Crypto-haters - Rise of the Luddites?
Abraham George Macro Musings
I have not been that regular with my writings but there is a lot happening that is not openly discussed in the media.
I’d discussed much earlier that the Fed Chairman will give a report around this time regarding the viability of a central bank digital currency (CBDC). Later, Jay Powell backed it up by saying that the speech will be in September.
This report will be very important! Firstly, the way Bitcoin is becoming influential and gaining ‘mainstream mind-share’ is irritating many of the politos and bureaucrats. There are three ladies in the current administration who are very powerful and have the ears of the President. And all three are unabashedly anti-cryptocurrencies. Elizabeth Warren, Janet Yellen and Nancy Pelosi. Talking to them about blockchain and cryptos will be like asking your mother’s and your aunt’s opinion about these new technological developments.
Elizabeth Warren stands out in particular. She never wastes any opportunity to disparage cryptos. Digital currency already exists. So if they want to kill the threat of cryptos like Bitcoin, it is important that the Fed adopts sooner to a digital currency. China is far ahead of US in this space. One Fed Governor has called it a ‘solution in search of a problem’. It is more likely that Powell will keep his job if his report favors the adoption of a digital dollar. If it doesn’t, the Biden administration will look for a new Fed Chairman.
Secondly, we are less than a week away from a Fed meeting . The expectations are that the Fed will lay out a game plan to begin dialing down QE. The taper in itself should not have much of an impact for the markets as the Fed Chairman has been preparing the markets for a long time. Think the first step towards the taper will be in Nov but will the Fed stay the course? That’s the million dollar question. Should they see big upheavals in the equity markets, I am sure they will go back to the drawing boards like many other times they have done in the past.
Yesterday stocks came back fairly aggressively. Rates were up too and so was commodities. But in commodities it is important to look what’s happening to the energy sector.
After almost a 20% correction, oil and natural gas are on the move again. As I have been arguing ever since the new administration came to power, the determination to kill fossil fuels in the name of climate action only builds a moat around the existing producers. And that ensures much higher prices for oil but a much bigger turnaround in oil could be on the cards if we see a top in equities as well.
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Abraham George is a seasoned investment manager with more than 40 years of experience in trading & investment and portfolio management spanning diverse environments like banks (HSBC, ADCB), sovereign wealth fund (ADIA), a royal family office and a hedge fund.