Wednesday's Markets Update (August 23, 2023)

24 Aug 2023 by rate3

On Wednesday, Nasdaq had its field day, rising more than 1% during its best day in about two months, following fresh data suggesting that service inflation is easing. Meanwhile, with its sudden breach of the 30K-28K support zone, BTC has entered pronounced bearish conditions and is now hovering just above critical 26K support. Everyone is wondering whether and when it will follow through to 22K-20K.

Details

The US services sector slowed in August as high interest rates and inflation weighed on consumer spending. The S&P Global US Services PMI fell to 51, the slowest expansion in six months. New business declined at the fastest pace since the start of the year, while business activity slowed the most in six months. Employment growth was also restrained by low demand for new business.Business confidence improved in August, supported by hopes of greater client demand as interest rates approach their peak.

Comment

When service inflation is so persistent and its causes are not entirely clear, but at the same time, you know for certain that your government budget deficit is rising, you might ask yourself the following question: How can we estimate the inflationary pressure of the US budget deficit on the overall economy? For example, how much percentage point of inflation is added yearly by a 20% expansion of the US budget?

The relationship between government budget expansion and inflation is complex and can be influenced by various factors, including the overall economic conditions, monetary policy, global market dynamics, and more. Moreover, each of the mainstream economic schools of thought has different answers to this question.

Monetarist Viewpoint: Monetarist economists like Milton Friedman have suggested that there is a direct link between increases in the money supply (which could occur due to a budget expansion) and inflation. According to some interpretations of monetarist theory, a 20% increase in the budget could potentially lead to roughly similar inflation increase. So, if the current inflation rate is around 2%, this might push it up to around 2.4%.
Keynesian Viewpoint: Keynesian economists argue that inflation is influenced not only by the money supply but also by the overall demand in the economy. If the government's budget expansion leads to increased spending on goods and services, it could stimulate demand and potentially lead to inflation. However, the degree to which this happens depends on whether the economy is operating at full capacity or has unused resources (unemployment, unused production capacity, etc.). If the economy is running below capacity, the impact on inflation might be milder.
Modern Monetary Theory (MMT) Viewpoint: Proponents of MMT argue that inflation is more closely related to resource constraints in the economy rather than just the money supply. In their view, as long as there are unused resources (labor, materials, etc.), government spending can increase without causing significant inflation. This means that the impact on inflation would be minimal unless the budget expansion leads to resource bottlenecks.
Overall, we have a mess of contradicting views, as is usual for the economics discipline. Therefore, so-called policymakers are free to choose what suits them better, depending on circumstances and their personal motives. This is what creates a big mess in the world, which is ruled by several gigantic nation-states that are headed by out-of-control bureaucracies whose inherent interests have nothing to do with the interests of the rest of humanity.

Details (2)

In July 2023, sales of new single-family homes in the United States climbed to the highest level since February 2022. Sales were up in the West and Midwest, but down in the South and Northeast. The median price of new homes sold was $436,700, while the average sales price was $513,000. There were 437 thousand houses left to sell at the end of July, corresponding to 7.3 months of supply at the current sales rate.

Comment

Again and again, we have seen from new macro-data how precarious it is to trade based on macro-data during the unwise monetary authority policies, which use outdated theories and unreliable sources of macro-data.

On the one hand, we have a deterioration of all business activities, which is the goal of the Fed. On the other hand, this deterioration creates an artificial deficit and lack of competition in the most crucial domestic markets—real estate, transportation, healthcare, etc.—which further boosts prices, creating this hellish cycle that we have entered thanks to several old, delirious men headed by Mr. Powell.

Crypto

Bitstamp, a cryptocurrency exchange, will stop offering ether staking services to American clients starting in September.
Tornado Cash, a crypto mixer based in Russia, was used to launder money from several crypto heists last year. The DOJ has arrested one of the co-founders of Tornado Cash, and is on the lookout for the other co-founder. The DOJ has charged both of them with money laundering despite them being just developers - not actual "launders".
Comment

In the past two years, it became painstakingly obvious that crypto markets can barely survive without excessive liquidity, despite the unquestionably high quality of the code and amazing technical sophistication of crypto entrepreneurs, who are coming out with incredible ingenious solutions, specifically for layer 2-3 tradefi.

There were a couple of things that became clear as day in 2022-2023 bear cycle.

First, all G20 governments (on the level of law enforcement agencies and central bankers) are more or less unanimous in their pursuit of de facto prohibitive crypto regulations. In some countries, such as the US, there are still some lobby politicians fighting for our cause, brandishing monetary freedom as freedom of speech. However, their (and our) battle is definitely uphill, at least under the present generation of 70-80+ aged, tech-fearful bureaucrats and their core aging Boomers constituency.

In other countries, like China, authorities are much less inclined to listen to lobbying and simply want to directly control cryptocurrency, mostly through implementing central bank digital currencies (CBDCs) and forcing every citizen to use them. Of course, in this situation, free-crypto (DeFi) is a direct competitor and, even worse, a political opponent. Therefore, it will be dealt with accordingly.

Of course, there is a third category of countries left: those in huge social and economic troubles, like Malta, Estonia, El Salvador, Nigeria, or Argentina. In these countries, authorities sometimes consider "playing with crypto" as a last resort, or because they believe that "it can't possibly get worse." However, even in these countries, as soon as the situation improves even slightly (as has happened in Estonia and Nigeria) or a leading pro-crypto figure is changed (Malta), bureaucrats immediately "switch into reverse" and start to eradicate all notions of DeFi and revert to CBDCs (as Nigeria has done).

Yes, it is true that there is a fourth category: reasonable bureaucrats, such as those in Switzerland, Hong Kong, Singapore, or Japan (although this is becoming less and less true). There are also a number of very small states (such as some in the Caribbean) that fall into this category. In these countries, smarter politicians prevail for some magical reason. I believe this is mostly because these countries are effectively ruled by very sophisticated financial elites, who are basically outsmarting the hardcore idiots in the SEC, Fed, IMF, FSB, and other "world regulators." However, whatever the reason, these countries are by no means stable for crypto, because they are and will definitely be under increasing pressure from the ruling plutocrats in DC and Brussels, who will sooner or later require them to shut down the rest of our freedoms.

So, if you ask me, our only hope is that the number of "crypt-refuge states" (those in the 3rd and 4th categories mentioned above) will not drop to zero in the foreseeable future before the complete overhaul of the existing financial system begins. Obviously, this is only possible under extreme circumstances, which none of us want to imagine, or when an entirely new generation of young politicians is somehow willing (big "if") to start the fundamental reforms of all the world's governing mechanisms, which probably will not begin for another 15-30 years.

I know, that many of you are much more optimistic politically than myself, and I hope you're right. So let's now consider a brighter side of our crypto-real - a growing adaption.

There are so many contradictory (and widely different) estimates of that figure that it can only be done approximately. For example, according to CryptoMode, as of November 2021, Uniswap V2 had over 518,000 monthly active users. Then, in 2023, Decrypt reported that Uniswap has around 2.5 million users in total. At the same time, according to data from Dune Analytics (personally, I doubt that those numbers are correct), Uniswap had 30.3 million monthly active users (MAUs) in June 2023. This was an increase from 17.5 million MAUs in June 2021.

Overall, according to many estimates, the total number of blockchain users in 2021 was around ~50 million. This number grew to ~100 million in 2023. This growth is being driven by the increasing adoption of blockchain technology in a variety of industries, including supply chain, banking, tradfi, and NFTs.

Here is a breakdown of the number of blockchain users in 2021 and 2023, by industry. (Please note that these figures are for your interest only and should not be used in scientific research. They are highly speculative and may contradict the information in the preceding paragraphs.)

Supply chain: 15 million users in 2021, 20 million users in 2023
Banking: 10 million users in 2021, 15 million users in 2023
Tradfi: 5 million users in 2021, 10 million users in 2023
NFTs: 1 million users in 2021, 5 million users in 2023
The growth of blockchain adoption is being driven by a number of factors, including the following:

The increasing need for secure and transparent record-keeping
The potential for blockchain to reduce costs and inefficiencies
The growing popularity of cryptocurrencies and other digital assets
So, some more sophisticated, youngest category of customers are actively adapting our technologies, and we can say that our kung fu is strong. However, our opponents use guns and are simply eradicating us by point-blank shooting. What should we do?

Probably, our market has come to the point where there is no more "us." There are at least three different categories of crypto-related businesses:

Pro-government, pro-CBDC, corporate, 100% compliant, potentially BlackRock-invested businesses.
Totally rebellious businesses that are now using largely centralized DeFi-based services (like Uniswap) to function, but are considering going totally decentralized, untraceable swaps (like Monero-BTC pairs).
The majority of us, who are in between those two extremes and who are now mostly being targeted by law enforcement because we still can't choose. The time to choose is now.
Macroeconomic

South African Stocks (JSE FTSE All Share) Index rose 1% on Wednesday, boosted by resource-linked sectors and financials. The prospect of strong results from Nvidia and the Federal Reserve's Jackson Hole symposium also supported sentiment. South Africa and China signed deals on emissions technology, electricity, and nuclear power. Inflation slowed to 4.7% in July.

Comment

It looks like, despite all fears and smears, boosting the technology sector remains the only real hope for growth in the majority of G20 countries, regardless of their political orientation. Some autocracies are dreaming of converting their nations into joystick-guided pawns on their geopolitical board, so that ruling families can have something to play their entertaining power war games with on the world chessboard. Another, "soft" group of autocrats just wants to make us into obedient, ever-compliant androids, subservient to the all-knowing, "meritocratic" elite, free of our despicable weaknesses, crazy follies, and all the rest of humans' "evils and sins." Who will prevail? Who do you join?