Crypto is under pressure

Thoughts of the Day

Bitcoin has broken below the 56,500, the low marked in early May. That was the level that BTC bounced off and promptly tested above 71,000 3 weeks later. Since then, it has struggled and has been drifting lower since early June. 

It is now trading at 55,300, the lowest level since Feb. This is especially worrying when US stocks, as measured by the S&P500 and Nasdaq indices, are trading close to all-time highs. This means that cryptocurrencies are selling off although risk sentiment is strong. 

News that creditors of now-defunct crypto exchange, Mt. Gox, will be receiving their BTC that has been recovered but stuck in legal proceedings for years is also weighing on the market as there could be up to US$9 billion worth of BTC that could be sold in the weeks ahead. 

If the price does not stabilise soon, BTC is likely to test below $50K in the days ahead.

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Tradertainment

Why AI may fail to unlock the productivity puzzle


Ancient Babylonians, for example, were no slouches when it came to predicting astronomical phenomena. Yet they never developed an understanding of the laws of physics that explain why these events occur. It was only with the discovery of the scientific method — constructing explanatory theories and subjecting them to experimental tests — that scientists began to grasp how the universe works. It is that ability to understand as well as predict that enables modern scientists to land a man on the moon – a feat of which their Babylonian ancestors could only dream.

AI models are digital Babylonians, rather than automated Einsteins. They have revolutionised the ability of computers to identify useful patterns in huge datasets, but they are incapable of developing the causal theories needed for new scientific discoveries.

“Data do not understand cause and effect: humans do.” Without causal reasoning, AI’s predictive genius will not be making human scientists redundant.

This argument is based on the reasoning that humans will never decipher the black box findings of AI once discoveries are made. However, we have to remember that AI will free up copious amounts of time that humans will have needed to make such discoveries, allowing us to think about the why instead. As the world continues to underestimate the potential impact of AI, the sector will just continue to grow relentlessly.

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Day Ahead

  • [US Labour] Non Farm Payrolls: +180k expected vs +272k prev, Unemployment Rate: 4% expected and prev, Average Hourly Earnings: +0.3% Month-on-Month expected vs +0.4% prev
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What Happened Yesterday

Market Movements as of New York Close 4 Jul 24
  • The ECB Monetary Policy Meeting Accounts mentioned that the fading impact of restrictive monetary policy had less effect on the services sector. Also, it noted that the labour market remained robust, and projections assumed energy and food inflation would decrease. Wages were rising strongly, and there were differing views on the balance of risks. More time is needed to understand key inflation drivers. Delays in bringing inflation to target could complicate anchoring future inflation expectations. Reaction in the EURUSD was muted.
  • The US stock and bond markets were closed due to the US Independence Day Holiday.
  • The crypto market continues to trade weak with Bitcoin down -5.18% and Ether down -7.11%.
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Headlines & Market Impact

China faces economic headwinds as it grapples with an ageing — and shrinking — population

Notable Snippet: “The working age population [in China] will fall so rapidly over the next decade, that the Chinese economy will need to deal with 1% drag in GDP growth per year for next 10 years,” Darren Tay, head of Asia country risk at BMI Country Risk & Industry Analysis, told “Squawk Box Asia” in June, referring to estimates gathered by evaluating world population data released by the United Nations.

“The fiscal strain as a result of ageing is immediate and concerning,” the Economist Intelligence Unit has warned.

“Economic growth hinges on productivity, capital accumulation and labour inputs. The negative effect of an adverse demographic landscape will manifest primarily through a shrinking workforce,” according to the report published in January.

China’s population fell for a second consecutive year in 2023 to 1.409 billion people — dropping by 2.08 million from the previous year, according to data from the National Bureau of Statistics of China.

That’s more than the population decline of about 850,000 in 2022 — the first year deaths outnumbered births in the country since the early 1960s during the Great Famine.

“This is a consequence of the one-child policy [set] in place [in] the 1980s,” Erica Tay, director of macro research at Maybank, told CNBC.

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Firms weigh removing Taiwan staff from China after death penalty threat, Reuters reports

Notable Snippet: Some foreign companies are considering moving Taiwanese employees out of China after Beijing said it could impose the death penalty on “diehard” Taiwan independence separatists, said four people familiar with the matter.

The new guidelines have caused some Taiwanese expatriates and foreign multinationals operating in China to scramble to assess their legal risks and exposure, said the people, who include a lawyer and two executives with direct knowledge of the discussions.

“Several companies have come to us to assess the risks to their personnel,” said the lawyer, James Zimmerman, a Beijing-based partner at the Perkins Coie law firm. He declined to identify the companies or industries for confidentiality reasons.

“The companies are still concerned that there may be some grey areas such as whether a benign social media post or voting for a particular political party or candidate in Taiwan elections could be interpreted as engaging in pro-independence activities,” Zimmerman said.

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Mt Gox moves nearly 47,229 BTC ahead of $9 billion payout

Notable Snippet: Collapsed cryptocurrency exchange Mt Gox moved over 47,000 

 BTC -6.10% to another wallet late evening on Thursday, according to Arkham Intelligence. This comes ahead of its impending $9 billion worth of bitcoin repayment to creditors.

One of Mt Gox’s three wallets that held significant portions of funds sent around 47,228.7 BTC (about $2.71 billion) to a wallet address that ends with “6onk.” Early on Thursday morning, a number of Mt Gox wallets were involved in two small transactions across a few hours, the largest being $24 worth of bitcoin.

In late June, the defunct bitcoin exchange announced that it would begin distributing over $9 billion worth of funds in bitcoin, bitcoin cash and fiat currency to its creditors in early July.

“This significant payout, amounting to US$9 billion, is expected to add substantial selling pressure as the market absorbs the additional supply,” BTC Markets’ Crypto Analyst Rachael Lucas told The Block on Thursday.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord