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Be afraid… The yield curve has inverted! What is it? And why is this so important for crypto?

Be afraid… The yield curve has inverted! What is it? And why is this so important for crypto?

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Be afraid… The yield curve has inverted! What is it? And why is this so important for crypto?

Overview

  • BEWARE Yield curve inversion! (What is it?)
  • Bitcoin/Ethereum: Breakout or fakeout??
  • Celsius lays out plans for retail investors. Payout?
  • Otherside metaverse launch. Success?

Good morning Banter Fam,

The yield curve has inverted. Again.

But what is the yield curve? Why is this happening? AND what does it all mean for crypto??!!

With the current effects of macroeconomics on the markets, it behooves us lowly crypto degens to learn a few basic economic principles to understand the current financial environment we face. Growing and acquiring knowledge can aid us in navigating the financial tides.

What is the yield curve?

Yield is the cost of borrowing money from a lender. For example, at current rates (2Y at 3.17%), if a person wants to borrow $100 for two years, they must pay back $103.17 in two years, also known as maturation.

2-year term = short term.

10-year term = long term.

30-year term = long term.

Typically, borrowing for a LONGER amount of time encompasses a higher yield because the lender is taking on more risk. So if a person borrows money for 30 years, it will be more expensive than borrowing it for 2. 

TYPICALLY, but not today. Enter yield curve inversion. 

A healthy yield curve looks like this:

Source: Britannica.com

Below is the current yield curve (blue curve).

Source: Gurfocus.com

If you look closely, the current interest rates for the two-year rates are HIGHER than the ten-year rates. Not good, INVERSION!

What does an inverted yield curve mean?

Investors don’t take an inverted yield curve lightly. Historically, it implies a recession in 6-24 months. Since 1955, the yield curve has inverted before EVERY recession with only one false signal. Since 1900, 22 of 28 yield curve inversions have realized a downturn.  

Why does it invert?

The yield curve inversion is NOT a natural phenomenon. It occurs because traders predict the Federal Reserve, in charge of manipulating interest rates, will lower rates in the future. Adding money to a declining market is a typical response by the Fed during a recession. It’s an action that’s taken place during every recession since the 1980s.  

Recession ahead?

Unfortunately, we do not participate in prediction markets but rather present the data to help the reader understand current macroeconomic factors. Although the markets are buying, the PROBABILITY that a recession is ahead is high. Unless crypto begins to decouple from the traditional markets, which is possible (predicted by some like Dan Morehead of Pantera Capital in this report), crypto will mimic the declining fate of conventional markets.

This weekend, crypto witnessed a healthy bounce while stocks continued to slide, which may be a precursor of things to come. Fingers crossed. But all and all, we must continue cheering for a massive decoupling in the best interest of hodling.

Market update 🌍

BTC: Breakout or fakeout?

Enthusiasm ran high this weekend, but the reality of the macro situation appears to be softening the bullish uptick in crypto. Bitcoin broke through a much-contested 21.7K resistance but quickly fell, and it will need another push from the bulls if it aims to convert the former resistance into support. Looking at the 4H charts shows BTC confronting a months-long downtrend that could send it back to 19k levels if the support fails to hold. BTC completed the day’s session up 7.86% to $22,432.

High-resolution chart

On the other hand, Ethereum (ETH) penetrated its long-standing downtrend and looked to retest the level to continue its aggressive climb. However, the Relative Strength Index (RSI) is entering an overbought zone on the 4H charts. ETH completed the day’s session, up 18.19% to $1581.

High-resolution chart

US markets closeGain %
S&P 500-0.84%
Nasdaq-1.46%
Dow+1.86%
VIX+4.54%

Notable Gainers (24h):

Protocol (Coin)Price ($)Gain (%)
Polygon (MATIC)0.91+20
Ethereum Classic (ETC)23.55+19.5
STEPN (GMT)1.08+18
ApeCoin (APE)5.82+16
THORChain (RUNE)2.54+16
Convex FInance (CVX)7.31+15
Curve DAO (CRV)1.24+12
The Sandbox (SAND)1.34+12
Kusama (KSM)61.80+12
Optimism (OP)0.74+28
Ethereum Name Ser. (ENS)10.95+15
Ravecoin (RVN)0.027+15
Terra (LUNA)2.00+12
Bitcoin Fear and Greed Index20 Extreme Fear
“Crypto” Google Trends 90d17
“Bitcoin” Google Trends 90d34

Newswatch 📰

Celsius lays out plans for retail. Embattled crypto lender Celsius noted the next steps in its bankruptcy proceedings by considering the option of staying “long crypto” or receiving a discounted cash settlement for retail investors. The company is additionally contemplating asset sales, third-party investment opportunities, and growing its balance sheet behind its bitcoin mining operations.

Circle seeking public listing. USDC stablecoin provider Circle has reaffirmed plans to go public near the end of 2022 through a SPAC, according to its CFO Jeremy Fox-Green. The firm, which backs $55b in circulating USDC tokens, appears to be in a healthy financial situation, with 100% of its holding in cash and treasury bonds. Would you buy a Circle as a stock?

Genesis lent 3AC $2.36b. Crypto lending service Genesis had lent $2.36b to Three Arrows Capital, which recently filed for Chapter 15 bankruptcy. The firm took 3AC to arbitration but recently paused actions after an advisory firm was assigned to oversee 3AC’s liquidity crisis.

News Tidbits:

  • Gemini exchange laid off 7% of its workforce after reducing by 10% in June.
  • Opinion: No, Mt. Gox payouts aren’t going to torpedo Bitcoin’s price.
  • Christie’s Venture Fund closes first crypto investment: Layerzero Labs.

At the protocol level

stETH enters Layer 2. Liquid staking provider Lido (LDO) has introduced the stETH token to Layer-2s, allowing cheaper transactions and access to expanded DeFi ecosystems. In addition, the move will increase the liquidity of the token, which has been suffering from a mild price depeg from ETH.

Private DAO voting. DAO voting platform Snapshot introduces privacy-preserving voting during governance processes. The upgrade will allow voters privacy until a vote is complete.

Protocol level tidbits:

  • Flowcarbon delays token launch amidst market conditions.

NFT & metaverse update 🐵

Otherside metaverse success. 4,500 participants experienced the first ascent into the Bored Ape Yacht Club’s Otherside open-world Metaverse, where they got to interact with the environment and face off with giant characters. After the successful launch, Yuga Labs released a lite paper noting some principles and future roadmap.

Dubai increases blockchain/metaverse exposure. The Crown prince of Dubai, Sheikh Hamdan, has launched a strategy to 5x the presence of blockchain and metaverse companies in the country. The move attempts to place Dubai in the top ten cities in the world in the sector and help create upwards of 40,000 jobs.

NFT tidbits:

  • Time Magazine profits $10m with 20,000 TIMEpieces.

Banter’s take

Crypto has a few tricks up its sleeve when it comes to recession. 

Yes, prices will suffer in the short term, but when economic numbers begin to falter, historically the Federal Reserve starts printing money to save a sinking ship.

More money means more liquidity in the markets, an environment both bitcoin and crypto relish. Unfortunately, the US Dollar takes the brunt end of the stick in this scenario. Old habits die hard, and the Federal Reserve will want a healthy economy even at the expense of inflating the Dollar. 

As always, it’s essential to formulate your own opinion because WE ARE NOT in the prediction markets. We are merely presenting the data and the trends.  

Gabri

Follow me on Twitter for daily updates!

Disclaimer

Good Morning crypto (issued by Crypto Banter) is a newsletter for entertainment purposes only.

All opinions expressed by the publisher, writers, and chartists should not be construed as financial advice and do not necessarily reflect the views of Crypto Banter. The publisher, writers, and chartists may hold positions in the tokens and assets discussed. Readers are encouraged to do their own research.

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