Dripping machine slams BTC

By Marius-Cristian Frunza
Weekly Briefs

What was Bitcoin’s original purpose? Why has Satoshi created a decentralised currency? Bitcoin was aiming to democratise finance. Bitcoin was supposed to unleash money from the grip of governments, banks and taxes. The idea worked well until the coin that supposedly brought freedom and democracy started to rely on infrastructure based in a totalitarian country. Does the Chinese monopoly on mining constitute a danger to Bitcoin’s future?

The answer is affirmative. China harbours more than 75% of Bitcoin’s mining capacity.  This figure is plunging amid a massive Bitcoin crackdown of Chinese authorities. Over the last week, Chinese authorities from the hydropower-rich Sichuan province ordered crypto miners to shut down operations. Thus, many miners are moving overseas, to countries like Kyrgyzstan or are selling their operations.   This is not a point-in-time action and Beijing had a series of crackdowns on the cryptocurrency sector since last March. Bitcoin price lost over 50% since spring and plunged last week below the 30,000 USD mark.

Bitcoin has quickly become a ground of geopolitical battle. The tensions between China and the US have direct consequences upon the leading cryptocurrency. So, could this be a massive market manipulation orchestrated by Chinese authorities? Beijing has no long term interest in crushing Bitcoin. All these actions could be very well part of a strategy of price manipulation. China’s policies are currently the leading driver for Bitcoin’s price. Thus, the price decline is gradual, as many investors hope that the current situation is transitory.

The bottom line is that China is Bitcoin’s Achilles heel.  Having most mining controlled by a totalitarian country cannot guarantee in any way, shape or form the democratisation of finance.

The Chinese use two brush strokes to write the word 'crisis'. One brush stroke stands for danger; the other for opportunity. In a crisis, be aware of the danger–but recognize the opportunity. John F Kennedy, the 35th president of the United States

Market overview

NASDAQ, the leading technology stock index, hit another all-time high lifted by Big Tech shares, including Microsoft and Amazon. Meanwhile, the volatility index set a new record low for the current year, reaching pre-pandemic levels. Finally, Federal Reserve Chair Jerome Powell gave a speech on Tuesday that seemed to reassure the markets.

Powell said that the U.S. central bank aims to support the recovery of the job market and not raise interest rates driven solely by the fear of foreseeable inflation. He also pointed out that price inflation should be transitory and is currently generated by several products, including used vehicles directly affected by the reopening of the economy. Powell also said that the workforce shortage is not structural and that he “strongly suspects that labour supply and job creation will be moving up well over the rest of the year”.

Powell gave the impression that in the eventuality of persistent inflation, the Federal Reserve would not hesitate to increase rates.

Forex:

The US Dollar on the edge

The EUR/USD rate dropped significantly over the past ten days below the 1.2 mark. European Central Bank President Christine Lagarde underlined in a conference last week that the outlook for the Eurozone is more robust than expected as the pandemic situation improves. She confirmed that there would be no change in the monetary policy in the foreseeable future. As a result, the Euro has slightly gained momentum ahead of the weekend.

The ECB and the Federal Reserve could enter a tactical game anticipating a rise in interest rates. Investors may be keen on high-yield currencies, with the stock market having less traction than last year. Who will be the first to make a move?

Focus:

Tesla

Tesla’s share soared again this week amid an overall positive market trend. Panasonic, the Japanese conglomerate which had a 5 billion USD joint battery manufacturing venture with Tesla in Nevada, sold its entire stake for 3.6 billion USD. This event seemed to have positively impacted the world’s leading car manufacturer. The second-quarter deliveries should be published over the next week. It will be a make or break point for Tesla’s share price. If the number of delivered vehicles is below expectations (cc. 200,000), then investors should have serious questions about the viability of Musk’s enterprise.

Commodities:

Wheat

While the fear of persistent hyperinflation spread across all markets, the price of American wheat entered since early June into negative territory. The International Grains Council (IGC) predicts an increase in global grain supply in 2021/22 of 2,301Mt, thereby establishing a surplus record since 2016/2017. The harvest in Russia, the EU and Ukraine seem promising, thereby contributing to a net global excess. The glut across several regions should make grain prices less dependent on the freight and oil market.

Market outlook

The Dow Jones soared over the past week above  34,300.  The volatility is currently at a low level, and the likelihood of a significant correction in the short term seems lower. Nevertheless, all bets on a further rally could put investors in a risky spot.

The world’s leading cryptocurrency continued its descent, and all eyes are on Chinese authorities that seem to dismantle all domestic mining activities. This is not the end of the bearish cycle, and for the moment, there are no signs of an exit from this zone of turbulence.

General Disclaimer

The information and data published in this research were prepared by the market research department of Darqube Ltd. Publications and reports of our research department are provided for information purposes only. Market data and figures are indicative and Darqube Ltd does not trade any financial instrument or offer investment recommendations and decision of any type. The information and analysis contained in this report has been prepared from sources that our research department believes to be objective, transparent and robust.