The Rake Review: July 2023
The Rake Review: July 2023
Welcome to another jam packed Rake Review as July delivered on news and controversy again. From Central Banks, to Regional Banks, to BRICS, to China, to new listings that claim to be the answer "Worldcoin", we go around the world as Bitcoin quietly counts down to the next halving in April.
Interest Rates Starting to Impact the Economy
We've talked a lot about the dangers of manipulated money markets and how the outcomes of that manipulation lead to poor economic outcomes. This month we saw no less than the Australian Central Bank's (RBA) governor be replaced with him being out of a job by September this year.
Earlier Phillip Lowe (RBA Chief) told Australians that near zero interest rates would not rise for until at least 2024. Since then we saw the steepest rise in rates in Australia's history. Mortgage payers are understandably upset and the anger was felt at the recent parliamentary enquiry. The result - Swapping Phillip Lowe for his deputy. A change aimed at appeasing the angry populace that is struggling under the weight of enormous interest repayments but a change that will have zero impact as long as the RBA mandate remains the same. Another change is that the RBA will move from monthly meetings to 1 & a half monthly. You are expected to believe that 8 interest rises a year will be better than 12. That's for people that don't know that it doesn't matter how many slices a pizza has - its the total size. It's like walking into a restaurant and asking it to be cut into 8 instead of 12 because you aren't very hungry.
The US has only 8 meetings a year for the Fed but that hasn't stopped them from having the steepest climb of interest rates in their history. Yesterday, true to his word the Fed chair Jerome Powell announced yet another rise of 0.25%. He is currently at no risk of being replaced like his Australian cousin. In fact, while recession fears abound in parts of the economy, this month actually makes it look like a soft landing is possible. Data suggests that inflation is moderating (in both Australia & the US), and parts of the economy are surprisingly resilient. For example, jobs data is still very strong. Could the US achieve a soft landing? Could we see inflation being lowered at the same time as the economy doesn't get destroyed? Our base case would be that as soon as the Fed lowers rates we see inflation kick up again.
China in a Slow Growth Phase
While news filters through of China's foreign minister Qin Gang being purged from the records, China's growth seems to have stagnated. China was very slow to leave the COVID lockdown madness. They only abandoned target zero once there was mass unrest in the provinces to the point where the Communist party's authority was in doubt. Once opening up China has struggled to regain their growth rate with high youth unemployment and significant problems in the property sector. Having said all that, official growth is still over 6% annualised which in the western world would be fantastic growth. As a result, it seems likely China will cut interest rates and take other measures to free up credit which outs pressure on the US to do the same.
Bank Bailouts Round 2?
After the Banking crisis (spate of Bank failures and bailouts) in the US we had in March, we saw another Bank go down in July. PacWest (another regional bank) had lost 2/3 of its value after clients started to seek to move their deposits to safer (guaranteed) banks. The Banc of California has agreed to buy the whole of PacWest.
However, the big question remains which is: Will this latest failure trigger a new waive of Bank failures. No one knows exactly how much losses banks are carrying from over investment in government Bonds that have crashed since the Fed started its tightening cycle. By some accounts a significant number of Banks in the US and around the world are technically insolvent.
We wrote about this in detail in our Thunder Trading update so I won't go into great detail here. However, given that this is key news, what you need to know is that on the whole the SEC suffered a defeat and Ripple is clear of charges that it sold unregistered securities (to retail clients at least). It's a huge win for the crypto industry and a reason to be bullish going into the halving and a period of time where crypto prices are a rubber band ready to fly. XRP, XLM, SOL and many others are up significantly since the ruling was announced.
As a slight warning, it is still possible that the SEC could appeal. Lyn Alden has recently said that she thinks there is a high likelihood of an appeal given the SEC's comments on the decision.
Blackrock has filed for a Bitcoin exchange traded fund (ETF) at the SEC and others have either followed or changed their filing to be in line with that of Blackrock. The reason for that is simple, Blackrock, the worlds largest fund manager has an impeccable track record of succeeding in its filings. No one has yet succeeded to get an ETF up in the US but with Blackrock's filing the odds of success seem to have increased.
More than that, Blackrock seems to have already invested in BTC with Larry Fink once a detractor now publicly spruiking Bitcoin as a truly global investment. Again this is incredibly positive news for the industry as the amount of funds under the control of Blackrosk and the other fund managers is astronomic compared to Bitcoins tiny 570BN USD Market Cap. If they invest, Bitcoins price could rocket. We have saved the Video of the Month below for Larry.
Oh, by the way, Blackrock now suggesting 84.9% Bitcoin allocation is the way to go. That's pretty crazy even by our standards.
World Coin (WLD)
The biggest launch of July was Worldcoin (WLD). Founded by Sam Altman, the man behind Open AI, Worldcoin is a controversial ID technology delivered through the global power of crypto. If you think that sounds amazing, think again as many think this could usher in a dystopian future. Ben Simpson of Collective Shift says "The big issue becomes who we want to create and gate-keep our digital identities."
Do you actually want your eyes biometrically scanned for your digital wallet and digital ID? Strangely, thousands of people are lining up. Also, unsurprisingly, the tokenomics here are designed to make huge money for the founders. Only a small % of the total supply is released and market makers have been called in to set the price where founders want it. Beware.
BTC Halving Coming Soon
Finally, the Bitcoin Halving is under 3/4 of a year away. In April, the amount of BTC released every block will halve lowering supply to hit the market. In the past this has helped put a supply shock into the market and we have seen what can happen to price. Don't get caught short.
Here is the fast five of what you need to know about the market in July 2023:
- The Top 10 has changed with XRP moving up 2 spots back into 4th post SEC courtcase.
- Solana (SOL) has moved back into the top10 displacing Tron (TRX).
- The total Market Cap has risen substantially on the back of a Bitcoin rally and the SEC vs Ripple case decision to $1.23T USD.
- Chainlink (LINK) has had a good week with the project up 12% on the back of a new feature being released.
- DOGE has seen its market cap surpass 10Billion after expectations that it will become twitters currency.
Video of the month
Larry Fink - CEO of Blackrock speaks to Fox Business
Blackrock has filed for a BTC Spot ETF and Larry Fink has turned from Bitcoin skeptic to firm believer. It's great to hear him call bitcoin "Digital Gold".
In the news
- More rumblings around the BRICS nations (Brazil, Russia, India and China +) introducing a new gold backed currency to replace the USD
- DOGE coin rallied on the back of news that that Twitter's rebrand will introduce a DOGE payment option as Musk makes waives again.
- CZ and Binance fighting back against CFTC in new filing
- After halting rates last meeting the Fed increases 0.25%. Larry Fink expects another 1% worth of rises over the next year.
The "C" Students Run The World
For something completely different and a bit more fun we wrote an article about schooling and education. Take a break from finance, crypto and economics and have a leisurely read here: https://www.stormrake.com/blogs/post/the-world-is-run-by-c-students
Where do you sit on this: Do C students Run the World? Do A students Rule? Can someone without a high school diploma succeed in business?
Is Schooling actually serving our children in 2023?
Memes of the month
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