Bitcoin was still making headlines as the weekend melted into Monday.
There was no evidence to suggest the volatility that gripped the cryptoverse last week was set to abate.
News that crypto exchange Huobi is scaling back and/or suspending a hodgepodge of services and products introduced yet another irritant into an already fraught situation. According to Coindesk, “the exchange’s pullback… includes suspending some futures contract trading, leveraged investment products [and] exchange-traded products” and also “affects miner hosting services in mainland China.”
The market interpreted that as evidence that Beijing’s renewed crackdown is already having an impact. A pair of declarations emanating from Chinese authorities exacerbated last week’s tumult. A VIX-like measure for Bitcoin is now closing in on a record high (figure below).
Notably, 30-day historical vol is higher for Bitcoin than lumber futures, if that tells you anything.
“It’s hardly a surprise that China, home to many of the world’s crypto miners, would take action since Bitcoin and its peers represent everything that Beijing is against,” Bloomberg’s Ye Xie wrote. “They’re blamed for wasting energy, increasing social inequity, endangering financial stability and thwarting government controls.”
Some blame the Colonial Pipeline hack for crypto’s recent trials and tribulations. Take Hu Gang, managing partner at Winshore Capital Partners, for example. The same Bloomberg recap cited Hu, who characterized the Colonial incident as “a terrorist attack… funded by Bitcoin” which he called “a scalable solution to dark forces [which] has to die.” Beijing, Hu said, agrees with that assessment. Rabobank’s Michael Every expressed similar sentiments earlier this month, although he didn’t use the term “dark forces.”
Speaking of “dark forces,” this week’s data docket stateside includes PCE. It’s possible the inflation debate will now unfold with an even greater sense of urgency given the nod to tapering in the April Fed minutes.
“10-year real yields rose by about 4bps following the minutes, with a commensurate drop in 10-year breakevens, tying in with our view that breakevens are more ‘fully priced’ to our economic outlook than real yields are,” Goldman’s Praveen Korapaty remarked, before noting that the bank did “acknowledge the possibility that markets require more inflation risk premium in a period of elevated inflation prints.” Breakevens fell the most last week since September.
Generally speaking, “nobody knows” is still the best way to describe the outlook for inflation and rates. It’s basically suspended animation until a few more NFP prints are on the books.
“Going forward, steady improvements in growth and employment would support our expectation of a gradual rise in yields, though bond volatility is likely to persist,” SocGen’s rates team said late last week. “While we expect volatility around taper communications, the tapering itself is likely to be gradual.”
Commenting Sunday evening on the crypto drama, JonesTrading’s Mike O’Rourke (correctly) called the Chinese government “one of the most powerful entities in the world.” If Beijing “actually follows through” on promises to crack down on Bitcoin, “it would have greater ramifications than US regulation,” O’Rourke wrote.
JPMorgan’s John Normand, meanwhile, is apparently leaving the bank. He penned one final note to clients on Friday. “If I had to avoid any of the very expensive markets now, it would be cryptocurrencies,” he said.
