“Interest rate hikes rock global markets, Cryptocurrency valuation tanks in August, Intent-based blockchain model gains Series A backing”
TradFi & Global Market News
Global Market: S&P 500 & NASDAQ
Until mid-July, US investors rode consecutive weeks of green following easing interest rates and consistent growth by the tech sector. Following the BOJ’s shock decision to raise interest rates, US indices like the S&P500 and Nasdaq quickly plummeted by roughly 8% and 13%, respectively, only picking up the slack within the past week. The recent rally was heavily motivated by July PPI data, building confidence that interest rates were on track to be cut. However, there are many other factors to consider for the cut, as declining inflation could also mean low growth, which less than stellar company earnings could indicate.
A top performer amidst the market decline is Starbucks, which has been at the top of retail investors’ minds since July and recently revealed a 24% hike in stock value. As of 3 weeks ago, analysts considered Starbucks undervalued despite their consistent profit-sharing and high price-to-earnings ratio. The recent CEO shakeup reveals a commitment to change and growth as investors place confidence in new man Brian Niccol, the ex-CEO of Chipotle, who helped his previous company grow in revenue by 800% during his time there.
Global Market: FTSE100
The UK elections have been a boon for the economy. The Labour Party came into power, restoring much-needed market stability and raising stock prices immediately after by 2.3%. Despite the Japanese shock, UK markets have experienced three continuous sessions in the green as insurers, utilities, and biotech companies performed well. The UK still awaits guidance from the US CPI data, which will come out soon as they look to unlock the sticky wage growth plaguing their economy. However, should inflation data continue to be projected high, the BOE may be forced to take a muted approach to interest rate cuts instead.
Asian Market News: Japan
Earlier this year, Japan ended its historic 8-year “negative interest rate” economic period in March. Japan has been battling deflationary challenges like wage stagnation since the 1999 financial crisis and economic competition from China, coupled with their ageing economy problem. Despite the rise, their interest rates remained low relative to a global standard, making them a prime target for institutional investors to carry out “carry-trade” strategies.
This strategy focused on borrowing currencies from low-interest-rate economies to be re-invested into higher-yielding assets. However, the BOJ’s governor, Kazuo Ueda, has renewed faith in the domestic market, implementing a sudden interest rate hike that tanked domestic and foreign stock performance as carry-trade strategists were forced to sell their assets to buy back Yen. Analysts believe the one-day drop is exacerbated by investor overreaction, as proven by the quick rebound. Thus, US investors should look at other fundamental performance evaluators to unpack their market’s slow recovery.
Shortly, carry trades will continue to unwind, leaving those caught up in it to remain cautious about more persistent market effects. Bearing in mind that the interest rate hike is bundled with a bond tapering plan, in which the government plans to decrease domestic bond buying, investors should expect an easing of quantitative policies, which could distort expectations for long-term interest rates upwards if investors’ expectations are poorly managed.
DeFi & Digital Assets News
Cryptocurrency Market: Bitcoin & Ethereum
In August, Bitcoin experienced one of its steepest valuation declines since the FTX controversy in 2022, as the cryptocurrency fell by almost 30% from its peak at 73000. Ethereum saw a similar dip as common factors like bearish investment sentiment, the Middle East crisis, and the Mt. Gox controversy, where creditors have yet to be paid back, created a stew of risk aversion and divestment toward safer assets.
Since then, Bitcoin has miraculously recovered to around 60000 in no small part thanks to Tether, a stablecoin pegged to the USD. During this micro recession, Tether allocated $1.3 billion worth of USDT into exchanges to help drive up cryptocurrency prices. Ethereum’s recovery is more contentious than Bitcoin’s, as over 40% of ETH is currently held under smart contracts. Such scarcity will create inflation and lower-than-expected layer-2 activity, and trading activity on Uniswap, a decentralised exchange of Ethereum, could indicate further volatility moving forward. However, their immediate recovery thus far has outperformed Bitcoin and their position to provide diversification in riskier portfolios could make them a more attractive pick in these volatile times.
Election News: US Election
The politicisation of cryptocurrencies has become highly apparent this coming election as both parties leverage momentum behind a symbol of independence and decentralisation that cryptocurrencies present.
Trump has been a historic critic of Bitcoin. Yet, in his latest campaigns, he turned his opinion entirely around, even making bold claims to fire Chair of the SEC Gary Gensler, who is being vilified as an obstacle to digital asset development. While such claims are impractical, they serve the role of pressuring new Democrat representative Kamala Harris. Her neutral stance on cryptocurrencies so far places her under heavy scrutiny for furthering the isolation of digital assets. A glance at news reports heavily emphasises the importance of switching to a pro-crypto stance, especially in swing states.
Inflation has been the talking point of this election. With an increased public belief in cryptocurrency investment and a focused narrative on the practical applications of digital assets unlocking financial participation, stances on cryptocurrency are critical. Ultimately, for innovation in this space to be taken seriously, extreme knee-jerk reactions should be avoided, and the overall financial policy of each candidate must be evaluated to see how digital assets development is shaped by that narrative, given that there is no clarity on either candidate’s actions once they come into power.
In Other News…
Short Updates:
Essential – Archetype’s project has raised $11 million in Series A investment in an “intent-centric” blockchain model, an alternative to imperative models. The model focuses on setting perimeters for desired outcomes to be resolved off-chain rather than executing fixed instructions, revolutionising the user experience by offloading the resolution work to a network of solvers.
DBS – The Singapore-based bank has integrated its permissioned blockchain with payments company Ant International to launch DBS Treasury Tokens for multicurrency treasury and liquidity management. This network with an access control layer is set to meet liquidity management capabilities’ efficiency and scalability needs arising from the increase in on-demand e-commerce services.
Opportunity Spotlight
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