5th August 2024 > > Carnage!

tl;dr

Overnight carnage means some are panicking. As always, I prefer to focus on the long-term opportunities, as evidenced by tokenisation.

Market Snap

Market Wrap

Well, that’s a move in just seven days.

Last Sunday morning we touched $70k, so we are looking at a precipitous drop of 25% or so since then. That is some volatility. Alts are doing even worse of course, with ETH taking some proper punishment. BTC leveraged longs have been liquidated to the tune of $600mm overnight, with total liquidation across all cryptos of over $1bn.

Note that the Binance perp rate quoted above is a true outlier, with a weighted average rate across major exchanges of -0.0059%. I might change my metric going forward.

Macro concerns – the ramping up of tension in the Middle East, the near-certainty of a US recession regardless of any emergency rate cuts this week, the unwinding of the Yen carry trade – are also having an impact on stocks and bonds, but not nearly to the same degree.

That rate hike last week in Japan was an odd one. The market reaction – stock markets were halted earlier today with a brutal selloff driven by fears of a potential institutional bankruptcy – shows that it wasn’t necessarily the right decision. If that gets reversed, and we see an emergency cut in the US followed by the EU and the UK, that is surely the credibility of central banks finally and rightfully shot to pieces.

Weak-handed owners of spot BTC ETFs will add further selling pressure on the NY open, as they realise that speculating on the price of BTC without access to the 24/7 markets for the underlying can be a mug’s game. Stronger hands with a longer-term view have no such worries.

At some point in the relatively near future we will see this temporary shakeout as being just that, and the crypto markets will be healthier for it.

Curious Cryptos’ Commentary – Tokenisation

Ripple has announced the tokenisation of US Treasury bills via OpenEden on the Ripple ledger.

The total amount of $10mm is utterly immaterial, and the tokenised bills have been sold to Ripple only. The key point is that this is yet another real-world test of the tokenisation of financial assets, something which Larry Fink, CEO of BlackRock, predicts will be the next revolution.

BlackRock already has a tokenised fund up and running, ticker BUIDL, whose market-value is over half a billion dollars and heading north with the likely emergency rate cuts heading our way. BUIDL is proving highly successful demonstrating all the benefits of tokenisation – instant settlement, immediate distribution of dividends, clarity of ownership, etc. All without the need for human-intensive teams of back-office staff for reconciliation and other administrative processes for both the issuer, the intermediary, and the investors.

I know that there are still those out there who can’t quite grasp the intensively competitive nature of the financial services industry, who believe that these benefits will only accrue to BlackRock. The industry is in a constant and bruising battle for customers, in the form of investor money. As these early initiatives prove successful, others will follow suit and rapidly.

The benefits will flow to everyone in the form of superior returns for investors, and a lower cost of capital for issuers, raising productivity across all industries, and making the world a materially wealthier place. The efficiency of capital allocation will be transformed, a truly virtuous circle.

This could not happen without blockchain technology implemented in a distributed manner, powered by cryptos.