Is it over for Binance?

Thoughts of the Day

Binance, the world’s largest cryptocurrency exchange, pleaded guilty to violating US anti-money laundering regulations and agreed to a $4.3 billion fine. CEO ChangPeng Zhao stepped down. Although BTC and ETH both dropped nearly 5% on the day, the long-term outlook is positive, because this removes the risk of more severe punishments that could force binance into shutting down and promotes more transparency which is necessary for mainstream adoption of a new asset class.

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Day Ahead

The revised print for the University of Michigan Consumer Sentiment (60.5 exp, 63.8 prev) and inflation expectations for the year ahead (4.4% exp, 4.2% prev) will be released.

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What Happened Yesterday

  • The Canadian Consumer Price Index showed that prices rose +3.1% Year-on-Year in October (vs +3.2% expected), down from +3.8% in September. The core index rose +2.7% YoY, slightly lower than the previous print of +2.8%. The result was softer than the Bank of Canada’s forecast that inflation is likely to remain close to 3.5% through the middle of next year. Reaction by the CAD was muted.
  • The meeting minutes for the Federal Reserve October Meeting detailed that the Federal Reserve is in a position to proceed carefully. It also mentioned that further tightening of monetary policy would be appropriate if incoming information indicated that progress toward the Committee’s inflation objective was insufficient. With regard to rate cuts, the minutes mentioned that policy will need to stay “restrictive” until data shows inflation is on a convincing trek back to the central bank’s 2% goal.
  • The US Treasury Yield curve inversion narrowed slightly to 0.45% as the US 2-year bond yield fell -0.03% to 4.86% while the US 10-year bond yield fell -0.01% to 4.41%.
  • The US stock futures started the Asian trading session with muted price action before experiencing slight weakness as the day progressed. The weakness then continued through the London hours before the New York session began. The S&P 500 futures were down -0.26% before the New York open.
  • The US stock market opened lower from Monday. It then experienced slight weakness following the dismal US Home Sales numbers (3.79 million vs 3.9 million expected and 3.95 million prev) before erasing the losses and trading sideways through the rest of the session. Consequently, the S&P 500 closed -0.20% lower (high: -0.12%, low: -0.48%), the Dow Jones fell -0.18% (high: -0.09%, low: -0.32%) while the Nasdaq sank -0.58% (high: -0.37%, low: -1.00%).
  • [Earnings] Nvidia (NASDAQ: NVDA, -0.92% on the day, -1.74% aftermarket), Earnings: $4.02 vs $3.37 expected, Revenue: $18.12 billion vs $16.18 billion expected. Despite surpassing analysts’ projections, there was an underperformance in the stock price due to lower projections following the export restrictions of AI chips to China
  • The crypto market saw weakness after Binance reached a settlement with the US Department of Justice and agreed to pay a record $4.3 billion for its wrongdoings (see headline 1). Bitcoin fell -4.56% while Ether fell -4.37% on the day.
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Headlines & Market Impact

Crypto prices fall as Binance chief pleads guilty to DOJ charges

Notable Snippet: Cryptocurrencies fell Tuesday after Binance founder and CEO Changpeng Zhao, also known as “CZ,” pleaded guilty to criminal charges brought by the U.S. Department of Justice.

“It’s hard to see Binance losing its dominance, but this will certainly create room for newer players to fill any void,” he added.

Under the agreement, Zhao will pay a $50 million fine and step down as chief executive.

In a separate action, Binance agreed to plead guilty to violations of the Bank Secrecy Act, knowingly failing to register as a money transmitting business and violating the International Emergency Economic Powers Act. The company is required by the DOJ to pay $4.3 billion in penalties and forfeitures.

The actions against Binance and its founder were a joint effort by the DOJ, the Commodity Futures Trading Commission and the Treasury Department. The Securities and Exchange Commission was noticeably absent.

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Japan cuts view on economy for first time in 10 months

Notable Snippet: Japan’s government on Wednesday slashed its view on the economy for November in its first such downgrade in 10 months, as weak demand weighed on capital spending and consumer expenditure.

Authorities also cut their view on capital expenditure for the first time since December 2021, saying the pace of recovery was “pausing”.

The new assessment by the Cabinet Office came after data last week showed the economy shrank in July-September for the first time in three quarters as demand waned.

“The economy is recovering moderately, although some areas showed stalemate recently,” said the report issued by the Cabinet Office on Wednesday. It was the first time the government has cut its view on the overall economy since January.

“While business conditions and firms’ earnings continue to improve, the strength of the corporate sector is not necessarily translating into wages and investment,” an official at the Cabinet Office said.

“Domestic demand such as corporate investment and consumer spending lack strength,” he said.

Although the government retained its assessment that consumer expenditure was “picking up” in November, inflation squeezed consumer goods spending, while spending on services such as eating out maintained an uptrend.

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US retailers brace for a tough holiday season despite discounts

Notable Snippet: U.S. retailers across apparel, electronics and home improvement are bracing for a challenging holiday season, a sign that higher discounts might not spark the level of spending the companies are hoping for during their most important period of the year.

Economic demand in the United States has slowed, as October’s retail sales figures showed. Numerous retailers said on Tuesday that holiday outlook is mixed after a choppy start to the fourth quarter, when most Americans gear up for Christmas shopping.

Retailers plan to lean on competitive promotions and kicked off holiday deals early to motivate customers to open up their wallets during the Thanksgiving weekend.

However, home improvement retailer Lowe’s (LOW.N), electronics retailer Best Buy (BBY.N) and department store chain Kohl’s (KSS.N) all said sales at stores open at least a year were lower in the most recent quarter, and cut their sales forecasts for the year.

“In the more recent macro environment, consumer demand has been even more uneven and difficult to predict,” Best Buy CEO Corie Barry said.

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Best,
Phan Vee Leung
CIO & Founder, TrackRecord