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Treasury Market Plays Catch-Up With Higher-For-Longer Risk

The collective wisdom of the bond market for much of this year has been betting that interest rates would soon peak and fall. But those bets appear to…

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The collective wisdom of the bond market for much of this year has been betting that interest rates would soon peak and fall. But those bets appear to be unwinding in the wake of Wednesday’s Federal Reserve meeting and press conference.

Exhibit A is the rise in the 2- and 10-year Treasury yields, which are widely followed as key maturities for economic and financial markets analytics. On those fronts the crowd is reassessing its recent view that rate cuts are on the near-term horizon.

Let’s start with the 2-year Treasury yield, which is considered a proxy for market expectations on Fed policy. For much of this year the 2-year yield has traded below the effective Fed funds rate, which implies that the market expects the central bank’s rate hike will peak and perhaps reverse. But that view appears to be fading as the 2-year yield moves closer to the current 5.25%-to-5.50% Fed funds rate range.

The 10-year yield is pushing higher again too. In yesterday’s trading (Sep. 21), the benchmark rate rose to 4.49%, the highest since 2007.

Inflation-indexed Treasury yields continue to push higher too, testing the 2%-plus real range.

One of the catalysts that’s reportedly behind the latest run of higher Treasury yields is Fed Chair Powell’s hawkish comments on Wednesday on the matter of real (inflation-adjusted) interest rates.

“It’s a real rate that will matter and that needs to be sufficiently restrictive,” he advised, although exactly what level defines “restrictive” was left unsaid. “I would say you know it’s sufficiently restrictive only when you see it,” he added. “It’s not something you can arrive at with confidence in a model or in various estimates.”

By some accounts, the Fed appears to be on a path to leave rates higher for longer. Fed rate hikes may be over, or perhaps there’s one more in the pipeline, but rate cuts are expected to come later than recently expected.

As The Wall Street Journal reports:

“The fact that we’ve come this far lets us really proceed carefully,” said Powell. He used those words—“proceed carefully”—six times during Wednesday’s news conference, a sign of heightened caution about lifting rates.

“He didn’t sound to me like he was itching to hike again,” said Michael Feroli, chief U.S. economist at JPMorgan Chase, who thinks the Fed’s July rate rise will be its last for the current cycle. “For Powell, he sounds like he’s pretty comfortable where they are, sitting back, and watching things play out,” Feroli said.

The new dot plots for the Fed – the FOMC participants expectations for the Fed funds rate – supports the case for a higher for longer outlook. The FT notes:

The median estimate of the Fed’s 19 policymakers is for the bank’s benchmark rate to fall to just 5 per cent to 5.25 per cent next year. That was significantly higher than the 4.5 per cent to 4.75 per cent they signaled when the dot plot was last updated in June. By 2026, it was still forecast to be between 2.75 per cent and 3 per cent.

“What they’re saying there is if you have stronger growth for this year and next, it increases the risk that core inflation does not descend as much as they hope and expect,” said Daleep Singh, an ex-New York Fed official who is now chief global economist at PGIM Fixed Income.

“Therefore there is a potential need to keep nominal interest rates somewhat higher than they previously forecast,” he added.

The good news for investors is that the highest yields in ~15 years, either real or nominal, can be locked in with a buy-and-hold strategy. No one knows if current rates are at or near a peak, but this much is clear: the case for a relatively higher allocation to Treasuries vs. recent history hasn’t looked this compelling since George W. Bush was walking the floor in the Oval Office.

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California Gov. Newsom greenlights crypto regulation bill for 2025

The bill will mandate crypto firms to uphold financial records and allow regulators to conduct audits on these entities.
California…

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55 mins ago

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October 14, 2023

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The bill will mandate crypto firms to uphold financial records and allow regulators to conduct audits on these entities.

California Governor Gavin Newsom has approved a cryptocurrency bill that enforces stricter regulations on businesses conducting crypto operations set to begin in 18 months. 

In a statement published on October 13, Newsom declared that the bill titled the ‘Digital Financial Assets Law,’ would make it mandatory for both individuals and firms to obtain a Department of Financial Protection and Innovation license to engage in digital financial asset business activities.

The bill is scheduled to come into effect on July 1, 2025.

It draws a comparison to California's money transmission laws, which forbid individuals from conducting money transmission business without a license from the Commissioner of Financial Protection and Innovation.

The new crypto bill will allow the department to impose stringent audit requirements on crypto firms as well as force them to uphold recording requirements. The statement noted:

“[This bill] would require a licensee to maintain [...] for 5 years after the date of the activity, certain records, including a general ledger maintained at least monthly that lists all assets, liabilities, capital, income, and expenses of the licensee.”

It furth clarifies that firms not complying with the bill will face enforcement measures.

Related: CoinShares says US not lagging in crypto adoption and regulation

Around this time last year, Newsom declined to sign a similar bill that aimed to establish a licensing and regulatory framework for digital assets in California.

Although the bill passed through the California State Assembly without opposition, Newsom expressed that he was sending the bill back "without my signature."

Newsom turned down the bill, suggesting it wasn't flexible enough to keep up with fast-changing crypto trends.

At the time, Newson stated that he was waiting for federal regulations to come into place before working with the legislature to establish crypto licensing initiatives.

Meanwhile, Cointelegraph recently reported that the U.S. is exploring the possibility of applying the Electronic Fund Transfer Act (ETFA) to cryptocurrencies as a measure to combat fraudulent transfers.

In a recent speech, Rohit Chopra, the director of the Consumer Financial Protection Bureau (CFPB), expressed his intention to grant authorization for this to "reduce harm of errors, hacks and unauthorized transfers."

Magazine: US gov’t messed up my $250K Bitcoin price prediction: Tim Draper, Hall of Flame

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Second Largest US Lab-Grown Diamond Producer Goes Bust 

Second Largest US Lab-Grown Diamond Producer Goes Bust 

The second-largest US producer of lab-grown diamonds has filed for bankruptcy amid…

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October 14, 2023

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Second Largest US Lab-Grown Diamond Producer Goes Bust 

The second-largest US producer of lab-grown diamonds has filed for bankruptcy amid a massive glut of fabricated gemstones and plunging prices. 

Financial Times reports that Washington-based WD Lab Grown Diamonds filed for Chapter 7 in a Delaware bankruptcy court and had total liabilities of around $44 million and assets of $3 million. The company listed it had between 100 and 199 creditors. 

In 2020, WD Lab Grown Diamonds became the first diamond company to be certified under the "Standard for Sustainable Diamonds" by third-party verifier SCS Global Services. Operations began in 2008 and have played a pivotal role in innovating the lab-grown diamond industry, generating roughly $33 million in revenue last year. 

Paul Zimnisky, an independent diamond analyst, said the collapse of WD Lab Grown Diamonds is a sign it struggled to compete with Chinese and Indian producers. 

In the last seven years, a single-carat lab-grown diamond has plunged more than threefold due to a flood of supply, a massive relief for mining companies who have seen natural diamond prices crash. 

Real diamond prices 

The slide in real diamond prices comes as consumers pivot to cheaper lab-grown stones. Also, there's an ongoing global luxury spending slowdown as recession risks rise. 

As for the lab-grown diamond industry, it's a race to the bottom as more supply only pushes prices lower, slashes margins, and ultimately results in business failures.

Tyler Durden Sat, 10/14/2023 - 18:05

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Caroline Ellison speaks on FTX-Binance war, SEC won’t appeal Grayscale BTC ETF: Hodler’s Digest, Oct. 8-14

Caroline Ellison testifies in Sam Bankman-Fried trial, reveals more on FTX-Binance war; SEC reportedly has no plans to appeal on Grayscale Bitcoin ETF…

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October 14, 2023

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Caroline Ellison testifies in Sam Bankman-Fried trial, reveals more on FTX-Binance war; SEC reportedly has no plans to appeal on Grayscale Bitcoin ETF case.

Top Stories This Week

Caroline Ellison wanted to step down but feared a bank run on FTX

Caroline Ellison, former CEO of Alameda Research, testified for over 10 hours this week at Sam Bankman-Frieds trial, offering deeper details on the events that anticipated the FTX debacle in November 2022. From Ellison’s testimony, jurors learned that she planned to leave Alameda months before its collapse, but feared a bank run on FTX amidst the crypto market downturn. The week also featured a recording presented as evidence in the case showing the exact moment Ellison told employees about Alameda’s use of FTX customer deposits. Among the key moments of Bankman-Fried’s trial were revelations of fabricated balance sheets in order to deceive crypto lenders, as well as BlockFi CEO Zac Princes testimony. Check out this week’s highlights from Cointelegraph’s team on the ground.

Sam Bankman-Fried blamed Binance for balance sheet leak to media: Court evidence

Months before the collapse of crypto exchange FTX, former CEO Sam Bankman-Fried was freaking out about buying shares in Snapchat, raising capital from Saudi royalty and getting regulators to crack down on rival crypto exchange Binance, according to evidence presented in court this week as a part of the ongoing criminal trial. Bankman-Fried believed Binance leaked an Alameda balance sheet to the media in 2022. According to a document from Nov. 6, 2022, Bankman-Fried wrote that Binance had been engaging in a PR campaign against us. It continued, saying that Binance leaked a balance sheet; blogged about it; fed it to Coindesk; then announced very publicly that they were selling $500m of FTT in response to it while telling customers to be wary of FTX.

SEC reportedly wont appeal court decision on Grayscale Bitcoin ETF

The United States Securities and Exchange Commission reportedly has no plans to appeal the recent court decision that favored Grayscale Investments. The ruling requires the SEC to review the firms spot Bitcoin exchange-traded fund (ETF) application. The SECs supposed decision not to appeal doesnt necessarily mean Grayscales application is set to be approved. If the reports are true, the SEC will need to follow the courts August order and review Grayscales application to change its Grayscale Bitcoin Trust into a spot Bitcoin ETF.

Terraform Labs contends Citadel Securities had a hand in its stablecoin collapse

Terraform Labs has again pointed the finger at market maker Citadel Securities for its role in an alleged concerted, intentional effort to cause the depeg of its TerraUSD stablecoin in 2022. On Oct. 10, Terraform Labs filed a motion in the United States to compel Citadel Securities to produce documents relating to its trading activity in May 2022, when TerraUSD Classic depegged. In its motion, Terraform argued that the documents are crucial for its defense in the lawsuit filed by the U.S. Securities and Exchange Commission in February, which alleged Terraform Labs and its founder, Do Kwon, had a hand in orchestrating a multi-billion dollar crypto asset securities fraud. Citadel Securities has, however, previously denied trading the TerraUSD stablecoin in May 2022.

Mastercard announces successful wrapped CBDC trial results

Mastercard has completed a trial involving wrapping central bank digital currencies (CBDCs) on different blockchains, similar to wrapped Bitcoin and wrapped Ether. The trial was conducted with the Reserve Bank of Australia and the countrys Digital Finance Cooperative Research Centre CBDC. Mastercard said the solution allowed a CBDC owner to purchase a nonfungible token (NFT) listed on Ethereum. The process locked the required amount of a pilot CBDC on the RBAs pilot CBDC platform and minted an equivalent amount of wrapped pilot CBDC tokens on Ethereum, the payment processor wrote.

Winners and Losers

At the end of the week, Bitcoin (BTC) is at $26,892, Ether (ETH) at $1,551 and XRP at $0.48. The total market cap is at $1.05 trillion, according to CoinMarketCap.

Among the biggest 100 cryptocurrencies, the top three altcoin gainers of the week are Loom Network (LOOM) at 86.71%, Trust Wallet Token (TWT) at 16.72% and Tether Gold (XAUt) at 5.16%. 

The top three altcoin losers of the week are Mantle (MNT) at -17.27%, Rocket Pool (RPL) at -14.39% and Avalanche (AVAX) at -13.39%.

For more info on crypto prices, make sure to read Cointelegraphs market analysis.

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Most Memorable Quotations

Thats our homework, actually. To really educate people about the benefit of using blockchain.

Grace Sabandar, co-founder of the Indonesia Blockchain and Metaverse Center

Crypto-assets markets, including DeFi, do not represent meaningful risks to financial stability at this point.

European Securities and Markets Authority

I was worrying about customer withdrawals from FTX, this getting out, people to be hurt. […] I didnt feel good. If people found out [about Alameda using FTX funds], they would all try to withdraw from FTX.

Caroline Ellison, former CEO of Alameda Research

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Willem Schro, CEO of Botanix Labs

People who believe SBFraud is a good guy who made mistakes, and FTX grew too fast and it all got away from him, should NEVER be in charge of other peoples money.”

John Deaton, attorney and crypto advocate

Prediction of the Week 

Ethereum losing streak vs. Bitcoin hits 15 months Can ETH price reverse course?

The price of Ethereum’s native token, Ether, is trading around a 15-month low versus Bitcoin, and the lowest since Ethereum switched to proof-of-stake. The ETH/BTC pair dropped to as low as 0.056 BTC earlier this week. In doing so, the pair broke below its 200-week exponential moving average (200-week EMA; the blue wave) near 0.058 BTC, raising downside risks further into 2023.

The 200-week EMA has historically served as a reliable support level for ETH/BTC bulls.

ETH/BTC stares at similar selloff risks in 2023 after losing its 200-week EMA as support. In this case, the next downside target looks to be around its 0.5 Fibonacci line near 0.051 BTC in 2023, down about 9.5% from current price levels.

Conversely, ETH price may rebound toward its 50-week EMA (the red wave) near 0.065 BTC if it reclaims the 200-week EMA as support.

FUD of the Week 

Mistake or money laundering? User pays $1.6 million for CrypToadz NFT

One of the CrypToadz NFTs, whose average price doesnt exceed $1,000, was bought for an astonishing 1,055 wrapped Ether, an equivalent of $1.6 million. The CrypToadz collection was launched during the NFT boom of 2021 and surpassed a trading volume of $38 million worth of Ether during its first 10 days on the market. The price paid by the anonymous user for the NFT raised questions among the community. Two weeks ago, this item was acquired for 0.95 ETH (around $1,600), only to be sold for a price a thousand times higher.

USDR stablecoin depegs to $0.53, but team vows to provide solutions

Real estate-backed stablecoin USDR lost its peg to the United States dollar after a rush of redemptions caused a draining of liquid assets such as Dai from its treasury. USDR, backed by a mixture of cryptocurrencies and real estate holdings, is issued by the Tangible protocol, a decentralized finance project that seeks to tokenize housing and other real-world assets. During the crisis, a trader reportedly exchanged 131,350 USDR for 0 USD Coin, resulting in a complete loss on investment.

HTX claws back $8M in stolen funds, issues 250 ETH bounty to hacker

Huobi Globals crypto exchange HTX has confirmed the return of the funds stolen by a hacker in late September and issued a 250 Ether bounty after resolving the issue. One of HTXs hot wallets was drained of 5,000 ETH on Sept. 25, worth roughly $8 million at the time. Shortly after the hack occurred, the firm contacted the hacker and claimed to know their identity. HTX ultimately offered to pay a 5% bounty worth around $400,000 and not to take any legal action if they returned 95% of the funds before a deadline of Oct. 2.

Beyond crypto: Zero-knowledge proofs show potential from voting to finance

An emerging cryptographic technology may provide help with two gaping 21st-century needs: Privacy and truth.

Eleanor Terrett on impersonators and a better crypto industry

Fox Business producer Eleanor Terrett’s following exploded after she began providing commentary on the SEC v. Ripple lawsuit.

SBFs alleged Chinese bribe, Binance clarifies account freeze: Asia Express

SBF allegedly bribes Chinese officials with $150 million to unfreeze accounts, Binance justifies blocking Hamas users, meanwhile, Huobi hacker returns all $8M in stolen assets.

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