The Fed has concerns about Facebook’s Libra – Bitcoin and other cryptocurrencies slump

While stock markets are holding all-time highs on the back of Federal Reserve Chair Jerome Powell’s speech last night, the cryptocurrency market has moved in the opposite direction.

Bitcoin is off around 2% to trade below $11,800 after yesterday’s comments from Federal Reserve Chair Jerome Powell.

Speaking to the House Financial Services Committee, Powell stated that:

“Libra raises serious concerns regarding privacy, money laundering, consumer protection, financial stability. These are concerns that should be thoroughly and publicly addressed.”

That’s the opposite of what the market wanted to hear. Traders were betting that Libra would work to allay institutional fears surrounding cryptocurrency. It is intended to be a stable cryptocurrency (tethered to a basket of fiat currency), overseen by a not-for-profit, and governed by a panel of industry big names including finance giants like MasterCard, Visa, and PayPal.

It seems that central bankers don’t see that this makes much of a difference.

Security concerns continue to hound Bitcoin

Criminality has always been one of the banes of cryptocurrency. The anonymous nature of transactions makes it useful for money laundering. On top of that, because crypto is usually stored in virtual wallets or on cryptocurrency exchanges, it is a prime target for hackers. The world’s biggest crypto exchanges have lost millions in Bitcoin and its peers over the past few months.

While many in the cryptocurrency community have claimed Libra isn’t a real crypto, parallels were always going to be drawn between the two. Libra could have opened doors for Bitcoin and the like, instead it could bring the regulators down upon digital currencies.

Powell has called for the project to be paused until regulators are satisfied that their main concerns have been addressed. Regulators have long-circled the cryptocurrency market, and the threat of action has been a key drag on crypto prices.

Libra could have sped up the process. There’s a chance this might work out for the best – regulation was always going to come, so maybe tackling the issue headlong could remove a barrier to the mainstream for BTC and its fellow altcoins.

But the fact remains that Powell’s attitude towards Libra is a fundamental punch to the speculative rally Bitcoin is currently undergoing. Adoption looks to be a long way off, and opposition to Libra means the best chance the crypto market has of mass adoption has already stumbled.

Bitcoin mining difficulty surges as miners follow the bulls

Just like traders, miners are piling back into Bitcoin as the price continues to surge. After coming off the boil once hitting a year-to-date high on June 26th, BTC has rebounded and is within striking distance of the key $14,000 handle.

The huge appreciation seen in Bitcoin has not gone unnoticed in the mining community. Miners earn newly-minted Bitcoin as rewards when they process transactions – using computational power to solve complex proof-of-work algorithms to verify transactions and record the data as a new block on the chain.

Competition for those rewards is heating up. Multiple miners work on the same bundle of transactions, but only the first to correctly complete the algorithm in the ‘block header’ adds their block to the chain and earns the reward. This is shown by the biggest two-week rise in mining difficulty in 12 months.

Difficulty is adjusted every two weeks to make sure that new blocks are added to the chain at a consistent rate. This is done every 2016 blocks – at a rate of 10 minutes per block this should take two weeks to discover the next 2016. If more blocks than that are added during the previous two-week period then the difficulty is increased to bring the rate of discovery back down.

Because of this, Bitcoins are always produced at more-or-less the same rate. No matter how popular BTC mining becomes again, the market isn’t facing an increase in supply – if prices are going to fall, it won’t be because of increased mining activity.

How does this affect the BTC outlook?

The increased mining difficulty does nothing to change market fundamentals, but it does signal increased confidence that at least some of the huge gains recorded during the recent rally can be consolidated.

Whether or not a break above $14,000 and a move towards the all-time high near $20,000 is on the cards, the signs are that the market expects to leave 2019’s $3,300 lows far behind.

Super Bitcoin goes ballistic, Fed signals are atrocious

Equities
Morning Note

Bitcoin moves higher, threatening $13,000, whilst stocks and gold have dipped as Fed policymakers tempered expectations for a July cut.

Bitcoin has gone ballistic: it is building up a head of steam and there’s no point trying to stand in the way. Bitcoin futures began ramping from 11pm last night as they jumped to $11,600 before driving up to almost hitting $13,000 and then paring gains a touch to trade at $12,770 at send time. Look for these little pullbacks along the way as potential entry points, but there is every chance now we see this top the all-time highs and make $20k. 

Causes can be found in many places – the halving in 2020 is one that is being talked about increasingly as bearing on price action now. Facebook’s Libra whitepaper also looks to be a spark. The biggest players are looking at cryptocurrencies afresh and don’t want to miss out. There’s a ‘haven’ play too as nominal and real yields have retreated sharply, reducing the opportunity cost of holding (or HODLing) bitcoin. And the liquidity injection from central banks has forced a range of assets like gold, bonds, the yen etc, so bitcoin is just being swept along by those macro currents.  Whatever the cause, the momentum is powerful right now.

Other major cryptos were firmer with gains for Ripple, Litecoin, Dash, Ether and Bitcoin Cash. Our traders remain roughly 80-90% net long on these assets.

Stocks ease on Fed

Stocks dropped after the Fed chair Jay Powell asserted the central bank’s independence from politics and cautioned against short-termism affecting monetary policy, in a speech that appeared to try and temper expectations for a rate cut in July. At least it looked like he was saying the Fed is by no means sure to cut – we should remember the recent dot plot did not suggest a cut would come until 2020.  

On top of this we had uber-dove James Bullard, who lest we forget was the sole dissenter at the June meeting in voting for a cut, saying that he did not think a 50-basis point cut in July was warranted. This left the market less confident in getting the two-for-one 50bps cut in July – expectations down from around 40% to 26%.  

The market has baked in rate cuts that the Fed is yet to see as completely necessary. As we noted last week after the FOMC statement, there’s yet optionality for Powell and co. In last week’s statement the Fed refrained from explicit references to cuts. The median dot plot showed no cuts this year. The market is ahead of itself again. 

SPX declined 1% to 2917, while the Dow gave up 180 points as Wall Street had its worst day in almost a month. Asia has been softer overnight. Futures indicate European shares are being dragged lower by the Fed’s less-dovish language and by the broader market fears we are seeing around trade and geopolitical tensions in the Middle East. As we head into the rest of the week, the G20 and the Trump-Xi meeting will be front and centre. A bit of de-risking ahead of the meeting is also to be expected.

Dollar gains

The Fed’s jawboning lifted the greenback as yields fired a little, with the dollar index climbing back to 95.75. EURUSD was softer, losing the 1.14 handle to trade around 12.1360. Sterling also eased, with GBPUSD down to 1.2670. Boris Johnson goading Jeremy Hunt to say he would take Britain out on Oct 31st with or without a deal is not really helping. Whatever the claims ahead of the poll, the eventual winner would in any event have to face the cold granite of EU negotiations (or lack of, given the EU says it won’t reopen the deal). Dollar firmed up against the yen but remains near 6-month lows.

Gold softer

A stronger USD hit gold, which has retreated from its six-year highs above the big $1433 level to trade around $1406. You would think that gold will need to hold $1400, or it could reopen a move to $1380. Gold’s enjoyed such a strong run that it would make sense to see a pullback – the bull run may not be over by any means. As we noted yesterday in our commodity strategy, the 14-day RSI and standard MACD indicators were showing the market as extremely overbought. 

Oil higher on API data

Oil rose to highest in a month as we saw stockpiles drop 7.5m barrels according to API. This was well ahead of expectations for a c2.5m drop and has given bulls some reason to cheer. Although fundamentals remain weak, prices have pushed up around 10% in the last fortnight largely on Middle East tensions. Brent was last around $65.30, sitting on the 38.2% Fib retracement of the 2019 top-to-bottom decline, after pushing to $66. WTI was holding the $59 handle.

Morning Note: Trade war weighs, Bitcoin surges

Equities
Forex
Indices
Morning Note

European equities drifted lower as trade tensions and fears about global growth continue to weigh on market sentiment.

The FTSE 100 was struggling to hold onto 7,200 on Monday morning. The DAX shed 1% to drop beneath the 12,000 round number support.

President Trump on Friday raised tariffs on $200bn worth of Chinese imports from 10% to 25% and is now examining slapping tariffs on all remaining goods imported from China – worth about $300bn. The rhetoric and posturing is not good for risk and events over the last few days diminish the likelihood we will see a meaningful deal done. When we look at the posturing with Iran, it looks like the geopolitical hawks in the White House are in control. And unlike the weak Theresa May, Donald Trump is prepared to do no deal rather than a bad deal.

US futures soften

The S&P 500 somehow managed to close higher on Friday, but futures are now pointing towards a sharply lower open with renewed pressure on the downside. Somehow or other the Vix closed the week lower than it’s starting point but we this rising again now with the fear gauge printing a 19 handle again. This could push up past 20 again.

A paucity of eco data this week will keep the markets looking at Trump and China. Fed speakers this week will likely reiterate the current party line. US retail sales will be important with expectations relatively upbeat that US consumers are putting their money where their mouth is and spending more.

Bitcoin flying

So what’s the ultimate trade war hedge? It may well be cryptos – not really but Bitcoin has spiked again, this time breaching the $7k mark. The massive resistance at $6,400 was taken out having been the big hurdle for the bulls. 

Why? Who knows, but the momentum is building for bulls and you cannot ignore that once Bitcoin builds up a head of steam, the mania can come back, and the momentum traders will pile in. This is a pure momentum play and the chart is looking parabolic again.  

On the upside, next resistance comes at around $7,300, last September’s high, before the $8,000 round number, which is a massive target. 

However, the market does increasingly look overbought, which could precipitate a pullback. 14-day RSI is close to 90 – I.e. extremely overbought. We note that in April when the RSI was last at this level it did presage a pullback, only a very temporary one. Price action has now extended well north of the upper Bollinger band.

FX quiet

FX markets remain remarkably calm. EURUSD has cemented its gains above 1.12 but remains trapped within the downwards triangle. GBPUSD doesn’t want to move very far from the 1.30 level. Little real bid for the yen despite it being the main risk-off proxy

CySEC (EU)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to EUR20,000
  • Negative Balance Protection

Products

  • CFD
  • Share Dealing
  • Strategy Builder

Markets.com, operated by Safecap Investments Limited (“Safecap”) Regulated by CySEC under License no. 092/08 and FSCA under Licence no. 43906.

FSC (GLOBAL)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection

Products

  • CFD
  • Strategy Builder

Markets.com, operated by TradeTech Markets (BVI) Limited (“TTMBVI”) Regulated by the BVI Financial Services Commission (‘FSC’) under licence no. SIBA/L/14/1067.

FCA (UK)

  • Client’s funds are kept in segregated bank accounts
  • FSCS Investor Compensation up to GBP85,000
    *depending on criteria and eligibility
  • Negative Balance Protection

Products

  • CFD
  • Spread Bets
  • Strategy Builder

Markets.com operated by TradeTech Alpha Limited (“TTA”) Regulated by the Financial Conduct Authority (“FCA”) under licence number 607305.

ASIC (AU)

  • Clients’ funds kept in segregated bank accounts
  • Electronic Verification
  • Negative Balance Protection

Products

  • CFD

Markets.com, operated by Tradetech Markets (Australia) Pty Limited (‘TTMAU”) Holds Australian Financial Services Licence no. 424008 and is regulated in the provision of financial services by the Australian Securities and Investments Commission (“ASIC”).

FSCA (ZA)

  • Clients’ funds kept in segregated bank accounts
  • Negative Balance Protection

Products

  • CFD
  • Strategy Builder

Markets.com, operated by TradeTech Markets (South Africa) (Pty) Limited (“TTMSA”) Regulated by Financial Sector Conduct Authority (‘FSCA’) under the licence no. 46860.

Selecting one of these regulators will display the corresponding information across the entire website. If you would like to display information for a different regulator, please select it. For more information click here.

Marketsi
An individual approach to investing.

Whether you’re investing for the long-term, medium-term or even short-term, Marketsi puts you in control. You can take a traditional approach or be creative with our innovative Investment Strategy Builder tool, our industry-leading platform and personalised, VIP service will help you make the most of the global markets without the need for intermediaries.

La gestión de acciones del grupo Markets se ofrece en exclusiva a través de Safecap Investments Limited, regulada por la Comisión de Bolsa y Valores de Chipre (CySEC) con número de licencia 092/08. Le estamos redirigiendo al sitio web de Safecap.

Redirigir