Tuesday Mar 14 2023

Bitcoin is on a mission. The CPI rose 0.4% month over month, slowing to an annual rate of 6%, the eighth straight month of decline. The core inflation, however, exceeded expectations. Last week, the markets' expectation changed from a 70% chance for a 50-bps hike to a current 77% chance of a 25-bps hike in the next Fed meeting. 2Y Treasury notes saw a tightening of +50 bps, something last seen in 2001. While the major US indexes are up 1.5%, BTC soared by 6% to a peak of $26.5k. ETH is up 8% . USDC is still seeing redemption, however, and the peg is back, and its CEO has confirmed that Circle accessed the reserves at SVB. Quite a few wallets were able to trade the depeg in USDC/USDT. MATIC (+ 4.0%) and SOL (+ 5.3%) have seen some outsized moves into exchanges from whales. The global market capitalization is again approaching $1.20 trillion, with bitcoin dominance moving above 45%. Funding rates have changed to be mostly positive for BTC. Total liquidation for the majors totaled $140 million.

In the broader ecosystem, Meta is winding down its NFT project, which it had rolled out last September. Coinbase is challenging the securities fraud charges in the Wahi case and has filed an amicus brief for the SEC's 'regulation by enforcement'. CME has started trading 'events contracts" on bitcoin futures. The FDIC will again try to auction off SVB's assets after the weekend effort. Binance is limiting bank transfers for UK customers. The EU is building regulations for smart contracts under the Data Act.

After a tumultuous week, regional bank stocks regained some ground, with First Republic Bank up 60%. Credit Suisse is getting a lot of heat for its weak financial controls. Meta is up 6% following the announcement of another 10,000 job cuts. Custodian Copper too is joining the layoff wagon. With the FDIC compensating everyone, what does the $250k limit even mean? The backstop for bank failure has definitely stopped the domino effect, but it can change the risk behavior of the banks even more. However, the "short the banks, long the bitcoin" narrative does add strength to the original purpose of bitcoin. US PPI and retail sales will be released tomorrow, and unless there is a nasty surprise, they will not change the narrative or the mood.

The Consumer Price Index (CPI) is published monthly by the Bureau of Labor Statistics (BLS) and it measures the average prices paid for consumer goods and services by urban households. The 'basket' of goods and services is made up of 200 categories divided into 8 groups and refreshed every 2 years. The prices are collected in 75 urban areas from retail and service establishments and landlords or tenants. The weights are derived from a consumer expenditure survey. The population is divided into CPI-U (urban, 94% of the US population) and CPI-W (urban, hourly or clerical, 29% of the US population). BLS also publishes a chained C-CPI-U index. Changes in consumer spending, ignoring the substitution effect, adapting to technological advances, and not interpreting tax and other financial incentives are some of the disadvantages of the CPI and why it might not correctly represent the Cost of Living Indicator (COLI). BLS also publishes a core-CPI index that excludes food and energy.