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Crypto Trading Cycle Flips: Asia’s Now Buying What Americans Are Dumping

Crypto Trading Cycle Flips: Asia’s Now Buying What Americans Are Dumping

Late in 2021 we detailed the strange phenomenon whereby crypto markets…

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Crypto Trading Cycle Flips: Asia's Now Buying What Americans Are Dumping

Late in 2021 we detailed the strange phenomenon whereby crypto markets were dramatically underperforming during the overnight (Asia) session relative to the US day session.

Whoever (or whatever - cough Asian central banks cough) was 'selling' crypto overnight was met with a volley of bids from US whales scooping up that 'cheap' coin.

But now, as scorched-earth regulatory pressures perhaps swing from Beijing to Washington, that regime has flipped with US 'paper hands' dumping their crypto during the US day-session as Asian HODLers scoop up the 'cheap' coins overnight.

Specifically, as the chart above shows, a hypothetical strategy that buys the coin at the equity-market close (at 1600ET) and sells it at the next day’s open (0930ET) yields gains of roughly 260% going back to the start of 2020, according to Bespoke Investment Group.

Conversely, buying it at the US market open and selling it at the close spits out an advance of 3.6%.

The coin even tends to trend higher during weekends, the firm found, when stock investors are resting or barbecuing or doing whatever weekend activities they’re fond of.

While no one seems to be able to agree on why this might be happening, Bloomberg's Vildana Hajric and Katie Greifeld outline five perspectives on why the phenomenon might be happening:

1. The Nature of a 24/7 Market

The fact that cryptocurrencies trade around the clock every day of the week makes Bitcoin, by default, the most watched and traded asset when traditional markets are closed, and that’s a top reason for the overnight phenomenon, says Bloomberg Intelligence’s Mike McGlone. 

“It’s the most fluid global 24/7 trading vehicle in history, which means it’s a leading indicator on the downside too,” he said.

2. Geographical Differences

In the US and certain other geographies, riskier assets have sold off this year as the Federal Reserve and other central banks institute policies to combat high inflation. But that might not be the case everywhere, and risk-on attitudes may still be at play across Asia, for instance, says Noelle Acheson, head of market insights at Genesis Global Trading.

Back in 2015 and 2016, China had been a focal point for Bitcoin trading -- that’s where mining took off and most of the trading volume originated, she said. “There are different cultural attitudes toward riskier investments.”

Source: Glassnode, as of June 8

In addition, some investors might be more drawn toward using leverage, and international venues are sometimes more permissive in that way. Original crypto exchanges used to offer 125x leverage, said Acheson, though, in the US, regulators have looked to curtail such access. “So they are much more used to high leverage, it’s much more what they expect,” she said.

3. Longer Span of Time

Bitcoin’s correlation to equities could be another factor at work, which is something analysts have been pointing to all year as both cryptos and equities have sold off. Both stocks and digital assets are considered riskier plays, so the two have moved hand-in-hand, says Jake Gordon at Bespoke Investment Group.

Still, the correlation to stocks may not explain why the trend of after-hours outperformance also existed when the market was rallying over the past two years, he said. So another explanation is that the post-close strategy covers a longer span of time, “meaning there is the potential for more news/catalysts to account for.”

4. Watching the Charts

From 2021 onwards, due to China’s crackdown on crypto, trading volumes and flows have tended to peak around 9:30 a.m. Eastern Time, according to Chiente Hsu, co-founder and CEO at ALEX, a DeFi platform. “So trading volume is highly correlated to the US stock market trading hours,” she said in an interview. Hsu, who used to work at Morgan Stanley, cited a research paper showing that the overnight trend of buying at the close and selling at the open was also prevalent in the stock market before the pandemic.

But why might that be the case? Hsu says information flows build up overnight, though that’s mostly prevalent during uptrend markets. What about bear markets? “In a downtrend market, it shouldn’t work, particularly in very volatile, range-bound markets,” she said, adding that she’d like to see more research on these types of topics, as well as how transaction costs play a part.

5. Correlations

Vetle Lunde, analyst at Arcane Research, says he expected US trading hours to be the most significant contributor to the Bitcoin selloff in recent months, but hadn’t expected to see that being the only contributor. “Then again, it confirms what we’ve seen elsewhere in the market,” Lunde said, citing the coin’s strong correlation to stocks this year.

“We saw in mid-2020 to early 2021 that US trading hours were the key trading hours for the initial liftoff during the early bull market. That period was characterized as a period of huge institutional flows into Bitcoin,” Lunde wrote in a message.

Now, most of the institutional market has been focused on de-risking, with the macro backdrop related to inflation and interest-rate hikes being the key component behind the de-risking. This has most definitely had a severe impact on Bitcoin and is likely the root cause behind the very potent continuous selling pressure during US trading hours.”

Finally, as we detailed previously, we suggest another more ominous reason for Asia's bid for alternative currency. Traders are front-running the growing risk that China, and its $54 trillion in bank assets or 150% more than the US...

... will suffer another devaluation, sparking another massive capital exodus using bitcoin and other crypto instruments.

As UBS previously noted, none of this is to argue that crypto is sliding into oblivion, quite the contrary - after all Wall Street and Silicon Valley have invested tens of billions in crypto infrastructure and manpower (most did so around the time cryptos peaked),. Yet what it does point to is how the future will look very different. According to UBS' James Malcom, players will have to embrace regulation and collaborate with existing financial service providers; thus Singapore's just-launched Project Guardian, which represents a pilot project for the central bank to explore tokenized bonds and deposits via the establishment of permissioned liquidity pools in collaboration with DBS, JPMorgan and Marketnode. They must also have to compromise even as they seek to disrupt longstanding tradfi practices, per FTX's bold bid to disintermediate derivatives trading by clearing customers' swaps without the involvement of FCMs.

The good news is that, as UBS concludes, those who can last beyond the near-term downward pressure and volatility, the longer-term demand-side outlook looks exceedingly healthy when recast in such terms. Accenture's newly released Future of Asian Wealth Management survey revealed that more than half of its 3,200 respondents already hold digital assets, and nearly three quarters plan to do so by year-end. However, two thirds of the 500 financial advisors surveyed have no plans to offer such services due to regulatory uncertainty and unfamiliarity with the space, which would require specialized research capabilities plus substantial investment in training for relationship managers.  Little wonder satisfaction ratings with primary counterparts score rather lowly.  It is also not surprising that many allocators end up relying on potentially less reliable online advice in consequence. UBS' Global Family Office Report 2022 finds, by contrast, most of the bank's clients are 'cryptocurious' rather than 'crypto-committed'— wanting to learn about the space rather than invest. It pegged just a quarter of Asian participants as active in the space, though that rises to more than a third in North America. The vast majority of allocations amount to less than 3% of portfolios and are being made to better understand the technology as much as on the expectation of strong, diversified returns at this point.

Tyler Durden Mon, 06/13/2022 - 12:45

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There Goes The Fed’s Inflation Target: Goldman Sees Terminal Rate 100bps Higher At 3.5%

There Goes The Fed’s Inflation Target: Goldman Sees Terminal Rate 100bps Higher At 3.5%

Two years ago, we first said that it’s only a matter…

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There Goes The Fed's Inflation Target: Goldman Sees Terminal Rate 100bps Higher At 3.5%

Two years ago, we first said that it's only a matter of time before the Fed admits it is unable to rsolve the so-called "last mile" of inflation and that as a result, the old inflation target of 2% is no longer viable.

Then one year ago, we correctly said that while everyone was paying attention elsewhere, the inflation target had already been hiked to 2.8%... on the way to even more increases.

And while the Fed still pretends it can one day lower inflation to 2% even as it prepares to cut rates as soon as June, moments ago Goldman published a note from its economics team which had to balls to finally call a spade a spade, and concluded that - as party of the Fed's next big debate, i.e., rethinking the Neutral rate - both the neutral and terminal rate, a polite euphemism for the inflation target, are much higher than conventional wisdom believes, and that as a result Goldman is "penciling in a terminal rate of 3.25-3.5% this cycle, 100bp above the peak reached last cycle."

There is more in the full Goldman note, but below we excerpt the key fragments:

We argued last cycle that the long-run neutral rate was not as low as widely thought, perhaps closer to 3-3.5% in nominal terms than to 2-2.5%. We have also argued this cycle that the short-run neutral rate could be higher still because the fiscal deficit is much larger than usual—in fact, estimates of the elasticity of the neutral rate to the deficit suggest that the wider deficit might boost the short-term neutral rate by 1-1.5%. Fed economists have also offered another reason why the short-term neutral rate might be elevated, namely that broad financial conditions have not tightened commensurately with the rise in the funds rate, limiting transmission to the economy.

Over the coming year, Fed officials are likely to debate whether the neutral rate is still as low as they assumed last cycle and as the dot plot implies....

...Translation: raising the neutral rate estimate is also the first step to admitting that the traditional 2% inflation target is higher than previously expected. And once the Fed officially crosses that particular Rubicon, all bets are off.

... Their thinking is likely to be influenced by distant forward market rates, which have risen 1-2pp since the pre-pandemic years to about 4%; by model-based estimates of neutral, whose earlier real-time values have been revised up by roughly 0.5pp on average to about 3.5% nominal and whose latest values are little changed; and by their perception of how well the economy is performing at the current level of the funds rate.

The bank's conclusion:

We expect Fed officials to raise their estimates of neutral over time both by raising their long-run neutral rate dots somewhat and by concluding that short-run neutral is currently higher than long-run neutral. While we are fairly confident that Fed officials will not be comfortable leaving the funds rate above 5% indefinitely once inflation approaches 2% and that they will not go all the way back to 2.5% purely in the name of normalization, we are quite uncertain about where in between they will ultimately land.

Because the economy is not sensitive enough to small changes in the funds rate to make it glaringly obvious when neutral has been reached, the terminal or equilibrium rate where the FOMC decides to leave the funds rate is partly a matter of the true neutral rate and partly a matter of the perceived neutral rate. For now, we are penciling in a terminal rate of 3.25-3.5% this cycle, 100bps above the peak reached last cycle. This reflects both our view that neutral is higher than Fed officials think and our expectation that their thinking will evolve.

Not that this should come as a surprise: as a reminder, with the US now $35.5 trillion in debt and rising by $1 trillion every 100 days, we are fast approaching the Minsky Moment, which means the US has just a handful of options left: losing the reserve currency status, QEing the deficit and every new dollar in debt, or - the only viable alternative - inflating it all away. The only question we had before is when do "serious" economists make the same admission.

They now have.

And while we have discussed the staggering consequences of raising the inflation target by just 1% from 2% to 3% on everything from markets, to economic growth (instead of doubling every 35 years at 2% inflation target, prices would double every 23 years at 3%), and social cohesion, we will soon rerun the analysis again as the implications are profound. For now all you need to know is that with the US about to implicitly hit the overdrive of dollar devaluation, anything that is non-fiat will be much more preferable over fiat alternatives.

Much more in the full Goldman note available to pro subs in the usual place.

Tyler Durden Tue, 03/19/2024 - 15:45

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Household Net Interest Income Falls As Rates Spike

A Bloomberg article from this morning offered an excellent array of charts detailing the shifts in interest payment flows amid rising rates. The historical…

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A Bloomberg article from this morning offered an excellent array of charts detailing the shifts in interest payment flows amid rising rates. The historical anomaly was both surprising and contradicted our priors.

10 Key Points:

  1. Historical Anomaly: This is the first time in the last fifty years that a Federal Reserve rate hike cycle has led to a significant drop in household net interest income.
  2. Interest Expense Increase: Since the Fed began raising rates in March 2022, Americans’ annual interest expenses on debts like mortgages and credit cards have surged by nearly $420 billion.
  3. Interest Income Lag: The increase in interest income during the same period was only about $280 billion, resulting in a net decline in household interest income, a departure from past trends.
  4. Consumer Debt Influence: The recent rate hikes impacted household finances more because of a higher proportion of consumer credit, which adjusts more quickly to rate changes, increasing interest costs.
  5. Banks and Savers: Banks have been slow to pass on higher interest rates to depositors, and the prolonged period of low rates before 2022 may have discouraged savers from actively seeking better returns.
  6. Shift in Wealth: There’s been a shift from interest-bearing assets to stocks, with dividends surpassing interest payments as a source of unearned income during the pandemic.
  7. Distributional Discrepancy: Higher interest rates benefit wealthier individuals who own interest-earning assets, whereas lower-income earners face the brunt of increased debt servicing costs, exacerbating economic inequality.
  8. Job Market Impact: Typically, Fed rate hikes affect households through the job market, as businesses cut costs, potentially leading to layoffs or wage suppression, though this hasn’t occurred yet in the current cycle.
  9. Economic Impact: The distribution of interest income and debt servicing means that rate increases transfer money from those more likely to spend (and thus stimulate the economy) to those less likely to increase consumption, potentially dampening economic activity.
  10. No Immediate Relief: Expectations for the Fed to reduce rates have diminished, indicating that high-interest expenses for households may persist.

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One more airline cracks down on lounge crowding in a way you won’t like

Qantas Airways is increasing the price of accessing its network of lounges by as much as 17%.

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Over the last two years, multiple airlines have dealt with crowding in their lounges. While they are designed as a luxury experience for a small subset of travelers, high numbers of people taking a trip post-pandemic as well as the different ways they are able to gain access through status or certain credit cards made it difficult for some airlines to keep up with keeping foods stocked, common areas clean and having enough staff to serve bar drinks at the rate that customers expect them.

In the fall of 2023, Delta Air Lines  (DAL)  caught serious traveler outcry after announcing that it was cracking down on crowding by raising how much one needs to spend for lounge access and limiting the number of times one can enter those lounges.

Related: Competitors pushed Delta to backtrack on its lounge and loyalty program changes

Some airlines saw the outcry with Delta as their chance to reassure customers that they would not raise their fees while others waited for the storm to pass to quietly implement their own increases.

A photograph captures a Qantas Airways lounge in Sydney, Australia.

Shutterstock

This is how much more you'll have to pay for Qantas lounge access

Australia's flagship carrier Qantas Airways  (QUBSF)  is the latest airline to announce that it would raise the cost accessing the 24 lounges across the country as well as the 600 international lounges available at airports across the world through partner airlines.

More Travel:

Unlike other airlines which grant access primarily after reaching frequent flyer status, Qantas also sells it through a membership — starting from April 18, 2024, prices will rise from $600 Australian dollars ($392 USD)  to $699 AUD ($456 USD) for one year, $1,100 ($718 USD) to $1,299 ($848 USD) for two years and $2,000 AUD ($1,304) to lock in the rate for four years.

Those signing up for lounge access for the first time also currently pay a joining fee of $99 AUD ($65 USD) that will rise to $129 AUD ($85 USD).

The airline also allows customers to purchase their membership with Qantas Points they collect through frequent travel; the membership fees are also being raised by the equivalent amount in points in what adds up to as much as 17% — from 308,000 to 399,900 to lock in access for four years.

Airline says hikes will 'cover cost increases passed on from suppliers'

"This is the first time the Qantas Club membership fees have increased in seven years and will help cover cost increases passed on from a range of suppliers over that time," a Qantas spokesperson confirmed to Simple Flying. "This follows a reduction in the membership fees for several years during the pandemic."

The spokesperson said the gains from the increases will go both towards making up for inflation-related costs and keeping existing lounges looking modern by updating features like furniture and décor.

While the price increases also do not apply for those who earned lounge access through frequent flyer status or change what it takes to earn that status, Qantas is also introducing even steeper increases for those renewing a membership or adding additional features such as spouse and partner memberships.

In some cases, the cost of these features will nearly double from what members are paying now.

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