Markets Daily

Crypto Update | What JPMorgan Analysts Missed About Bitcoin's Rally

Noelle Acheson, the mind behind the Crypto Is Macro Now newsletter, explores recent crypto project exploits, U.S. consumer expectations, big-bank investment comments and more.

November 13, 2023

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This episode was hosted by Noelle Acheson. “Markets Daily” is executive produced by Jared Schwartz and produced and edited by Eleanor Pahl. All original music by Doc Blust and Colin Mealey.

Audio Transcript: This transcript has not been edited and may contain errors.

It’s Monday, November 13th, 2023 and this is Markets Daily from CoinDesk. My name is Noelle Acheson, CoinDesk collaborator and author of the Crypto is Macro Now newsletter on Substack. On today’s show we’re talking about exploits, consumer expectations, big-bank investment comments and more. So you don’t miss an episode, be sure to follow the podcast on your platform of choice, and turn on notifications. And just a reminder, CoinDesk is a news source and does not provide investment advice.

Now, a markets roundup.

After the hectic activity at the end of last week as markets reacted to BlackRock’s filing of an ether spot ETF, the weekend seemed like an oasis of calm. So far today, the market looks mixed. According to CoinDesk Indices, at 9 a.m. Eastern time this morning, bitcoin was down two thirds of a percent over the past 24 hours, trading at 36,873 dollars. Ether was up one third, trading at 2,059 dollars. Elsewhere, Filecoin was up 14%, Cosmos was up 10%, Optimism and the Lido DAO token were up 5%. Solana was down 1% after what has been an astonishing run – over the past week, the asset is up over 40%.

You may remember that in an early October episode, I pulled out the average performance of bitcoin for the month of October going back to 2010, which was 27%. I calculated that if bitcoin achieved that average performance during the month, the price would reach just over 34,000 dollars. Well, that’s pretty much what happened.

Do please note that I’m not saying I know where the price is going, and the October result was pure coincidence. I don’t have a crystal ball. But, let’s try the same exercise for November, just for fun.

November, historically, has been on average an even better month than October, with an average performance going back to 2011 of 44%. If this November meets its average, and it’s a big if, that would put the bitcoin price at just over $49,000. It’s a pleasant thing to keep in mind.

In macro indicators, today I have more news from the University of Michigan consumer survey. You may remember a couple of weeks ago, I talked about why this survey was worth watching – it’s because of what it says about how consumers are feeling, which could impact future spending.

Well, on Friday we got the details for October, and there are some worrying signals in there. Inflation expectations one year out are now at 4.4%, much higher than the expected 4.0%, and higher than September’s 4.2%. This is the highest level since May, which signals that the rate hikes are not doing what they’re supposed to do, which is bring down corporate and consumer spending, and reset expectations. The fact that consumer inflation expectations are more than double the official target is not nearly as worrying as the fact that they are heading up.

And it’s especially relevant since it is something Fed Chair Jerome Powell has said he keeps an eye on, as inflation expectations can influence behavior. This rise in the University of Michigan survey result further confirms that rate cuts are not on the table just yet, and probably won’t be for a while, at least until this number comes down to close to 2%.

The University of Michigan inflation expectations for five years out also came in higher than expected, at 3.2%. This is lower than the 12-month expectations, which is good, but it does send the signal that the Fed’s inflation target won’t be reached even in five years. Tomorrow we get the U.S. CPI figure for October. Economists expect the headline figure to show a 3.3% year-on-year increase, down from September’s 3.7%. The increase in the core index, which strips out energy and food, is expected to hold steady at 4.1%, still a long way from the official 2% target.

In stocks, the U.S. indices rallied on Friday to record a second week of gains as Treasury yields stabilized after their sharp climb on Thursday. The Nasdaq rose just over 2%, its best day since May. The S&P 500 was up 1.6%, and the Dow Jones was up 1.2%. Today, the US 10-year yield is climbing again, and just before recording was back up to 4.67%. Futures are pointing to a soft equities open.

European stocks did not have such a good day on Friday. The FTSE 100 closed 1.3% lower, the German DAX was down 0.8% and the broader Eurostoxx 600 lost 1%. So far today, things are looking a bit more cheerful, with moderate gains on all the leading European indices.

In Asia, Japan’s Nikkei index was flat, China’s Shanghai Composite rose a quarter of a percent, and the Hang Seng index rose 1.3%.

In commodities, the Brent Crude benchmark is up four tenths on the day, trading at just over $82 dollars per barrel. This comes after OPEC raised its forecast for demand growth, insisting that market fundamentals were strong.

Gold is slightly weak today, down a quarter of a percent to trade at 1,935 dollars per ounce.

Stay with us – after the break we’re going to talk about crypto exploits and why they are relevant to markets, and I’m going to poke some holes in a big-bank investment note on bitcoin.

Welcome back! In this section, I disagree with JPMorgan analysts.

But first, unfortunately I have to bring up the recent flurry of exploits on crypto platforms and apps.

“Exploit” is the preferred term for hack or theft these days because it correctly reminds us that many crypto “hacks” are not carried by intruders breaking past firewalls and hacking into databases. They are often carried out by coders who see loopholes or gaps in an application’s code, and take advantage of those to seize tokens from users. Some will debate if an exploit is unlawful if the code allowed it to happen. But, generally, token ownership is understood even if not always legally defined, and taking what belongs to someone else is wrong.

In crypto, exploits can be particularly damaging for the following reasons:

1 – they’re fast. Assets can move in a matter of seconds.

2 – blockchain privacy features make it relatively easy for hackers, sorry exploiters to mask their identity

3 – tokens are usually bearer assets – that means, whoever holds them, owns them, much like cash. So, getting them back is more problematic.

But crypto exploits also count on some advantages that the fiat systems don’t have. One is that they can usually be spotted quickly, which often leads to many tokens being saved. Another is the traceability of asset movements on public blockchains. The tokens can move fast, but they’re relatively hard to hide, and exploits are hard to cover up.

Anyway, why am I bringing this up?

Because over the past few days, we’ve seen several headlines announcing crypto exploits. One of the largest was of the crypto exchange Poloniex, owned by Justin Sun, which reportedly had hot wallets drained of roughly $114 million. Also, an address with links to Binance lost $27 million in an apparent hack over the weekend. A DeFi platform called Raft suffered a $3.3 million exploit on Friday.

And this morning, The Block reported that blockchain security firm SlowMist revealed a phishing attack using a fake Skype app to steal crypto funds. It’s not clear how much the scammers earned, but the amount is probably in the hundreds of thousands of dollars.

All of these events are unfortunate – but let’s take them as an unwelcome reminder that security matters, and that all investors should take care with their custody arrangements and privacy settings. And be careful out there.

Next, this morning on CoinDesk, Will Canny reported on a note published last week by JPMorgan analysts that said the bitcoin rally was probably overdone.

One reason is that the U.S. listing of bitcoin spot ETFs would probably not bring in a significant amount of new money into the market. The ETFs will probably benefit from money already in other crypto products that migrate to the new funds. The authors of the report cite the example of the Canadian spot ETFs that did not attract notable interest after inception.

Looking at the evolution of the assets under management of the largest Canadian bitcoin spot ETF, however, we can see that this is not exactly true. BTCC now has a record $1.5 billion in assets under management, which is not insignificant, and is almost three times what it had in January. Plus, the Canadian market is much smaller than that of the U.S.

Another point made in the JPMorgan report is that the Ripple and Grayscale court rulings do not mean that regulatory tightening of the crypto industry will ease in the U.S.

This is probably true, but should not impact bitcoin directly. And anyway, a listed ETF would give all types of investors a regulated way to get exposure to the asset class, so it doesn’t make sense that the regulatory chill should dampen the bitcoin price from here.

A third argument, according to Will’s article, is that the bitcoin halving is priced in. The bitcoin halving is a pre-programmed network change that halves the amount of new bitcoin received by miners in exchange for processing transaction blocks and maintaining consensus. It happens once every four years, and is designed to ease the total supply gradually toward the hard limit of 21 million. In previous halvings, the reduction of new supply entering the market has been taken as bullish in that it lessens selling pressure.

The JPMorgan analysts are correct in that the timing of the halving is more or less known. It’s not known exactly because it goes by block height not date, but the date can be forecasted to within a range.

I’ve talked on earlier podcasts about how, in my opinion, nothing is ever priced in in crypto. The market is just not efficient when it comes to instant and widespread information, and assuming that it is overlooks the vast audience that has yet to make their first crypto investment. Events like the bitcoin spot ETF listing and the halving will bring in new market participants mainly because excited headlines trigger curiosity. And as most of you listening probably know, once you start getting curious about crypto assets, it’s hard to stop.