Cryptocurrency update: Bitcoin wobbles on China concerns

Bitcoin starts the week in the red thanks to stock market woes and a potential tightening of regulatory oversight.

Cryptocurrency update

China and regulation fears rock Bitcoin

As Bitcoin becomes ever more prevalent, the influence of non-crypto markets on futures contracts is becoming larger.

As of Monday 20th September, Bitcoin had dropped roughly 5% on the day, thanks to a fall in S&P 500 futures triggered by the China Evergrande Group situation.

Property giant Evergrande fell 10% in Hong Kong during Asian trading this morning, causing globe-spanning stock market ripples. As the S&P 500 fell 1%, Germany’s Dax had also fallen 2%.

The fallout from this is investors looking to mitigate risks across their portfolios. As cryptocurrencies exhibit high volatility, Bitcoin and other tokens may be on the chopping block.

Anticipation of an October or November stimulus taper from this week’s Fed meetings has also strengthened the greenback, making the BTC/USD pairing a little weaker, hence the price drop.

Additionally, further scrutiny is being paid to stablecoins. Stablecoins are crypto tokens backed by the USD. The most prominent of these is Tether. This is meant to cut out much of the volatility we see in the most popular coins, but regulators aren’t so sure.

There are rumblings that further regulation is going to hit stablecoins, which promises big changes for the crypto market as a whole. Some observers believe they may be a threat to the US’ entire crypto situation. A formal review into stablecoins by the Financial Stability Oversight Council could be on the way.

The total market capitalization of all stablecoins has reached $115 billion, growing over ten times over the past 12 months.

Essentially, it will be a rocky week for cryptocurrencies. Right now, all of the major tokens are in the red.

AMC to accept crypto payments

Every so often, you get an overlap of two great internet sensations. Now, the worlds of crypto and memestocks are colliding as AMC Entertainment Holdings announces its plans to accept Bitcoin and crypto tokens as payment.

AMC is the meme stock de jour; one of the stocks exceptionally popular with a new breed of traders. The likes of GameStop have already seen their prices somewhat artificially pumped by a younger generation of traders and investors in an attempt to rattle the old guard.

We know cryptocurrencies are also a favourite of new, younger investors. It seems only right that these two paths should cross.

AMC CEO Adam Aron has been fairly clever here. By aligning AMC with the crypto market, he’s continuing to appeal to the types of investors and traders already interested in the meme stock.

Additionally, the crypto sector may help create further revenue streams for the cinema chain. One idea that Aron allegedly loves is tapping into the non-fungible tokens (NFT) sector. This burgeoning digital asset market has picked up steam massively across 2021, and AMC’s entry point could be to offer its own NFTs in the form of commemorative movie tickets users can buy and keep.

It’s a shrewd move from AMC no doubt – but is banking on NFTs help alleviate the company’s potential future woes around declining cinema attendance?

Litecoin activity outstrips Dogecoin and Bitcoin Cash

Move over Doge: crypto users have a new best friend.

According to Litecoin Foundation Director Jay Milla, the number of active addresses on the Litecoin network has overtaken the number using Dogecoin and Bitcoin Cash.

The growth of wallet activity has overtaken many other large-cap tokens, as Milla recently tweeted:

At 450,000, active Litecoin addresses is over double that of Cardano’s 214,000. Bitcoin Cash’s network user numbers clock in at 101,000. Surprisingly, Dogecoin’s only totals 60,890.

Active addresses are used to monitor and rate on-chain network activity across the crypto market. Analysts use it to sport patterns across the wider sector. It is not necessarily an indicator of the number of traders or investors buying a particular cryptocurrency.

Litecoin recently took a hit thanks to some fake news. It was reported that Walmart had agreed to partner with Litecoin to accept the token as payment. This is false. No such partnership exists.

According to Litecoin, the confusion was caused by an employee tweeting the partnership announcement without authorisation. Walmart has subsequently confirmed it has not partnered with the Litecoin foundation.

Cryptocurrency update: Is the BTC bull market back on?

After making strong gains across the past couple of weeks, crypto analysts are suggesting the Bitcoin bull market is back.

Cryptocurrency update

Analyst says crypto bull market could make a return

Bloomberg’s Mike McGlone has stated he believes bitcoin will hit $100,000 this year in a “refreshed” crypto bull market.

McGlone, a commodity strategist, predicts the massive price, despite the May broad crypto sell-off tanking BTC prices. In terms of other coins, Ethereum was McGlone’s other top pick, predicting $5,000 being the path of least resistance.

In September’s Bloomberg Crypto Outlook, McGlone said: “Crypto-assets appear in a revived and refreshed bull market with the 2H benefit of a steep discount from previous highs at the start.”

“We see Ethereum on course toward $5,000 and $100,000 for bitcoin. Portfolios of some combination of gold and bonds appear increasingly naked without some Bitcoin and Ethereum joining the mix,” McGlone continued.

Diminishing supply but a higher level of adoption for practical use may be behind the ETH support. Ethereum’s status as the primary denominator for non-fungible tokens (NFTs), which are dramatically rising in popularity, could also help put prices on an upward trajectory.

The London Fork, a change to the Ethereum blockchain protocol, caused significant coin burn and a drop in overall ETH supply when it went live last month.

Looking to Bitcoin, McGlone believes the $100,000 price is “highly probable, especially after last year’s supply cut. Post-halving years have seen the greatest appreciation, and 4x in 2021 would be quite tame for the No. 1 crypto compared with 55x in 2013 and 15x in 2017.”

Anything can happen in the world of cryptocurrencies. Volatility is the watchword. It will be interesting to see if this most bullish of predictions comes true – especially when we’ve seen the brutal market effects a sustained sell-off can bring.

At the time of writing, Bitcoin futures were trading at $51,812.91 and were up 3.15% on the day.

Ethereum was trading for $3905.05.

Bitcoin price pump El Salvador movement gains traction on Social Media

Twitter and Reddit users are organising plans to support El Salvador’s adoption of BTC as legal tender by buying small amounts of Bitcoin.

By buying up to $30 worth at a time, the users hope this will bring attention to El Salvador’s controversial plan.

On September 7th, El Salvador brings BTC fully into its economy as legal tender. ATM machines have been installed around the country to allow Salvadorans to exchange US dollars for Bitcoin. The government has also a $150m fund to back nationwide conversion efforts.

The $30 amount comes from the fact Salvadorans will be able to download the government’s digital wallet, enter their ID number and receive $30 in Bitcoin going forward.

The whole thing smacks of the recent Gamestop/memestocks market manipulation tactics employed by the more vociferous members of the online trading community. The fact that thousands of online traders could start snapping up more BTC at one time could create ripples that end up with higher BTC/USD conversion rates. That may drain El Salvador’s conversion fund at a rapid rate, and semi-scuppering the launch.

Additionally, the citizens of El Salvador are not particularly keen on the introduction of BTC into their currency system anyway.

A poll by the local Central American University showed that of 1,281 people surveyed, at least 67.9% of 1,281 people disagree or strongly disagree with the use of Bitcoin as a legal tender.

South Korea introduces its first blockchain mutual fund

KB Asset Management, an investment-focussed branch of KB Financial Group, has launched South Korea’s first mutual fund for blockchain technologies.

The KB Global Digital Chain Economy fund will invest in three main areas:

  • Hardware – This includes investment in businesses specialising in the physical products needed to run blockchain servers and/or crypto mining, Companies like NVIDIA, AMD, and Intel are just some of those mentioned by KB Asset Management.
  • Software – Under this umbrella are software suppliers involved in sustaining and creating blockchains, such as IBM, Amazon Web Services and China’s Baidu.
  • Users – The third segment covers companies that have integrated blockchain into their businesses. According to KB, this means it will invest in businesses such as PayPal, Square, NTT Data and Tencent amongst others.

US firms are KB’s primary investment target. A smaller allocation of funds will be put towards companies operating in Japan, Europe, and China.

KB Asset Management had more than $90 billion under management as of February, according to Korea Financial Investment Association data.

All looks calm ahead of the Fed meeting

Morning Note

Cooler rates and broadly positive risk sentiment helped send the Nasdaq composite to a record high on Monday, whilst the tech sector lifted the broader market as the S&P 500 also notched a fresh all-time closing high. Mega tech names led the gains for the index, whilst financials were the biggest drag. European stock markets are broadly higher in early trade. Growth/tech have come back, whilst the reopening/reflation trade has cooled somewhat.

Ahead of the Federal Reserve meeting this week there is no sign of a tantrum. Stocks are happy to catch the tailwinds higher despite being caught between a super-hot inflation reading last week and the Fed’s policy meeting. Rates have been steady coming into the meeting with the benchmark 10yr yield hovering a little below 1.5% and have been edging lower since the end of March – allowing growth stocks to catch some bid in recent weeks. The calm shows markets are broadly in tune with what the Fed’s views so far, but this can shift if the Fed acts too early or delays too long. Indeed, today’s Bank of America fund manager survey shows 72% think inflation is transitory, which pretty much tells you all you need to know about market positioning. The bottom line: “investors bullishly positioned for permanent growth, transitory inflation & a peaceful Fed taper via longs in commodities, cyclicals & financials,” the FMS report says. On the Fed and policy, 63% expect the Fed to signal a taper Aug/Sept; US infrastructure spending now seen a bit lower at $1.7tn and expectations for a steeper yield curve are at their lowest since Aug 2020.

The Fed’s two-day meeting begins today with markets paying close attention to the language from the FOMC’s statement and what the latest economic projections will tell us. Inflation and growth forecasts for the near-term will likely be revised substantially higher, but this is not going to materially alter the Fed’s position. It’s probably too early to hint at a taper – they can point to the labour market still being some way off where they want it to be and a lack of upwards pressures on inflation expectations. The transitory message will be clear. Chair Powell will seek to tamp down expectations for a taper but as the minutes from the last meeting revealed, he’s allowing it to be known that some policymakers are thinking about thinking about tapering asset purchases. But he will stress that the economy is not there yet: it’s under consideration but more progress is required. The first real signal will be left to Jackson Hole in August, or possibly the September meeting, in preparation to begin tapering in Dec/early 2022.

Yesterday crypto stocks jumped as Bitcoin recovered the $40k handle following a tweet by Elon Musk. MicroStrategy rallied almost 16%, whilst Coinbase added more than 6%. Meme stocks aren’t going away – AMC jumped 15% and Wish added almost 13%. A survey shows hedge funds expect to hold 7% of their assets in cryptos in the next 5 years.

This morning Ashtead slipped a little even as it reported a doubling in profits in the fourth quarter of the year. Operating profits +95% to £264m was a good performance and reflects the recovery in construction in the US as the economy reopened. Shares have risen by 45% this year as it has demonstrated both resilience to the downturn and a positive uptick in activity as economies reopen for business. As chief executive Brendan Horgan puts it: “Our business can perform in both good times and more challenging ones.”

No lift for sterling out of its current moribund range as UK labour market data out this morning showed the number of employees on company payrolls rose by 197k last month, though this remains about 550k below where it was before the pandemic hit. A positive report on the whole. GBPUSD maintains its slightly weaker bias as it slides down the channel looking for a meaningful shift in gear.

Afternoon wrap: Shell loses emissions court case, Amazon inks MGM deal

Commodities
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A bit of a dreich day for European equity markets with nothing moving much at all. All the main bourses have traded flat. US markets are mildly higher as Wall Street’s bank chiefs testify in front of Congress. Oil recovered $66 as inventory data showed a bigger-than-expected draw in inventories as well as stocks of gasoline and distillates. US 10s at 1.55%, gold above $1,900 and Bitcoin is weaker in the afternoon session below $39k again.

The dollar caught a big bid into the London fix. Dovish comments from the ECB’s Panetta – too early to taper bond purchases – had already set the EUR on a downwards trajectory through the session. EURUSD retreated to 1.2210 where it seems to have found some support. GBPUSD has tried several times to breach 1.4120 on the downside today but the level is holding well. The dollar index had a run up to 90 but ran out of steam at 89.95.

Doubling Dutch emissions cuts: A court in the Netherlands has ruled Royal Dutch Shell must cut carbon emissions by more than twice the company’s current target of 20% by 2030. The Dutch ruling compels Shell to reduce emissions by 45% from 2019 levels by 2030. Currently, Shell has a goal of achieving this 45% target five years later in 2035, and to be net neutral by 2050.

Shares had been trading a little higher all day before the ruling saw them turn mildly negative, before turning back above the flatline towards the end of the session. Shell says it will appeal the ruling. It comes as Chevron and Exxon also face their own climate campaign fight in AGMs today. What does the ruling mean for Shell and peers?

It undoubtedly sets an important precedent that ties corporate actions to global and national policy in a way that has not been seen before. It’s acknowledgment that you cannot abstract the likes of Shell and other ‘polluters’ if you like from the legally-binding treaties and obligations nation states have signed up to. Similar judgments may start to emerge that compel polluters to better align their strategy with government policy (eg the Paris treaty). It could also have implications for other sectors (eg Utilities) though that is less clear right now.

It is not yet clear to what extent this really changes whether you want to own Shell stock right now. True it could face fines if it doesn’t meet the targets, rather than just shareholder disapprobation. It may also need to increase the near-term capex for ‘greening’. But really this is speeding up a process already in motion. Indeed, the recent investor vote on setting more ambitious carbon reduction targets highlighted the extent to which investors are fully behind Shell doing more, quicker, not less, slower. Which kind of says most investors will be comfortable with the ruling, in of itself. Worries about higher capex and lower returns are another matter. The quicker Shell moves on this, the sooner fund managers with ESG-criteria to box tick will take a kinder view to the stock. Shell will have to act on this, and it could speed up divestments and potential deal activity if it is looking to use its current scale to swallow up some green energy assets.

Ford shares rallied 7% as it announced a $30bn investment in electric vehicles through to 2025. Investors lapped up the ambition. The company says it expects 40% of its sales globally to be EVs by 2030. It’s the first investor day under new CEO Jim Farley and there seems to be a real buzz about Ford’s EV plans now – watch out Tesla.

Amazon shares were mildly higher as the company confirmed it is acquiring MGM for $8.45bn. Like just about any big Amazon deal, on the face of things this looks like bad news for competitors, all else being equal. It gives Amazon significantly more firepower in terms of its Prime streaming platform. The impressive catalogue from MGM (James Bond etc) will help Amazon drive further up-selling of content in the Prime mix. Owning MGM also allows Amazon to benefit from having more control in the content output from the studio, which puts more squarely in a straight fight for eyeballs with Netflix/Disney. Of course, we cannot like-for-like Netflix subs with Prime membership, but, on the margins, it could make Prime compete more fully for eyeball time, which a) makes it stickier with users and b) reduces consumer propensity to have another streaming service.

Netflix tracked the move in Amazon shares but this could be more about the broad 0.55% rally for NDX today. Disney shares rose 1%. Comcast rallied 3% as it’s not seen in a rush to do any further deals. We are seeing significant consolidation in the streaming space that acknowledges the requirement for scale in order to survive – only last week AT&T spun off Warner Media to merge with Discovery. A major deal but hardly transformational for Amazon.

Finally, meme stocks are back – GameStop shares rose 14% and are now up 35% on the week. AMC added another 12%. Both jumped yesterday as Redditors on /wallstreetbets renew their interest in their old favourites.

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