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- Powell Abandons Recession Narrative: Is it Justified?
- Worldcoin: OpenAI Cofounder Launches Eye-Scanning Crypto…
- Meta is Losing Big on the Metaverse. Why is the Stock Up?
- Is the US on the Verge of Clear Crypto Regulation?
- Bitcoin’s Whale Tossup
- Chances of a 25 BPS Hike at 98.9% as FOMC Decision Due Today (source)
Joining a widely-held anticipation, the Federal Reserve hiked the interest rate by another 0.25% (25bps).
This brought the federal funds rate to its highest level in 22 years, at the 5.25–5.50% range.
And just like that, we’re entering an era of record-breaking interest payments the US government has to pay on its debt.
The US is poised to imminently cross the $1 trillion debt service milestone. Image courtesy of the Federal Reserve.
To offer some perspective: the entire NASA budget in 2022 was $24.8 billion, which is 2.5% of present interest payments.
This begs the question: How long can the Fed keep the funding rate up at this level?
Given Q2 GDP growth just beat the estimated 1.8%, at 2.4%, this suggests an inflationary pressure.
To counter that pressure, Powell sees the ‘higher for longer’ maxim deployed until 2025 because “we don’t see ourselves getting to 2 percent inflation” until then.
Interestingly, Powell switched the recession narrative on its head.
Aggressive hiking (11 hikes in 17 months) typically leads to a recession as the air is let out of ballooned assets. However, Powell’s anticipations for the upcoming Q3 SLOOS data suggest a tightening economic grip.
Still, history tells us to approach Federal Reserve forecasts with a healthy degree of skepticism.
The higher the percentage, the tighter the lending conditions, indicating economic contraction (recession). Image courtesy of the Federal Reserve.
Yet, Powell is now saying that the Fed’s army of experts are “no longer forecasting a recession”.
When we look at the Fed’s previous claims, how legitimate should we take this one?
Let’s just say, such pronouncements should be taken with a few grains of salt as the Fed’s forecasting prowess has been less than stellar, to put it mildly.
The Fed predicting rate hikes — fail. Image courtesy of Financial Times.
The historic track record doesn’t look much better:
The Fed predicting mega recession — fail. Image courtesy of Reuters.
This is likely why Powell was unusually vague and non-committal at the press conference…about everything.
The entire conference could be boiled down to this pearl of ambiguity:
“We will continue to make our decisions meeting by meeting, based on the totality of incoming data and their implications for the outlook for economic activity and inflation as well as the balance of risks.”
- Free Money for Eyeball Scans? Worldcoin Deep Dive (source)
- Binance to List Worldcoin as Altman’s Orb-Based Project Goes Live (source)
A new cryptocurrency entered the blockchain world on Monday.
It arrived, not stealthily like its counterparts, but with palpable buzz and debate.
The concept is daring:
- Registered Orb outposts scan people’s retinas, as unique biological identifiers.
- Retina scans taken by Orb cameras are then deleted after being formatted into unique iris codes, purportedly ensuring anonymization.
- Both Orb operators and the scanned individuals are incentivized. The former are paid in stablecoins or local fiat, while the latter receive 25 WLD genesis grants (~$50).
- More importantly, the scanned people receive a ‘World ID’ — an anonymized proof-of-personhood, i.e., digital passport.
With future integrations, the idea is that World ID could allow WLD tokenholders to gain access to…everything: the internet, banking, dApps on blockchain networks, and even government programs such as UBI (universal basic income).
In short, Worldcoin (WLD) tokenizes biometric data to fast-track cumbersome KYC/AML compliance.
By logical inference, many are worried that other conditions could be imposed on the biometrically-conditioned access to the economy.
What is particularly interesting is that Worldcoin was co-founded by Sam Altman, the co-founder of OpenAI with its spearheading ChatGPT.
Given that large language models (LLMs) can mimic human expressions, Altman believes that proof-of-personhood is necessary to distinguish verified humans from online bots.
“This lets you prove you are a real and unique person online while remaining completely private,”
When it comes to WLD tokenomics, it’s rather VC-focused. The developers of Orbs and the World ID protocol, Tools For Humanity (TFH), will receive 9.8% of tokens, while TFH investors get 13.5%.
The TFH reserve for future projects receives 1.7% of tokens, while the “Worldcoin community” gets 75%.
Image courtesy of Worldcoin.
The initial supply cap of Worldcoin is set at 10 billion WLD with some caveats:
- Launch supply is 143 million WLD, with 100 million loaned to market makers outside the US.
- Unlocked supply is 500 million WLD, accounting for users who will claim allocated tokens.
- WLD tokenholders have governance rights to vote on how fast the circulating supply increases, but the official emission schedule foresees ~5 billion WLD supply by the end of 2025.
After 12 years, WLD supply will reach the maximum of 10 billion, which is a few decades short of projection when the global population reaches 10 billion people.
Image courtesy of Worldcoin.
After 15 years, Worldcoin’s annual inflation is estimated to be 1.5%.
Quite clearly, WLD price depends on the success of Orb operators. In that regard, Sam Altman reports stellar results.
After Monday’s launch, and subsequently expected price decline, Worldcoin stabilized at ~$2.
Image courtesy of TradingView.
Over the week, WLD’s trading liquidity has been fairly low, at around 1%.
Image courtesy of Kaiko.
In short, one of the guys who created ChatGPT is incentivizing people with a new cryptocurrency to create a unique digital ID by scanning their retina.
What could possibly go wrong?
- Crypto Bill Passes Congressional Committee in Victory for Industry (source)
Over the years, many crypto-related bills have been introduced, but few have progressed beyond their initial stages.
However, with two such bills clearing the House Financial Services Committee this past Wednesday, there’s renewed hope in the air.
To understand the significance, let’s quickly review the legislative process:
- A bill is initially proposed, requiring sponsors for introduction.
- Once introduced by a representative, it’s given a unique H.R. number and sent to the relevant committee.
- The bill goes to the committee for review and debate, getting a markup for changes (amendments).
- If the committee approves the bill, it is sent (reported) to the House floor.
- With reported status, the bill is viable for debate by the U.S. House of Representatives.
- Following debate and further potential revisions, the bill is put to a vote.
- Upon gaining majority approval in the House, it transitions to the Senate, where it faces a similar review process.
- If the Senate approves, the bill lands on the President’s desk for final sign-off, culminating in its enactment as law.
This Wednesday marked a notable advancement for two crypto bills:
- Financial Innovation and Technology for the 21st Century Act (FIT for the 21st Century Act), sponsored by Rep. Glenn Thompson (R-PA)
- Blockchain Regulatory Certainty Act, sponsored by Rep. Tom Emmer (R-MN)
The first bill establishes rules on which digital assets are securities (under the SEC) and which are commodities (under the CFTC). It does so by focusing on the level of decentralization and functionality.
The bill even outlines procedures that would re-label existing securities to become commodities.
The second bill’s purpose is to remove barriers to blockchain development in the US. Specifically, by relieving miners, validators and wallet providers of having to register as money transmitters.
Additionally, a third proposal, called the Digital Assets Market Structure (DAMS), almost made it, but it encountered some opposition. The bill nearly passed, but faced considerable resistance from Democratic members, most vocally from Rep. Maxine Waters (D-CA).
Her critique centered on its purported leniency toward the crypto sector and its introduction of multiple new regulatory frameworks, predominately overseen by the CFTC. In her words:
“We don’t need to invent new regulatory structures simply because crypto companies refuse to follow rules of the road,”
No doubt, the bills will go through multi-level evolution. Compromises are inevitable given that the Biden administration has been largely hostile to digital assets, and the process requires a Presidential final stamp of approval.
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- Meta’s Reality Labs Has Now Lost More than $21 Billion since the Beginning of Last Year (source)
- Meta Up 9% Premarket After Strong Earnings Reported with “Monster” Guidance (source)
When one is Big with a capital B, experimentation is affordable.
This is the story of Meta’s dabbling into VR and the metaverse (Horizon Worlds). One is focused on VR hardware (Oculus Quest), while the other is focused on crafting virtual worlds.
However, the latest Q2 earnings report from Meta, released this Wednesday, indicates that their gamble isn’t paying off as anticipated.
Since Meta’s Reality Labs launched in Q4 2020, it incurred $33.7 billion in total losses, or $21.5 billion since Q1 2022.
This is quite remarkable, for a few reasons.
For comparison, consider the highly successful Grand Theft Auto V, one of the priciest video games ever produced, with an all inclusive budget (development and marketing) of $265 million.
In stark contrast, Reality Labs exhausts an amount equivalent to that $6 billion roughly every six months, persisting for three consecutive years.
This disparity underlines a key insight:
- Genuine, impactful content is birthed from a unified artistic direction. Regrettably, Meta often projects a signature corporate monotony, as showcased by its uninspiring themes and aesthetic choices.
Image courtesy of Meta
- By relying on the VR interface, Meta is limiting its reach, as opposed to very common gaming consoles and controllers. Statisitcally, this translates to Meta tapping into a modest $19.44 billion VR market vs. the colossal $199.74 billion video-gaming market (both figures for 2022).
Despite operating within this confined VR segment, Meta’s Reality Labs struggles to launch any sort of groundbreaking application akin to how OpenAI captured such a buzz with ChatGPT.
Nonetheless, Meta’s size allows it to absorb large losses and play the long-term game. This is evident with Meta’s beatdown of estimated Q2 revenue by nearly $900 million, standing at $32 billion, +11% year-over-year increase.
Meta’s answer to TikTok, called Reels, did particularly well, topping 200 billion plays per day across Facebook and Instagram. Reels’ monetization alone created $10 billion annual windfall.
Meta’s bread and butter, advertising, is also doing well. Across IG, WhatsApp and Facebook, ad sales are up +12% YoY.
For Q3 2023 Meta forecasts 15% YoY growth, triggering some Wall Street analysts to dub it “monster guidance”.
Hence, even with Reality Labs acting as a fiscal drain, Meta’s expansive resources ensure it remains unfazed. On the horizon for the tech giant is the anticipated release of the Quest 3 VR headset. Priced assertively at $499, it presents a competitive edge against Apple’s Vision Pro, retailing at $3,499.
While it aligns with the price range of a typical gaming console, it’s a promising step towards broadening the VR demographic.
As for the content itself, there’s hope that Reality Labs might soon unveil a game-changing app. After all, it did take three years to make GTA V.
We’ve yet to hear anything yet, though.
- Bitcoin Whale Watching (source)
On Wednesday, Binance CEO CZ noted the stubborn Bitcoin sideways action.
Indeed, after hitting $30k mid-April, the $29k — $30k range has been solidified into a pretty boring stagnation.
Year-to-date, Bitcoin shined following the US banking crisis, but has recently floated in the $29k — $30k range. Image courtesy of TradingView.
From a narrative standpoint, Bitcoin appears to have lost all of its baggage. Larry Fink of BlackRock, the global ESG enforcer, made this acutely clear with his complete U-turn:
“Instead of investing in gold as a hedge against inflation, a hedge against the onerous problems of any one country, or the devaluation of your currency whatever country you’re in — let’s be clear, Bitcoin is an international asset, it’s not based on any one currency and so it can represent an asset that people can play as an alternative.”
While we are yet to see how BlackRock’s Bitcoin ETF (if approved) will affect the BTC price, this flippening alone is barrier-destroying.
Envision the typical skeptic, perhaps a proverbial, challenging anti-crypto advocates in family debates: “Oh, Bitcoin is a ponzi scheme, is it? So, you know better than BlackRock and Fidelity, is that what you are saying?”
We are yet to see this play out in the upcoming months and years.
In the meantime, what’s the stabilizing factor in BTC’s price?
According to Glassnode data, short-term holders (STH) are the ones trading local market conditions. That is to say, STHs are running both corrections and rallies, at 10k BTC profits or losses, depending on the market condition.
Image courtesy of glassnode
At the end of the line, Bitcoin will break sideways action when one cohort of whales beats another cohort, in the perpetual supply-demand war.
Following the mid-April top, up until late June, under-100 BTC wallets have been neutral while 1,000–10,000 BTC wallets have been accumulating.
Image courtesy of glassnode.
Here’s an overview of the recent whale movement:
- Zoomed out, whales over 100,000 BTC increased their balance by +6.6k BTC.
- Whales within 10,000–100,000 BTC reduced their balance by -49k BTC.
- Whales within 1,000–10,000 BTC increased their balance by +33.8k BTC.
Overall, the whale subgroups generated -8.7k BTC in net outflows.
This is where STH whales come into play. Counting as those wallets that became active this year, STH dominance rose to 82%.
Image courtesy of glassnode.
And instead of hodling like long-term holders (LTHs), the newcomers are either locking in high profits or high losses.
With the increase in new STHs, either they’ll hold long enough to become LTHs — or we’ll see some pretty notable selling pressure.
RECESSION: we’ve already entered an Industrial Recession
Where does this one stop #slowing? Not today
*Note: this chart is for people who understand Cycles
19/ Key Takeaways:
– The longest gap between an inversion and a recession is approximately 16–17 months (1928)
– Market strength during inversion doesn’t predict recession’s severity
– Deeper inversions result in lower PMIs
– Today’s inversion resembles 1928 and 2006
Why is the economy so resilient? One reason: A large swath of the economy has locked in low rates for longer. The Bloomberg MBS index still has an average coupon of under 3%. Family mortgages totaling $13.5 trillion are mostly immune to the Fed’s rate increases.
Economic growth is hamstrung by too much debt, which was stolen from future consumption for decades to avoid a deleveraging event.
This makes the system more fragile and desperate for more stimulus (I.e. debt).
When a triggering event raises the specter of deleveraging, we add more debt, which diminishes future growth potential.
This vicious cycle requires more debt — -> until no amount of debt will lift growth.
Then, the deleveraging.
Two huge stories in one:
Huawei ready to make a comeback with 5G smartphones with its own chipsets!
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