Jun. 22 Markets Report: The Big Crypto Short

Jun. 22 Markets Report: The Big Crypto Short

Layoffs are happening everywhere from real estate to tech companies, the crypto giants are getting beat to hell, and even gas prices have come down a bit. 

Jun. 22 Markets Report: The Big Crypto Short
Darry Port

Updated Jun 24, 2022

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Macro

Signs of Waning Support for Ukraine?

  • The Ukrainian Army has lost between 30-50% of their heavy equipment, with the US considering doubling the number of rocket launchers being supplied to Ukraine.
  • Ukrainian entrepreneur Serhiy Haidai claimed that Russian forces controlled 80% of Sievierodonetsk.
  • Ukraine awaits a European Union decision this week on whether it will grant Ukraine the status of a candidate country.
  • A European Council of Foreign Relations poll found a majority of people want an end to the war as soon as possible, even if it means Ukraine losing.

Rate Hikes, What Else is New?

  • Last Wednesday, the Fed raised interest rates by 0.75% — its biggest since 1994 — to combat the 40-year high inflation (8.6%) we experienced in May. 
  • A JPMorgan economist stated that there’s a 63% chance of recession over the next two years and 81% odds that a recession starts over the next three.
  • The US Commerce Department reported that retail sales fell 0.3% in May, below the Dow Jones estimate for a 0.1% gain.

Stocks & Bonds

Taking the Pressure Off

  • As investors ditched stocks for bonds throughout the week, Treasury yields fell and gave stocks some much-needed breathing room to rally.
  • The 10-year Treasury yield came down off of last week’s high of 3.48%.

Where My Knife Catchers At

  • Markets briefly rallied on Wednesday afternoon after the Fed’s interest rate hike, but those gains were quickly reversed on Thursday.
  • The Dow Jones, S&P 500, and Nasdaq are all up (but not by much) after damn near ten weeks of losses. The energy sector took quite the tumble in order to give sectors this brief, but likely temporary, relief. 
  • Some investors are saying that quantitative tightening cannot last too much longer, as its fallout will force the Fed to start expanding money supply again. This, in turn, will cause cash to flow back into risk assets.

Sector Performance

  • Energy: -12.74%
  • Materials: -3.73%
  • Real Estate: 0.36%
  • Telecom: 0.13%

S&P 500 Winners & Losers

  • Boeing: 13.02%
  • Epam Systems Inc: 10.82%
  • Devon Energy: -14.25%
  • Diamondback Energy: -12.46%

Late to the Party

  • Data analytics firm S3 Partners recently reported that U.S. equity short-sellers are up on average more than 30% for the year. Shorting crypto, in particular, has been one of the best plays in this macro environment, returning 126% in 2022.
  • Most of this short interest has been directed at crypto exchange Coinbase, Bitcoin miner Marathon Digital Holdings and business intelligence company MicroStrategy.
  • S3 also said that stock borrower utilization is already at 91%, meaning that it’s probably too late for new investors to pile into this trade.

Real Estate 

Even Redfin is seeing Red

  • The average rate on the 30-year fixed mortgage hit 6.11% last Monday, up from 5.55% just one week prior. It has since cooled down a bit to 6.03%.
  • According to Redfin, today’s home buyer with a 30-year fixed-rate mortgage is looking at a monthly payment of $2,514, up from $1,692 a year ago. But on the bright side, those who remain in the market are now facing less competition compared to last year when newly listed homes were flying off the market within a week.
  • Rising rates have also hit major online real estate brokerages hard, with Redfin and Compass both announcing layoffs.
  • Real estate investors also seem to be holding off for now, with many waiting for bigger price drops so they can snag properties up on the cheap.

Crypto

Maximum Pain

  • According to the Crypto Fear & Greed Index, investors are now more fearful than they’ve been since March 2020. 
  • It has truly been a roller coaster of a week, with crypto prices dropping over 20% and rebounding by that same amount.
  • Bitcoin and Ethereum fell as low as $17.5k and $881 respectively, both of them smashing through support levels untouched since 2020. This carnage is in large part, due to the failure of centralized crypto players like Celsius, Babel Finance and Three Arrows Capital. Just one day after this record drop, though, both BTC and ETH reclaimed their key support levels. 
  • There has also been the recent FUD that mining has become unprofitable at current BTC prices. But according to Galaxy Digital’s model, the marginal cost of production for large miners is as low as $8.12k.

The End of Solend?

  • Solend, a popular “DeFi” lending protocol on Solana, shocked the cryptosphere last week by launching a governance proposal which aimed to take control of a $100M+ whale wallet at risk of liquidation. This was done to avoid a potential meltdown that would drive the price of $SOL to zero. 
  • While the vote closed with a 97% approval rating, the backlash on Twitter prompted Solend to nullify the approved proposal.

Mentions

  • Crypto detractors and investors alike can now hedge their portfolios with The ProShares Short Bitcoin Strategy ETF. Still no word on when a US Bitcoin spot ETF will be approved, though.
  • Despite facing a $258B lawsuit for promoting Dogecoin, Elon Musk still tweeted that he “will keep supporting Dogecoin”. 
  • Billionaire Sam Bankman-Fried’s companies FTX and Alameda Research have lent crypto lending apps Voyager and BlockFi $485M and $250M each to safeguard customers’ assets during this market volatility.
  • Stablecoin issuer Circle has launched Euro Coin, a Euro-backed stablecoin in the vein of USDC.

NFTs & Metaverse

Punks are Pumping

  • After a sharp downturn two weeks ago, the total NFT market cap has been steadily recovering and is currently valued at $22.7B. 
  • Blue chip NFT collection CryptoPunks’ market cap saw a +5.32% increase to $2.09B off the back of some exciting developments. Noah Davis, an NFT specialist at auction house Christie’s, is going to work at Yuga Labs as the brand lead for CryptoPunks. Unsurprisingly, there have been some online whispers of insider trading around this announcement. 
  • The 4th annual NFT.NYC kicked off on Monday, with 1,100+ leaders in sectors like art, music, sports, fashion scheduled to speak and over 15,000 community members are expected to attend.
  • The top NFT sale this week belongs to Bored Ape Yacht Club #7537 for $1.2M (1,02k ETH).

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Source: Opensea.io

Rehabilitation My Ass

  • Convicted con-artist Anna Sorokin, who’s story is chronicled in the Reinventing Anne Netflix series, has launched an NFT collection to rehabilitate her image. Hey, you asked for permissionless technology didn’t you?
  • Watchmaker TAG Heuer has released a watch that can display your NFTs on the watch face.
  • Billionaire Bill Gates has recently dismissed NFTs as being “100% based on the greater fool theory”. Do you agree?
  • Infinite Machine, the Ridley Scott-produced about Ethereum’s creation, is set to hold a premier in the Dentraland metaverse. 

Commodities

Fire Up Some Coal

  • Last week, Russian gas giant Gazprom limited supplies via the Nord Stream 1 pipeline that runs from Russia to Germany.
  • Germany is compensating for this supply cut by increasing production at their coal-fired power stations, which is a damn shame since coal is the dirtiest fossil fuel in terms of emissions. 

Pain Relief at the Pump

  • After reaching a two-month high $123, crude oil prices came tumbling down to $109 just in time for the summer travel season. 
  • After states like California experienced gas prices above $6 last week, I’m glad to report that the national average is back under $5 according to AAA.
  • To stave off any further price spikes, President Joe Biden is even considering temporarily halting the federal gas tax before July 4.

Startups

Lay off the Layoffs

  • The US unemployment rate, currently at 3.60%, is beginning to trend higher as layoffs grow — particularly at tech firms. 
  • According to Crunchbase, over 21,000 US tech employees have been laid off. 
  • And while late-stage startups are bearing the brunt of these layoffs, large companies like Netflix and Coinbase are also being put through the wringer. 

Startups Still Seeing Green Like Lettuce

  • Still, VC dollars haven’t quite dried up yet with the top funding rounds this week including: 
    • Wonder, $350M: A food delivery app where consumers can order food and have the truck show up to their home to prepare the food fresh. 
    • Little Leaf Farms, $300M: An agtech company that grows lettuce under glass, using up to 90% less water than field-grown greens. 
    • AlphaSense, $225M: AI startup that helps companies searching for structured and unstructured market analysis and business intelligence. 

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