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Bitcoin's death cross

Good morning! Ten new coronavirus cases were reported in Sydney yesterday including a mystery infection in an eastern suburbs school, leading NSW Premier Gladys Berejiklian to extend the state's mask mandate to 1 July.

The virus spreading in NSW is the Delta variant that originated in India, which is at least 40% more infectious than the Alpha variant (the UK strain). Let's just hope that NSW's "diamond standard" contact tracers can get on top of it soon. 🙏

Markets

Daily % change

AUD/USD

75.6

+0.1%

10Y Bond

1.53

-0.6%

ASX200

7,342

+1.5%

Brent (bbl)

75.1

+0.3%

Gold (oz)

1,778

-0.3%

Iron ore (t)

204.5

+4.3%

Bitcoin

32,895

+0.7%

Note: Brent oil, gold bullion and iron ore prices are the second futures contract.

US markets rose again overnight, with the S&P500 gaining 0.51% and the Nasdaq hitting a new record high following doveish comments from the Fed (see below). Locally the ASX200 had its best session since 1 March, gaining 1.48% following a strong US lead on Monday.

Trust us, it's transitory (we hope): In his testimony before the House Select Subcommittee on the Coronavirus Crisis, Fed chair Jerome Powell reiterated his view that any inflation this year will be transitory, and "as these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal [of 2%]".

Stagflation?: Europe's largest fund manager, Amundi, warned that "Markets are pricing a goldilocks environment with temporary inflation and lasting higher potential growth. [However], we could be left with the opposite situation, stagflation, with structurally higher inflation and lower growth... What is uncertain is how long this extraordinary [central bank monetary] accommodation can last without risking the initiation of an inflation spiral."

Cash splash: The governments of NSW and SA released their respective 2021-22 state budgets yesterday. Both decided to splash the cash, with SA running a deficit of $1.39 billion in 2021-22 (~1.3% of gross state product), pushing total state debt to more than $33 billion over the next four years. NSW is forecasting a 2021-22 deficit of nearly $9 billion (~1.5% of gross state product) despite collecting an additional $2.4 billion in stamp duty revenue this year, sending total debt to an estimated $100 billion over the next four years. 💸💸💸

Analysis

Bitcoin's death cross

The dreaded 'death cross', which signals a loss of momentum in an asset.
The dreaded 'death cross', which signals a loss of momentum in an asset.

Bitcoin's 50-day moving average price fell below its 200-day moving average for the first time since March 2020, which technical analysts call a "death cross". Technical analysis may be worthless but they do come up with some cool names!

"In the fiat world when asset prices drop 23% in one day you call that Black Monday. In the crypto world you call that Monday." — Vitalik Buterin, founder of Ethereum

Why this matters: It doesn't, really. Past performance is not indicative of future performance. But Bitcoin – one of the first assets to rise in price following the global pandemic – has now fallen around 50% from its 15 April high.

Many so-called shitcoins have fared even worse, with the Elon Musk-hyped Dogecoin now down below 20 cents, a fall of over 70% since its peak in May. Others, such as the Titan token, fell from as high as $64 to zero.

Might other assets follow?: Bank credit and deposit growth at US commercial banks have both slowed considerably since late March, suggesting that the impulse provided by several rounds of stimulus might be fading.

Given that cryptocurrencies were likely a large beneficiary of said stimulus, it makes sense that they would be the first assets to come off the boil. Combine that with credit tightening in China and its explicit crypto crackdown and you get the kind of crazy volatility we've been seeing lately.


The Wrap Up

  • Student athletes in the US may soon be compensated for their work, after the US Supreme Court ruled that the NCAA and its member colleges are suppressing their in violation of antitrust law.
  • Ben Simmons is reportedly set to pull out of Australia's Tokyo Olympics campaign to spend the off-season working on skill development after a poor end to the NBA season.
  • NASA's Hubble Space Telescope has been in 'safe mode' for nearly two weeks, after a computer developed in the 1980s "halted" due to a degrading memory module. The command to initiate a backup module also failed.
  • The US Navy detonated 20 tonnes of explosives within metres of its new USS Gerald R Ford aircraft carrier, to "confirm that our warships can continue to meet demanding mission requirements under harsh conditions they might encounter in battle".
  • An adviser to jailed Apple Daily owner Jimmy Lai said the Hong Kong pro-democracy newspaper will be shut "essentially [in] a matter of days".
  • SpaceX's satellite internet project Starlink expects to be able to provide continuous global coverage by around September. After that it's up to the regulators.
  • California's government will pay off all overdue rent accrued by tenants during the coronavirus pandemic.

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