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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 Friday, November 10th, 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 crypto market dynamics, a possible ether spot ETF, a shift in rates expectations, 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.
In crypto markets, yesterday saw a bit of a narrative pivot. After bitcoin’s strong surge it pulled back, but is still up almost 6% over the past week. According to CoinDesk Indices, at 9 a.m. Eastern time today, bitcoin was down eight tenths over the past 24 hours, trading at 36,962.
Ether was where most of the large-cap action was! Earlier today, ether was up almost 8% trading at $2,074. It is up 15% over the past week. Ether’s strong outperformance both yesterday and today can be attributed to the news that BlackRock, the largest asset manager in the world, has filed for an ether spot ETF.
This step makes sense as, in principle, the same market factors that would approve a bitcoin spot ETF are present for ether. The asset is not as large in market cap or as liquid as bitcoin, but that is not a prerequisite for an ETF wrapper. And nor should the proposal be impacted by the lack of regulatory clarity around ether, whether or not it is a security. The ETF shares will be securities, the underlying asset could be or not, it shouldn’t matter. The SEC will be mainly concerned with market transparency, which is essentially the same for both assets. There could, however, be some issues around whether or not staking rewards could be distributed, that might become a legal question.
As with bitcoin, a listed spot ether ETF in the U.S. could bring in a lot of new demand, especially since ether has notably underperformed bitcoin so far this year. It’s still early days in this process, and obviously the ecosystem can’t count on SEC Chair Gary Gensler’s cooperation. But it’s a very interesting development that could have an impact on the relative performance of ether going forward.
It seems to also be impacting what are known as Ethereum ecosystem tokens: Optimism is up 7% over the past 24 hours, Arbitrum up 4%, and the Lido DAO token is up 17%.
Earlier this week, I talked about why we should pay attention to what U.S. Federal Reserve officials are saying. Today I’m going to focus on one particular official – Fed Chair Jerome Powell.
Speaking at an IMF conference yesterday, Chair Powell sounded more hawkish than many had expected. Hawkish in "Fedspeak" means talking interest rates up, while dovish talk suggests rates will come down. I don’t know where these terms come from, but I think of it as hawks generally fly higher than doves.
Anyway, back to Powell, many were expecting to hear the same sort of neutral tone that he had at the recent FOMC press conference, in which he said that long-term U.S. yields could take care of some of the necessary tightening of economic conditions. Back then, 10-year treasury yields were above 4.9%. Since then, largely encouraged by Powell’s remarks and by signs that the jobs market is finally cooling, yields have corrected sharply, down to below 4.5% yesterday. So, it’s fair to assume that maybe the Federal Reserve won’t be so confident that it can pause because long term yields are high, when they’re coming down.
Sure enough, Powell’s words yesterday included phrases such as, and I quote: “If it becomes appropriate to tighten policy further, we will not hesitate to do so,” end quote. Powell also stressed that the Fed was not confident that it had achieved the appropriate policy stance to bring inflation down to 2%. Basically, this was Powell telling the market that it was wrong to assume peak rates were in.
Sure enough, yields started heading up again, passing above 4.6% yesterday. This morning they are settling back, and are currently at 4.57%. Stocks also reacted, more than undoing the week’s gains.
In the U.S., the S&P 500 dropped eight tenths of a percent, the Nasdaq dropped almost 1 percent, and the Dow Jones fell by over six tenths. Futures this morning are pointing to a modest recovery on the open.
In Europe, the U.K.’s FTSE 100, German DAX and the Eurostoxx 600 were all up around eight tenths of a percent yesterday. This morning, the mood is definitely more pessimistic, and was not helped by the FTSE 100 index going temporarily offline this morning due to a technical glitch. The situation was resolved, and so far today, the index has dropped more than 1.3%. This is despite the U.K. Q3 GDP figures coming in slightly better than expected, with a 0.6% increase year on year, in line with the Q2 growth. Elsewhere on the continent, so far today the DAX is down around seven tenths of a percent, and the Eurostoxx 600 is down nine tenths.
In Asia, Japan’s Nikkei index fell a quarter of a percent, China’s Shanghai Composite dropped half a percent, while the Hang Seng fell a painful 1 and three quarters percent.
In commodities, oil prices were largely flat yesterday. They are climbing so far today, with the Brent Crude benchmark 1.3% to trade at 81 dollars and 54 cents a barrel. Nevertheless, unless there is some short of shock this afternoon, oil prices look set to lock in a third consecutive week of declines.
Gold recovered some lost ground yesterday, but so far today, is down half a percent, trading at 1,948 dollars per ounce.
Stay with us – after the break we’re going to continue with our new Friday format of tackling some of the questions you send in.
As you probably know, on Fridays I pick one of the questions you’ve been sending in – thanks very much for that, by the way, I do love seeing what you’re interested in.
Not surprisingly, quite a few of the ones that came in this week had to do with price, along the lines of “What will it take to get bitcoin to $40,000?”
I thought this was a fun one because, after what we saw in crypto markets yesterday, it could be at 40,000 by the time you hear this.
But it’s an interesting question anyway in that it gives me a chance to talk about big-picture market dynamics. And I must stress that I’m going to talk in very general terms here, and gloss over a lot of details and even nuance, else I could go on for ages. I’m also going to skip detail on the role of market makers and derivatives, and stick to basic principles. Do let us know if there’s any aspect you’d like me to talk more about, and perhaps I could come back to it in another episode.
So, what would it take to get bitcoin to $40,000? The simple answer is “more buyers than sellers.”
To be honest, that answer has always bothered me because there is always a buyer for every seller - you can’t sell if there isn’t a buyer on the other side - but it is a reflection of market balance. When buying and selling demand are more or less equal, prices in theory are flat. But when buying demand increases by more than selling demand, buyers have to offer a higher price in order to convince more sellers to come into the market to bring back balance. When bitcoin prices are rising, that means there are more buyers willing to pay more to get what they want.
And, eventually, there is a price at which there are more sellers eager to sell than buyers eager to buy. We only find out what that price is in the rear view mirror, however. Two years ago yesterday, bitcoin reached almost $69,000, which turned out to be the high for that cycle.
Anyway, back to today, who are the buyers and who are the sellers?
For the purposes of this conversation I’m going to leave out the traders, who actually account for most of the buying and selling volume as they are constantly in and out, often within the same day. Sometimes they’re people trading the narratives and sentiment moves, sometimes they’re bots, and it’s a fascinating topic I’ll have to leave for another time.
So, outside of that group, let’s start with the sellers, who are they?
They could be investors who believe that the bitcoin price has reached a local top and will start to head down. There are some reasons to think this. They could be concerned about some looming systemic risk, or the U.S. Marshals dumping their seized bitcoin holdings, or SEC Chair Gary Gensler denying all the bitcoin spot ETF proposals. Remember that if there is no diversity of opinion, there is no market.
Or, they could be miners. This is yet another key feature that makes crypto markets unique. Miners accumulate newly minted bitcoin in return for their work processing transactions and validating the network consensus. Many choose to sell these bitcoin immediately in order to pay for operating costs and/or to lock in profit. This is more likely when bitcoin prices are low and they have to sell more to cover the same level of costs. As bitcoin prices rise, they need to sell less, because they get more for each one. Of course, they may choose to sell more because they are not confident the price will continue to climb, but on the whole, as bitcoin prices rise, miner selling pressure declines.
Now, who are the buyers?
Well, anyone who expects the market to go up from here. The reason why buyers think it would go up is not as relevant as their behavior once they have bought – are they long-term holders, or are they going to wait for a 10% bump and then sell? Of course, the price going up tends to attract more buyers, as bitcoin makes headlines and as more investors are worried about missing out.
So, you can see why it’s important to keep both sellers and buyers in mind when you think about price direction and market timing.
Back to the question of what it would take for bitcoin to reach $40,000… well, more buyers than sellers, and it’s up to you to determine where you think the balance between the two groups is today.