One way to look at crypto from a macro investor perspective


This post was originally published on TKer.co

Stocks rallied last week, with the S&P 500 surging 5.9%. The index is now up 11.6% from its October 12 closing low of 3,577.03 and down 16.8% from its January 3 closing high of 4,796.56.

A big driver of the recent market move was Thursday’s cooler-than-expected consumer price index (CPI) report, which was followed by one of the biggest single-day stock market rallies in history. (More on the CPI report below.)

But with last week’s sudden and spectacular implosion of crypto exchange FTX, I thought I’d share some thoughts on cryptocurrencies and blockchain.

Ever since Bitcoin made mainstream news about a decade ago, I’ve done my best to read up on cryptos and blockchain technology. Unfortunately, I’m not sure I totally understand what the big deal is.

Arley Lozano talks during the launch of the Latin American Bitcoin and Blockchain Conference (LABITCONF) in El Salvador, in San Salvador, El Salvador November 17, 2021. REUTERS/ Jose Cabezas REFILE - QUALITY REPEAT

Arley Lozano talks during the launch of the Latin American Bitcoin and Blockchain Conference (LABITCONF) in El Salvador, in San Salvador, El Salvador November 17, 2021. REUTERS/ Jose Cabezas REFILE – QUALITY REPEAT

I believe blockchain represents a technological breakthrough, and I’m convinced there’s some value in being able to own and exchange digital objects that can’t be copied.

I’m just not convinced there’s an urgent need for any of this. If there were, I’d think there’d be much wider adoption. But the individuals and entities going all-in on cryptos and blockchain are largely detached from anything that matters to me.

That said, I’m also not convinced that cryptos and blockchain will never matter. There may be a day that this technology becomes central to how assets and information are exchanged.

But I also don’t think you need to own a bunch of today’s cryptocurrencies and invest in today’s blockchain companies to benefit. If the technology is indeed all it’s cracked up to be, then everyone should eventually gain from cost savings and reduced frictions across the economy.

Bitcoin prices have been on a wild ride. (Source: <a rel=Yahoo Finance)” data-src=”https://s.yimg.com/ny/api/res/1.2/TBOwRLOAFdSUKtwg4T0Dqw–/YXBwaWQ9aGlnaGxhbmRlcjt3PTk2MA–/https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F8979daf5-f8b6-4232-a252-3f6635ae33e7_932x434.png”/

As far as the price swings in cryptocurrencies are concerned, here’s an analogy that I think I’m happy with: Blockchain is like the internet and cryptocurrencies are like websites. During the advent of the internet, there were lots of internet companies you could invest in and there were lots of websites you could visit. Today, everybody uses the internet and everybody visits a lot of websites. But a lot of the early internet companies have gone bust and a lot of yesterday’s popular websites aren’t popular today. Maybe some of today’s cryptocurrencies will become tomorrow’s Amazon or Google, but many will also go down like Pets.com or Webvan.

A quick note about fraud: Anything that looks like a financial opportunity is going to come with a lot of crooks who’ll take advantage of those attracted by the prospect of getting rich quick. But the existence of crooks in the crypto world doesn’t necessarily mean that crypto itself is problematic. It just means that there needs to be more education and probably some regulation.

In summary, I think blockchain technology is interesting, but I don’t think the need is urgent. And just because you don’t own a bunch of cryptocurrencies and you don’t invest in a bunch of blockchain companies doesn’t mean you won’t benefit should the technology become widely adopted.

Reviewing the macro crosscurrents 🔀

There were a few notable data points from last week to consider:

🚨 Inflation cools a bit. The consumer price index (CPI) in October was up 7.7% from a year ago. Adjusted for food and energy prices, core CPI was up 6.3%. Both measures were down from September levels and both were cooler than economists’ expectations.

(Source: <a rel=@GregDaco)” data-src=”https://s.yimg.com/ny/api/res/1.2/VzURJR0gvdxehCA6K5lhEA–/YXBwaWQ9aGlnaGxhbmRlcjt3PTk2MA–/https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F848027a4-172a-4346-9320-b03678faca6b_1195x959.jpeg”/

On a month-over-month basis, CPI was up 0.4% and core CPI was up 0.3%. Again, both measures were cooler than expected.

(Source: <a rel=@WhiteHouseCEA)” data-src=”https://s.yimg.com/ny/api/res/1.2/LB5TvFHyqkwntB5npscbQg–/YXBwaWQ9aGlnaGxhbmRlcjt3PTk2MA–/https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F964ffa7a-f85b-4a81-8985-1a42d2ff833f_900x514.png”/

Core services prices cooled and core goods prices fell.

Rent of primary residence (a.k.a., tenants’ rent) and owners’ equivalent rent (i.e., how much a homeowner would have to pay to rent their currently owned home) cooled a bit as they catch up with the decline in market rents.

(Source: <a rel=@IanShepherdson)” data-src=”https://s.yimg.com/ny/api/res/1.2/_kGj8ZwRhL01.Pw.OyFv2w–/YXBwaWQ9aGlnaGxhbmRlcjt3PTk2MA–/https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F64b4309d-63da-4b13-bcd1-80cb534e9b94_3465x1998.jpeg”/

😞 Consumer sentiment is deteriorating again. From the University of Michigan’s November Survey of Consumers: “Consumer sentiment fell about 9% below October, erasing about half of the gains that had been recorded since the historic low in June. All components of the index declined from last month, but buying conditions for durables, which had markedly improved last month, decreased most sharply in November, falling back 21% on the basis of high interest rates as well as continued high prices. Overall, declines in sentiment were observed across the distribution of age, education, income, geography, and political affiliation, showing that the recent improvements in sentiment were tentative. Instability in sentiment is likely to continue, a reflection of uncertainty over both global factors and the eventual outcomes of the election.“

(<a rel=@LizAnnSonders)” data-src=”https://s.yimg.com/ny/api/res/1.2/9jMOopf0wY24uhnpjoVzgQ–/YXBwaWQ9aGlnaGxhbmRlcjt3PTk2MA–/https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F63d6936e-ab85-4906-bd7b-5492049e8592_936x521.jpeg”/

💳 Consumers are taking on more debt. According to Federal Reserve data, total revolving consumer credit outstanding increased to $1.16 trillion in September. Revolving credit consists mostly of credit card loans.

(Source: Federal Reserve via <a rel=FRED)” data-src=”https://s.yimg.com/ny/api/res/1.2/kUSacjRpbnxwOY_r1UbVTQ–/YXBwaWQ9aGlnaGxhbmRlcjt3PTk2MA–/https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2Ffe58ba4f-9622-4014-9e0c-528cbe7eeecd_800x450.png”/
(Source: Federal Reserve via FRED)

📈 Credit card rates are rising. From CNN Business: “The Federal Reserve’s war on inflation has driven up the average credit card APR (annual percentage rate) to 19.04% as of November 9, according to Bankrate.com. That’s the highest rate since Bankrate.com’s database began in 1985, beating the prior record of 19% set in July 1991.“

(Source: <a rel=Bankrate)”…



Read More: One way to look at crypto from a macro investor perspective

2022-11-13 09:16:30

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