Executive Summary (TL;DR)
- The market kept its momentum in July 2023 despite the Federal Reserve raising interest rates to the highest level in 22 years.
- Bitcoin remains the biggest hope in the crypto market as BlackRock CEO Larry Fink called it an “international asset” which sent $BTC to a 14-month high.
- Some of the biggest headlines we cover this month include FedNow, Ripple, Worldcoin, Curve Finance, and Bitcoin.
1. Market sentiment at EXTREME GREED
2. Interest rates rise to ➡ 5.25% – 5.50%
3. Energy stocks are the cheapest sector in the S&P 500, and make the most cash.
4. Ripple wins court case over SEC with verdict that $XRP is not a security.
5. ChatGPT creator attracts over 2M users with new crypto Worldcoin project.
6. Every investor who was dollar-cost-averaging into Bitcoin is now in profit.
Financial Markets 2023 Performance
The stock rally continues as crypto market cools down
BTC YTD Performance
Jan – July 2023
NASDAQ 100 YTD Performance
Jan – July 2023
S&P 500 YTD Performance
Jan – July 2023
Market Sentiment: Stock Investors in Extreme Greed
Macro Policies: The Fed raises interest rates to
highest level in 22 years, while inflation drops
Wall Street Banks Pass Fed Stress Test
The Federal Reserve’s annual stress test saw all 23 participating Wall Street banks pass, resulting in a rise in banking stocks.
Note: The Common Equity Tier 1 Ratio, is a measure of a bank’s financial strength.
It is calculated by dividing the bank’s common equity by its risk-weighted assets. The higher the CET1 ratio, the more financially secure the bank is.
CET1 capital ratios well above the required minimum of 4.5% show that a bank is well-capitalized and able to withstand a severe economic downturn.
“This stress test is only one way to measure that [financial] strength. We should remain humble about how risks can arise and continue our work to ensure that banks are resilient to a range of economic scenarios, market shocks, and other stresses.”
Federal Reserve Vice Chair for Supervision
“The FED’s capital requirements and stress tests are like a belt and suspenders. You can loosen the belt and rely on suspenders or you can take off the suspenders and rely on the belt but if you do both, your pants will fall.”
United States Senator
Global Exchange-Traded Funds (ETFs) Reach Record High of $10.32 Trillions
Despite global issues like Russia’s invasion of Ukraine and inflation, the ETF industry kept its strong momentum. Notably, the ETF industry reached this new high while other indices, like the S&P 500 and the MSCI All Country World Index, remain below their previous peaks.
This milestone reflects investors’ preference for ETFs, which offer more transparency, lower costs, and tax efficiency.
Note: ETFs and ETPs (Exchange-Traded Products) are investment funds that offer diversified exposure to various assets like stocks, bonds, or commodities.
“ETFs are the new mutual funds. They are the most popular way to invest in the stock market, and they are only going to become more popular in the years to come.”
Bank of America Chief Investment Strategist
Retail investors are most likely to invest in technology stocks for the second-half of 2023
7 in 10 retail investors between 18-44 years old use or are open to using ChatGPT-like AI to help pick and manage investments in their portfolios
Note: Based on the Retail Investor Beat survey of 10,000 retail investors across 13 countries conducted in June 2023.
“AI is a revolutionary technology, and it could help individual investors better tailor their money for their goals. AI has a promising future if it can improve our daily lives. For now, it seems like there are some real use cases when it comes to investing.”
eToro US Investment Analyst
Warren Buffet Keeps Investing into Fossil Fuel as ESG Initiatives Drive Prices Down
“People are missing the economics that Buffett and Munger are looking at… The returns on capital in coal, oil and gas are off the charts compared with other sectors. And with ESG, you can buy them cheaper than you otherwise would.”
CEO of Smead Capital Management
The Fed Launches an Instant Payment System:
The Beginning of a Central Bank Digital Currency?
Major banks including JP Morgan, Wells Fargo, and US Bancorp have started to use the Federal Reserve’s FedNow launched on July 20, 2023.
The service that runs 24/7 has so far been adopted by 57 banks and credit unions intending to allow financial institutions to process payments instantly.
“The Federal Reserve built the FedNow Service to help make everyday payments over the coming years faster and more convenient.”
Federal Reserve Chair
“The FedNow Service is neither a form of currency nor a step toward eliminating any form of payment, including cash. The FedNow Service is an instant payments service provided by the Federal Reserve.”
Federal Reserve Twitter Account
“The fact that FedNow will support tokenization could mean that real-world assets may become tokenized in this network. If this happens, you will own nothing. The FED will own it instead.”
Coin Bureau Co-Founder
Europe’s Stock Rally Sparks Alarm: Highest Put-to-Call Ratio in a Decade
European investors rush to protect against market downturn with “put” options amid worries about slowing economic growth. Eurozone’s recession, declining profits, and slowing services sector add to the unease. Poor Chinese economic data also affects luxury brands’ sales hopes.
Blockchain Good News (July 2023)
Blockchain Bad News (July 2023)
Every Investor Who Was Dollar-Cost-Averaging Only into Bitcoin Is Now in Profit
Long-Term Bitcoin Holders Now Control Three Quarters of Circulating Supply, Signaling Market Maturity
Bitcoin long-term holders now control a record high of 75% of the cryptocurrency’s circulating supply of 19 million BTC. This trend suggests that “HODLing” is the preferred market dynamic amongst mature investors.
Note: Holders have to hold for at least 155 days to qualify as long-term holders. “Hodling” refers to holding an asset and refusing to sell it while attempting to remain unaffected by swings in prices.
Worldcoin – Gem or Scam?
Worldcoin is a new cryptocurrency startup led by the creator of OpenAI – Sam Altman. The company is using eye scans to create a global identity system and promises a universal basic income. Worldcoin has managed to recruit over 2 million test users by incentivizing them with cash and $WLD tokens.
Critics argue that the system, relying on sensitive biometric information, has just created a shady database rather than delivering on its promise. Some people see Worldcoin as a scam.
Concerns over privacy and exploitation are escalating, particularly in poorer regions like Kenya where Worldcoin has focused its recruiting efforts.
“Don’t catalogue eyeballs. Don’t use biometrics for anti-fraud. In fact, don’t use biometrics for anything. The human body is not a ticket-punch.”
National Security Agency Whistleblower
“Most alarming to me is how the WorldCoin team has boasted about how many users they have.
When in reality they have been exploiting people in developing countries.”
“Everyone is gonna have an AI assistant and that AI assistant is going to run a whole team of other AIs. That is 100% locked in my mind the world we’ll live in. And in that world, we are gonna need proof-of-humanity.”
DeFi Meltdown: Curve Finance
Curve Finance, a decentralized stablecoin exchange, recently experienced an exploit resulting in a loss of $62M. The hack was linked to a bug in the Vyper software version used.
The exploit is a reminder of the risks involved in using DeFi protocols. They are built using smart contracts, which are often complex and difficult to audit, making them vulnerable to attack.
Some of the stolen funds were recovered, thanks to a white hat hacker who used a front-running bot to steal the attacker’s ETH back.
Tokenized U.S. Treasuries Hit $680M as Crypto Investors Chase Traditional Yield in DeFi
Demand for bond yields skyrockets as interest rates keep rising. Crypto investors have lent over $680 million to the U.S. government through tokenized US Treasury bills, bonds, and money market funds, issued by DAOs and protocols as of July 31, 2023.
These blockchain-based investments in treasuries show how traditional finance is converging with DeFi, reshaping the market landscape.
“Tokenizing a wide variety of assets – from equities and index funds to real estate and carbon credits – offers huge potential in terms of not only enhancing transparency, auditability and efficiency, but also access to people who otherwise might not be able to tap into traditional markets.”
Executive Director of Hyperledger Foundation
“About 2% of global money supply, via stablecoins and CBDCs could be tokenized over the next five years, which is about $3 trillion”
“T-bills are 5% plus. Who doesn’t want that? It’s one of the greatest assets of all time. It’s an incredibly safe short-term investment. Everybody wants that and it doesn’t really exist on-chain right now.”
Compound Former Founder & Superstate CEO
“We believe that blockchain technologies have the potential to reshape the investment management industry by providing greater transparency and lower operational costs for traditional financial products.”
Franklin Templeton Digital Assets Head
SEC Urges Coinbase to Halt All Crypto Trading Except Bitcoin
The SEC identified 13 lightly traded cryptocurrencies on Coinbase as securities, meaning that offering these tokens to customers could fall under the regulator’s jurisdiction.
Brian Armstrong, Coinbase’s CEO, indicated that complying with the SEC’s request would equate to the end of the U.S. crypto industry.
“They came back to us, and they said . . . we believe every asset other than bitcoin is a security.
And, we said, well how are you coming to that conclusion, because that’s not our interpretation of the law…And they said, we’re not going to explain it to you, you need to delist every asset other than bitcoin.”
Ripple Wins Court Case over SEC.
Verdict: $XRP is NOT a Security… in most Cases
Ripple won a key ruling in its ongoing legal battle with the SEC, with Judge Torres declaring that $XRP is not a security in regards to programmatic sales on digital asset exchanges.
However, the judge ruled XRP is a security when sold to institutional investors, satisfying the Howey Test.
Yes, $XRP Is a Security:
Institutional Sales of XRP are considered to be investment contracts under Howey because they satisfy all four prongs of the Howey Test.
- Investment of money – there was a direct payment from institutions in exchange of XRP.
- Reasonable investors – with Ripple’s communications, ‘reasonable investors’ would have the expectation of profits.
- Efforts of others – institutional buyers clearly understand that XRP’s value is directly tied to the Ripple team’s effort and business model.
“We’re pleased from that decision recognizing the importance of protecting [institutional investors] but disappointed on what they said about [retail investors] – we’re still looking at it and assessing that opinion.”
U.S. Securities and Exchange Commission Chair
“This is a clear win both for Ripple and for the industry! The SEC clearly lost as a matter of law… Any attempt by the SEC to paint this as some sort of split victory is pathetic. They lost on everything that matters (as many lawyers have noted, not just Ripple’s).”
Ripple Labs CEO
No, $XRP Is Not a Security:
Programmatic Sales of XRP are not considered to be investment contracts because it fails the third prong of the Howey Test – “reasonable expectation for profit”.
- Indirect purchase – users buying XRP from exchanges were not buying it directly from Ripple.
- Blind bid/ask transactions – users buying from exchanges could not know where the money went.
- No purchase contracts – there were no contracts containing lockup provisions, resale restrictions, indemnification clauses, or statements of purpose.
- Speculative motive – people were speculating on XRP which does not prove that it is a security.
“The court declines to draw a distinction between these coins based on their manner of sale, such that coins sold directly to institutional investors are considered securities and those sold through secondary market transactions to retail investors are not.“
United States Southern District of New York District Judge