Weekly Market Update - Friday, October 13, 2023

Inflation remains sticky as Fed officials disagree on need for additional hikes

According to data released Thursday, the US consumer price index (CPI) rose 3.7% year-over-year, while core CPI rose 4.1% year over year, indicating the continued battle against inflation in the US economy is not over. The Fed will likely want to see a continued cooling in core prices as they consider future actions in interest rate changes. After the numbers were released, the probability of a rate hike spiked as high as 50% for the December meeting, but settled around 30% as of Thursday evening.?

Minutes from the Federal Reserve’s last meeting in September were released on Wednesday, showing that officials did not agree on the need for additional interest rate hikes due to the uncertainty of the U.S. economy’s outlook. However, there was consensus among officials that rates would need to remain elevated in order to bring inflation back under control.

Bitcoin Responds to Investor Uncertainty in the Wake of the Jobs Report and the Israel-Hamas Conflict

Escalation of the Hamas-Israel conflict throughout the week, after the strong September jobs numbers from last Friday, has decoupled investor confidence in crypto assets, from traditional risk assets. After shifting higher throughout the start of the month and reaching $28k USD last Friday, the price of bitcoin (BTC) has been in decline since Hamas launched an attack on Israel on Saturday. On Tuesday it was announced that Israel had frozen cryptocurrency accounts which had been used to collect donations for Hamas, perhaps putting a negative spotlight on crypto and driving the price of BTC below $27k USD.

Ether Reaches a 12-month Low on the ETHBTC Pair

Ether (ETH) continues to show signs of weakness as it loses further ground to BTC having dropped below 0.057 on the ETHBTC pair this week, a new 12-month low. Ethereum is currently trading around $1,550 USD as of Thursday, an important level that provided strong support in August and September and hasn't been broken since March. Overall, BTC dominance has risen near its yearly highs to 51%.

Caroline Ellison Takes the Stand at Sam Bankman-Fried’s Trial?

The trial of FTX founder Sam Bankman-Fried (SBF) continued this week with the prosecution calling Caroline Ellison to testify. Ellison is Bankman-Fried’s former partner and was the CEO of his crypto hedge fund Alameda Research. Ellison pleaded guilty to multiple counts of fraud back in December as part of a plea deal with the government. During her testimony, which started on Tuesday, Ellison stated that SBF directed her to use FTX customer funds to repay outstanding Alameda loans. Ellison testified that SBF instructed her to create seven alternative balance sheets in an attempt to hide the $10 billion USD of borrowed FTX customer deposits.?

Ellison pinned the blame on SBF as the catalyst for her actions and broke down in tears when asked how she felt when FTX’s financial troubles came to light, saying she experienced “relief that I didn’t have to lie anymore.” In addition, according to Ellison, SBF had plans to raise capital from the crown prince of Saudi Arabia in order to survive the difficult period, and alleged that FTX paid a $150 million USD bribe to a Chinese official in 2021 to release funds which were frozen as part of a money laundering investigation. The trial is set to continue for the next few weeks.

India the World Leader in Grassroots Crypto Adoption

Crypto adoption is on the rise in India with the Central Board of Direct Taxes collecting over $12 million in taxes through its 1% Tax Deducted at Source on all crypto transactions in the past fiscal year. The Indian government introduced the tax in July 2022. Despite these taxes India’s adoption of crypto continues to increase, and the country recently ranked first on Chainalysis’s Global Crypto Adoption Index published last month.

-From the Gemini Trading Desk

To learn more about the BitcoinBuzz Indicator and its components, read our introduction here. Check back every Friday for an updated score!

Stablecoins

This week, we resurface our discussion of stablecoins.

What are stablecoins? Whether the purpose is to retain a peg to the price of a fiat currency, a commodity, or some other asset, stablecoins are meant to maintain a predictable value.

In most cases, the value of a stablecoin is tied directly to a fiat currency or tangible commodity, like Gemini dollar (GUSD), which is pegged 1:1 to the U.S. dollar. However, stablecoins can also achieve price-stability through collateralization against other cryptocurrencies or algorithmic token supply management. Since stablecoins are not meant to fluctuate significantly in price, they are designed to be used as a transfer of value rather than as an investment.

What are the different types of stablecoins? There are four main ways stablecoin issuers ensure a steady or predictable value. Stablecoin collateral structures can be fiat-backed, crypto-backed, commodity-backed, or algorithmic.

Fiat-backed stablecoins, the most common type, are pegged to a fiat currency and are usually backed 1:1 by fiat and cash equivalents. In these cases, one stablecoin can always be redeemed for fiat, like U.S. dollars in the case of GUSD.

Crypto-backed stablecoins are typically overcollateralized by an underlying cryptocurrency asset to account for crypto price volatility. To create, or mint, a crypto-backed stablecoin, a user typically locks their cryptocurrency in a smart contract to receive the stablecoin, and pays the stablecoins back into the same smart contract to withdraw their original collateral.

Commodity-backed stablecoins are pegged to the value of underlying commodity assets like gold, silver, or real estate. Holders of these stablecoins have a claim to their underlying assets. The most popular commodity-backed stablecoins are backed by gold.

Algorithmic stablecoins seek to maintain their peg a bit differently. Rather than being backed 1:1 by a specific asset, their price stability is maintained by the use of algorithms and smart contracts that manage the supply of tokens in circulation. The stablecoin’s algorithm may automatically expand or contract the number of tokens in circulation in order to meet a specific price target.

You can dive deeper into stablecoins with these articles: What Are Stablecoins? | Understanding Stablecoins: They’re Not All Created Equal | The Global Stablecoin Ecosystem.

See you next week. Onward and Upward!

Team Gemini

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