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WEEKLY MARKET UPDATE
OCT 13, 2023
Weekly Market Update - Friday, October 13, 2023 - US Economic Data Complicates Future Fed Decisions, SBF Trial Continues as Ellison Takes the Stand, and Crypto Adoption Is on the Rise in India
Welcome to our Weekly Market Update.* Explore weekly crypto price movements, read a quick digest of notable market news, and dive into a crypto topic — this week we resurface our discussion of stablecoins.
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*Percentages reflect trends over the past seven days.
**Crypto prices as of Friday, October 13, 2023, at 11:45am ET. Check out the latest crypto prices here. All prices in USD.
Takeaways
- US consumer price index (CPI) remains sticky: CPI data released on Thursday did not show a further cooling in inflation in the US economy, further muddying the Fed’s decision making on the future interest rate path.
- Federal Reserve unable to reach a firm decision on interest rate hikes: Minutes from the Fed’s last meeting show wavering opinions on interest rate hikes against the backdrop of uncertainty in the US economy.
- Ongoing conflict between Israel and Hamas dampens investor confidence: The price of both bitcoin and ether has been in decline since attacks erupted between Hamas and Israel on Saturday. Bitcoin has dropped below $27k USD and ether has lagged, falling to 0.057 on the ETHBTC pair.
- Sam Bankman-Fried’s trial continues as Caroline Ellison takes the stand: The former CEO of Alameda Research pleaded guilty to fraud and testified that SBF directed her to create false balance sheets to hide the company’s debt to FTX.
- India is paving the way for crypto adoption, despite 30% capital gains tax: The Central Board of Direct Taxes collected over $12 million USD in taxes, and a newly released report ranks India as number one for grassroots crypto adoption.
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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 and strong September jobs numbers have decoupled investor confidence in crypto 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 also 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
BitcoinBuzz data as of 6pm ET on October 12, 2023.
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
*This material is for informational purposes only and is not (i) an offer, or solicitation of an offer, to invest in, or to buy or sell, any interests or shares, or to participate in any investment or trading strategy, (ii) intended to provide accounting, legal, or tax advice, or investment recommendations, or (iii) an official statement of Gemini. Gemini, its affiliates and its employees do not make any representation or warranty, expressed or implied, as to accuracy or completeness of the information or any other information transmitted or made available. Buying, selling, and trading cryptocurrency involves risks, including the risk of losing all of the invested amount. Recipients should consult their advisors before making any investment decision. Any use, review, retransmission, distribution, or reproduction of these materials, in whole or in part, is strictly prohibited in any form without the express written approval of Gemini.
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