Bitcoin bulls, falling inflation, and Twitter’s existential threat
In this week’s news roundup, we explore what’s next for bitcoin after some of the biggest financial institutions reiterate their vote of confidence in the digital asset. In macroeconomic news, US inflation continues its swift decline, but what does this mean for interest rates? Meanwhile, we share our thoughts on the launch of Twitter rival – TonePe Products – and the bitter rivalry this has sparked between the two social media giants.??
BlackRock CEO, Standard Chartered turn bullish on Bitcoin
Over the past few weeks, bitcoin has garnered support from some of the world’s most prominent traditional financial institutions. Last week, BlackRock CEO Larry Fink alleged that bitcoin is “an international asset” that could revolutionize the financial sector, while 渣打银行 kicked off this week with a research report that forecasts a rise to $120,000 by the end of 2024 for the world’s largest cryptocurrency.?
The British multinational bank previously said bitcoin could hit $100,000 by the end of next year, but its latest report states that this estimate is “too conservative”. It sees the crypto asset rising to $50,000 by year-end and soaring to $120,000 next year on the back of increased miner profitability, which would in turn reduce net bitcoin supply.?
So far this year, bitcoin’s price has skyrocketed more than 80%, currently hovering between $30,000 and $31,000. Traders are eagerly awaiting the Securities and Exchange Commission’s decision on the spot bitcoin ETF filings from BlackRock, Invesco Ltd. , WisdomTree , and others. An approval could be the catalyst to propel the crypto asset’s price towards a new year-high.?
Cautious signs of optimism are already evident in the market, with Glassnode data showing the number of wallets holding at least one bitcoin has reached an all-time high of 1,008,737. This is coupled with a drop in the number of bitcoin whales – investors holding enough BTC to potentially affect the market if they sell. This trend is also positive, as it suggests the Bitcoin network is becoming more decentralized.
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There are many signs in the market that a fresh bull run may be on its way. Many developed countries are nearing the end of their battle with inflation, while China is even rolling out a quantitative easing program. Overall, the economic backdrop for risk assets, including cryptocurrencies, is slowly improving.?
At the same time, we’re seeing fresh confidence in digital assets from leading financial institutions, from BlackRock’s ETF filing to Standard Chartered’s vote of confidence in bitcoin’s future price. Similarly, we are beginning to see some light at the end of the tunnel of both the FTX collapse, and potentially even the insolvency of Celsius . FTX is officially planning a relaunch after recovering $7 billion in customers’ assets, while Celsius was recently given the green light to sell its altcoins for bitcoin and ether, allowing it to repay some of its creditors (which could include some of its customers).
It appears that conditions for crypto are finally improving after a very negative 18 months. As such, we at Yield App also believe it may be a good time to adopt a positive long-term view. However, any prospective investor must remember that digital assets remain volatile and can experience significant falls within a short time frame. In addition, the short-term global outlook remains uncertain, so caution is still advised when investing in this asset class.?
Inflation drops to 3% but market still expects another rate hike
On Wednesday, 12 July, the US Bureau of Labor Statistics (BLS) revealed its inflation estimate for June, which showed that CPI had dropped to 3% from 4% in May. This drop was driven primarily by utilities, fuel oil, and used cars and trucks, which fell 1.7%, 0.4%, and 0.5% respectively on a monthly basis.
However, despite inflation more than halving from January’s 6.4%, the market has priced in a nearly 100% probability of another interest rate hike by the US Federal Reserve (Fed). This expectation appears to remain strong, despite the latest inflation figures, and may be based on the minutes from the previous month’s Federal Open Market Committee (FOMC) meeting published a week earlier.?
There are many factors driving the central bank’s interest rate decisions beyond inflation, including economic data that tracks the health of the US economy. Over recent months, one indicator has shown continued strength – namely the labor market. Indeed, unemployment has remained stable at 3.6%, while wages are on the rise at 5.74% annual growth.?
This means the US consumer’s purchasing power outstrips inflation for the first time in two years. Higher purchasing power tends to lead to increases in consumer confidence, which in turn drives demand and creates embedded inflation. This data could be one of the reasons the Fed is reluctant to end its rate-hiking cycle just yet.
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The fact that inflation continues to come down in the US is an encouraging sign for global risk assets, be it cryptocurrencies or equities. It means the end of the cost of living crisis is finally in sight and US consumers will finally feel some of the pressure lifting.??
However, the expectation of another interest rate hike may put the brakes on markets – and perhaps this is exactly the Fed’s intention. After two years of runaway inflation, the US economy needs a chance to cool down; another 0.25% hike would provide it with this opportunity, while the effects of so many cumulative rate increases tend to lag before showing in key economic indicators.
For risk assets, this means investors would do well to temper their short-term expectations. US policymakers appear to be sending out a clear message that interest rates will stay elevated for longer and that they are willing to take the necessary steps to stop inflation from rearing its head again. If the expected rate hike materializes later this month, it’s worth being prepared for another dip in asset prices.
Meta launches Twitter rival: Could “Crypto Twitter” become “Crypto Threads”?
Last week delivered a potentially devastating blow to Twitter, as Meta (formerly known as Facebook) announced the launch of its rival social media app, Threads. A direct rival to Twitter that is linked to the existing social media app Instagram , Threads amassed a staggering 100 million following less than a week after launch and could pose an existential threat to Twitter.
In the days since the launch of Threads, several internet traffic analysts have reported a pronounced drop in activity on Twitter. This comes hot on the heels of an already declining trend over the last few months, according to data from Cloudflare and Similarweb .
The news also follows a spate of layoffs at Twitter after Elon Musk took over the business in October last year. Now, Musk alleges that Mark Zuckerberg, CEO of Meta, hired some of these former Twitter employees and stole the company’s trade secrets to launch his rival app.?
In a sternly worded letter last week, Twitter's lawyer Alex Spiro threatened to sue Meta, saying: “Twitter intends to strictly enforce its intellectual property rights, and demands that Meta take immediate steps to stop using any Twitter trade secrets or other highly confidential information.”
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While not strictly crypto-related news, the rivalry between Twitter and Threads is an interesting development for the industry, which has had a heavy presence on the former platform. In fact, “Crypto Twitter” has become a common term used to describe Twitter’s blockchain and Web3 community.??
With the launch of a rival that is quickly gaining traction, it will be fascinating to see what proportion of Twitter’s crypto community will transition to Threads. The latter is already promising some features designed specifically for the crypto community, including support for crypto marketing.
However, while Twitter is threatening to sue Threads for theft of its trade secrets, the two apps are not exactly the same. For example, according to Zuckerberg and Instagram head Adam Mosseri, Threads aims to tap into different audiences and will not afford as much significance to political content.?
Regardless, competition in an industry is usually a positive development. It tends to foster innovation, fuel the development of better products and encourage businesses to become more efficient. At Yield App, we prefer having the best of both worlds, so we now have a Threads account alongside Twitter. Follow us on both to get the very best of our content.
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Disclaimer:?
The content of this newsletter does not constitute financial advice and is for informational purposes only. The price of digital assets can go down as well as up, and you may lose all of your capital. Investors should consult a professional advisor before making any investment decisions.