pressured to move faster than even suggested last month. In my personal view, this is bearish overall, very bearish on growth, but outperform on value in havens. If we do slip into a macro bear, it will be interesting to see how a lot of new sectors that didn't have scale last bear out like NFTs. Now, as we wrap up, even though there seems to be pretty universal acceptance of the notion that this Bitcoin move is macro driven, right? Fed driven. It's worth noting that this week Kazakhstan shut off the Internet and with it their 18% of the Bitcoin hash rate. This is obviously something that we need to be paying attention to and something that I'll be getting into later this week. For now, the next thing to watch is inflation numbers on Friday and the market's reaction there. And going forward, I believe it will be increasingly important to keep track of the domestic U.S. political landscape as it relates to markets and the midterms. But we'll wrap there for today, I want to say thank you again to my sponsors nexo dot IO, abra and NFTX, and thanks to you guys for listening and hanging out. Until tomorrow, be safe and take care of each other. Peace..