HomeCryptoFIVE MINUTE FINANCE: POWELL’S HAWKISH SIGNALS, JPMORGAN USES DEFI, WEB3 ON THE...

FIVE MINUTE FINANCE: POWELL’S HAWKISH SIGNALS, JPMORGAN USES DEFI, WEB3 ON THE RISE


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  • Powell Sends Clear Signal of What’s to Come
  • Altcoin Volatility Rises
  • Despite the Bear, Web3 Development Surges
  • JPMorgan + Singapore’s Central Bank + DeFi = ?
  • Will Payments Be the First Big Twitter Integration?
  • FED Raises Interest Rates By 75 BPS in 2022’s 6th Hike (link)

What goes up must go down, in more ways than one. The Federal Open Market Committee (FOMC) finalized its 7th interest rate hike on Wednesday, raising the rate by 75 bps, to 4%. This was entirely expected and priced in. Yet, the market reacted by wiping out over $800 billion in the stock market.

S&P 500 (SPX) and Nasdaq (NDX) saw notable drops after this week’s FOMC meeting. Image credit: Trading View

Why? Because of the words imparted by the Fed Chair Jerome Powell. Previously, the market speculated a “dovish” pivot coming in December, which was supposed to manifest in a hike deceleration, at 50bps instead of another 75 bps. Powell’s messaging is now unusually clear that this isn’t in the cards.

‘’The incoming data since our last meeting suggest the terminal rate of Fed Funds will be higher than previously expected (>4.63%), and we will stay the course until the job is done.’’

By “job done”, Powell referred to price stabilization, which takes priority over anything else, including a recession. Further rate hikes will not decrease, but quite the contrary, “ongoing increases in the target range will be appropriate” to bring down the core inflation rate to the original 2% target (it is now 6.63% — but has been on an upward trend since August).

Powell made it crystal clear that, given the choice between a recession and inflation, the Fed’s monetary tools are better equipped to deal with the former.

“If we overtighten, we can use monetary policy tools to support the economy but if we don’t tighten enough, inflation becomes entrenched.”

In other words, out of the Fed’s dual mandate — price stability and employment — the latter will have to be put on hold. Anything that contributes to reduced buying power will be A-OK to cool down the economy. Once this power is down, there will be less demand, resulting in suppressed prices.

“I don’t know how big the fiscal headwinds are and they haven’t shown up in the way that we thought they would in restraining spending.”

Powell included household savings in this metric as well, saying that people still have too much to “keep spending”. In chart form, Powell is reverting the monetary clock, taking back what was given in early 2020, when the Fed flooded the market with cheap capital.

The Fed’s dual mandate is now manifesting as dual pressure — depleted savings and rising borrowing costs — to reduce spending. Image credit: Lombard Odier

For how long will this monetary pressure last? If we go by the range between SPX tops and bottoms, the 2000 dot com crash lasted 900 days, while it took SPX 500 days to reach a new top following the Great Recession of 2008.

For us today, most agree that we’re still under the one year mark.

  • Crypto Markets Become Volatile Again as DOGE Surged 124% in October (link)
  • Meta’s NFT Marketplace Will Use this Protocol for Storage: What is Arweave? (link)

While stocks fall under Powell’s blows, Bitcoin barely budged. This is a continuation of a sideways trend since late August. It appears that the dominant cryptocurrency, comprising 40% of the total cryptocurrency market cap, settled in for a long-haul bottom. Under the Bitcoin shield, altcoins are becoming more volatile, with mixed results.

Predictably, after Elon Musk took over Twitter, his favorite memecoin DOGE doubled in value, going from $0.08 on Saturday to $0.16 on Tuesday. So far, three of Musk’s companies, Tesla, SpaceX and Boring Company, accept DOGE payments for merch, so the same is expected for Twitter’s new $8 subscription model.

And just as large coins tend to work like magnets in pulling up smaller ones, Dogecoin pulled its speculative younger puppy by the tail, Shiba Inu (SHIB) at +10% over the week. Outside of memecoins, protocols in charge of Ethereum scaling, making it faster and cheaper to use, were among the top performers.

Thanks to its prolific business partnerships, from Adobe and Adidas to Meta and JPMorgan, Polygon (MATIC) went up +23% over the week, outperforming Ethereum (ETH) and memecoins. Image credit: Trading View

Meta recently selected Arweave (AR) to assist with NFT storage, which sent AR on a nearly 40% wave. As a scaling solution designed for Web3, Arweave uses its token AR to monetize decentralized file storage. Individuals with spare storage can plug in and become cloud providers.

Aside from Optimism (OP) and Polygon (MATIC), another Ethereum scaling solution has been rising over the year — Arbitrum. Already integrated with top exchanges — Binance, FTX, Crypto.com, OKX, Huobi — Arbitrum’s small fees get even smaller with increased network use. This makes it ideal for scaling, with the capability to process 40,000 transactions per second (Ethereum currently has about 14 tps).

Amid Arbitrum token airdrop speculation, Arbitrum had ~62% as many transactions as Ethereum itself. Delphi Digital

Arbitrum activity recently surged 125% due a number of updates surrounding the network and ecosystem.

Bitcoin volatility is clearly low and the Fed’s hawkish stance may have wiped hundreds of billions of dollars in value — but that’s not stopping altcoins.

Enjoy 5MF? Click to forward it to three friends.

  • Ethereum Smart Contract Deployment Up 160% YoY in September 2022 (link)
  • Reddit NFTs Surpass $8.6M in Volume, Massive Uptick for Polygon-Based NFTs (link)

In bear markets, it’s difficult to see the light at the end of the tunnel. But what if the tunnel itself is illuminated by activity in the dark? That’s certainly what ‘web3’ is looking like right now.

At the center of it is Ethereum, with $31.52 billion total value locked (TVL) and nearly 58% market share. A recent report from Alchemy which dove into Web3 activity in Q3 2022 revealed that developer activity has increased across the board: weekly downloads, smart contract deployments, and software library deployments.

This past September, developers deployed 160% more smart contracts year-over-year, which was a new monthly high. Image credit: Alchemy Insights

Overall, compared to 2018, the number of dApps increased by 1,150%, from 1,000 to 12,500. Now, 2,500 dApps have at least one active user per day.

The main target of upcoming Web3 infrastructure is blockchain gaming. Why the focus on gaming, you ask?

Well, that’s apparently what millennials and Gen Z are into:

According to an AT&T survey, younger generations are the most generous lifetime spenders on game purchases.

Blockchain gaming directly streamlines this monetization, where in-game assets themselves become tradeable, be they in-game cryptocurrencies or NFTs.

And even without gaming, NFTs are still surging as unique profile avatars on the world’s largest forum, Reddit. This is thanks in large part to Ethereum scaling solutions such as Polygon.

So far, a cumulative value of more than $8 million has been transacted through NFT sales on Reddit — the social platform with 54 million daily active users.

But established tech giants want some of the action too.

Microsoft just recently funded South Korean Web3 team Wemade to the tune of $14.8 million. Although this is chump change compared to Microsoft’s $68 billion yet-to-be acquired Blizzard, it’s certainly part of a larger trend.

Previously, Microsoft helped ConsenSys to raise $450 million to develop MetaMask wallet, which has now become the gateway to all things Web3.

Yet, we are still in the very early stage of Web3, especially in terms of gaming. And perhaps most importantly, it’s not a given that gamers are also crypto native.

According to a Coda Labs survey, heavy crypto users are 5x more likely to be gamers, but 81% of gamers use crypto either rarely, or not at all.

  • JPMorgan Executes Its First DeFi Trade Using Public Blockchain (link)
  • Singapore’s Central Bank Experiments with DeFi to Transform Capital and Bond Markets (link)

According to the Federal Reserve, JPMorgan Chase is the largest US bank with $3.38 trillion in consolidated assets, and the 5th largest bank in the world, following four Chinese state-sponsored banks.

For comparison, the total DeFi market cap, measured by combined token value, is $53.7 billion, or 1.5% of JPMorgan’s assets.

It’s from this perspective that we can see the significance of JPMorgan using Polygon to execute the bank’s first live DeFi trade.

The plot thickens, however, when we see that the trade involved Singapore’s central bank.

So, what exactly happened?

  • As a part of trading Singapore’s tokenized bonds (government debt), the city-state was testing cross-currency transactions.
  • JPMorgan exchanged tokenized Singapore dollars ($71,000) for Japanese yen, via SBI Digital Asset Holdings.
  • The transaction was executed on Polygon, Ethereum’s main scalability network, using a tweaked version of open-source Aave protocol. The latter is one of the most popular lending dApps, present across 7 blockchain networks at $5.3 billion TVL.
  • Aave’s tweaked version is Aave Arc, providing greater regulatory compliance as a permissioned KYC protocol.

Technically, JPMorgan’s transaction didn’t involve cryptocurrencies, but it did involve tokenized assets — and it showcased its ability to perform such transactions on a public blockchain. In the past, banks have typically experimented with private, permissioned blockchains for intra-day repurchases and cross-border trades.

This begs the question, should DeFi be called Automated Finance (AuFi) instead? Are we moving in that direction, or will DeFi remain as it largely is today — permissionless and pseudonymous?

Whatever the case may be, this landmark transaction shows that the financial future is tokenized and on-chain.

  • Musk’s Twitter-as-Payments-App Narrative Gains Steam (link)

Now that Elon Musk owns Twitter, opportunities are ripe for the world’s most influential platform to be more than it is. By the very nature of the platform, there is no limit on how it can be monetized.

Some ideas — Twitter users could:

  • pay fees to directly send DMs to high-profile users, as reported by the NYTimes.
  • pay to watch full-length high-quality videos, as a potential Vine reboot.
  • customize their output by paywalling their content, especially for long-form writing.

Many individuals — some of which are close to Musk or are even part of the Twitter acquisition deal — consider these explorations as a natural fit for a crypto wallet.

Over a week ago, tech blogger Jane Wong first reported on Twitter’s own wallet being explored. Given the players involved, we can get a pretty good idea. Jack Dorsey left Twitter to move into payments with his Cash App. But Dorsey still has an 18 million equity stake (~2.4%) in Twitter, as he refused to cash out.

Elon Musk himself started his wealth odyssey when he founded X.com, which later became PayPal. Ark Invest founder Cathie Wood sees Twitter becoming a “super app like WeChat Pay” under Musk’s reign.

The concept has been tested and found highly successful. Equivalent to WhatsApp, WeChat is a Chinese messaging app with all the functions one expects, but with an integrated WeChat Pay. In turn, WeChat easily connects to AliPay, a dedicated payment app from China’s Amazon equivalent — Alibaba.

Image credit: ReachFurther

Both AliPay and WeChat Pay have cornered 90% of mobile payments in China. Now that PayPal’s popularity is declining in the US, does Elon see room for a new player to enter?

Binance may play a key role, as it provided Musk with $500 million to take over Twitter.

Binance CEO “CZ” Zhao hinted this at the last Web Summit, saying that “It’s very easy to support a dozen, a couple of hundred cryptocurrencies as payments.” Remember — Binance has already cornered 55% of the global cryptocurrency market’s trading volume.

Observation #58

There is approximately $25 Trillion in US dollar denominated emerging market debt. The strength of the US dollar puts pressure on these emerging market countries, which earn in local currency, but must service debt in stronger US dollars.

@HorizonKinetics

Alright, I added Netflix $NFLX.

Apple is bigger than all FANGs combined.

@EconomyApp

BREAKING: Senator Thomas Carper bought up to $110k in Ranger Equity Bear Bear ETF, $HDGE, an active ETF that shorts US listed stocks.

He sits on the Senate Finance Committee.

And as a politician, he is actively shorting the US economy.

@unusual_whales

Equity put/call ratio spiked yesterday to highest since March 2020

@LizAnnSonders

% Below High…

Tesla $TSLA: -47%

Li Auto $LI: -61%

Fisker $FSR: -72%

Lucid $LCID: -76%

Proterra $PTRA: -80%

Rivian $RIVN: -82%

NIO $NIO: -84%

Lion Electric $LEV: -90%

XPeng $XPEV: -90%

Canoo $GOEV: -93%

Lordstown Motors $RIDE: -94%

Nikola $NKLA: -96%

@charliebilello

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