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US Awaits Recession While Bitcoin Becomes the Last Resort

What happened this week?

The trade-war worries affected the financial markets on Wednesday, while stocks and commodities tumbled in Europe and the United States. Equities declined more than 1% in the United States after the S&P 500 Index fell 2.93%, the NASDAQ shed 3%, and the Dow Jones tumbled over 3%.

Investors shifted towards the safety of government bonds. Yields on 10-year US treasury bonds inverted against the 2-year yield for the first time since 2007, prior to the Great Recession.

Source: Commercial Loan Direct

30-year treasuries dropped below 2% for the first time, signaling a recession as a sign of how nervous investors are about the immediate outlook for the economy. When shorter-term rates are higher than the longer-term bond yields, an inverted yield curve is formed. The inverted yield curve is a reflection of the investors’ view of the US economy. Treasury yield curve inversions often indicate that the US recessions and bear markets are on their way.

Tom Essaye, the founder of The Sevens Report, noted to clients:

“Historically speaking, the inversion of that benchmark yield curve measure means that we now must expect a recession anywhere from six-to-18 months from today.”

While investors have been continually investing in bonds despite being promised a tiny rate in return, long-term yields are negative in Japan and Germany. The global economy has mirrored the fears of a slump in the United States, notably given the trade war with China.

Bitcoin becoming the last resort in Argentina and Hong Kong

Turmoil in Argentina and Hong Kong encouraged local investors to pay a premium for Bitcoin. As the peso took a dive due to election uncertainty, Bitcoin was trading at a 10% surge on the peer-to-peer platform, LocalBitcoins.com compared to international cryptocurrency exchanges.

Bitcoin was trading at a 4% premium in Hong Kong as anti-government protestors have been clashing with the riot police. Since the protests began in June, the Hong Kong stock market has been seeing losses of up to 15%.

Rayne Steinberg, CEO of Los Angeles based crypto hedge fund, Arca noted:

“Bitcoin is becoming the asset of last resort in areas of extreme currency devaluation and political uncertainty. In the last week alone, Bitcoin is up approximately 50% against the Argentine peso and trading at a significant premium on local exchanges. And they are not alone, joining the ranks of Venezuela, Hong Kong and Turkey who have also experienced similar shocks.”

The price of Bitcoin was expected at a surge due to the inverted yield curve along with the premiums in Argentina and Hong Kong. However, this was not observed in the crypto market. A possible reason explained by Igor Chugunov, CEO of Credits Blockchain, was that the Chinese found crypto to be a safe haven but have since been leaving since trade tensions have loosened.

Image via Shutterstock

eToro's Survey Reveals 40% of Millennials Could Favor Crypto Investment In Recession

eToro, a Cyprus based multi-asset and social trading brokerage company, recently surveyed American investors about their concerns about how their portfolios could be affected by the US-China trade war and conflicts with Mexico.

Two-thirds of the respondents asserted that they were worried about a looming recession. As a result, they were weighing options on transferring their assets to various safe-havens, such as cryptocurrency.

Hedging risks are always in the mindset of any investor. Notably, those surveyed from America are not an exemption as they are searching for alternatives to realize this objective. The eToro survey revealed that 40% of millennials (individuals born between 1980 and 1994) favored cryptocurrencies.

Conversely, investors from Generation X (people born between 1965 and 1979) affirmed that they preferred spending on goods, whereas their Generation Z counterparts (from 1995 to present) preferred real estate investment.

Guy Hirsch, eToro’s USA Executive Director, asserts:

“We believe that if a recession were to occur, we’d see shrinking stock portfolios and growth in other asset classes like crypto, as well as new fractional ownership models. Historically, these investment opportunities have been limited to high net worth and institutional investors, but innovation is unlocking these opportunities for everyday investors and clearly, these results indicate that the demand is there.”

Notably, at least 1000 investors were involved in the survey. Cryptocurrencies, such as Bitcoin, have been favored as being considerable hedges against worldwide risks instigated by the US-China trade war.

Some pundits have asserted that an escalation of this issue will push cryptocurrency adoption at an alarming rate. Expressly, this is happening as the IMF chief, Christine Lagarde, recently proclaimed that cryptocurrencies should be given more room to grow.

Image via Finance Magnates

Is Bitcoin’s True Power Being Revealed as COVID-19 Market Crisis Sends Oil Futures Price Below Zero?

As WTI crude oil futures plummeted into negative territory, Bitcoin hardly seemed to notice, recording only a minor correction and dipping under 7k.

Is Bitcoin starting to reveal its true potential as a safe haven asset? While the pioneer crypto lost relatively little value could it be too early to tell and is the Bitcoin price soon to be in danger? It may also be possible that fewer BTC holders are willing to part with the potential safe haven value store given the current COVID economic downturn. If the shock crude oil crash does not demonstrate a potential weakness in the structure of our global economy and a need for an asset with the promise of Bitcoin, then frankly nothing will.

The sell-off appeared to be mainly attributed to the impending expiration of the the May 2020 Futures contract for West Texas Intermediate (WTI). The expiration of these May contracts force the handover of physical barrels of oil at a time when storage capacity is critically low. According to data from Bloomberg, on April 20, futures for a barrel of WTI crude oil expiring in May lost 36% on Monday.

Source : WTI May futures – Trading View

The sell off continued and at its worst the crude oil price stopped just shy of negative $40 dollars with the contracts finally settling on -$37.63%, a whopping -305% decline which is unheard of in the history of WTI crude oil futures.

The shock crash is indicative of just how much oil demand has collapsed due to the COVID-19 pandemic lockdown which has not been further helped by the ongoing oil price war between Russia, Saudi Arabia and Mexico. As there seems to be no end immediately in sight to the pandemic, the financial community is growing concerned that we may see a repeat of this price action with June crude oil futures.

Oil Plummets, Bitcoin Hiccups

As the crude oil futures plummetted, Bitcoin appeared to be almost at business as usual. Bitcoin which had been experiencing a bullish recovery from its initial fall and was sitting at around $7,200 prior to the crash, in the immediate 24 hours after, the price dropped nearly 5% and currently sits at around $6900 – which is a very small movement in the world of Bitcoin.

Source – CoinMarketCap

Are Bitcoiner’s Safe in their Harbour?

Bitcoin was built in reaction to a broken global economic system. It was designed as an alternative to traditional state-controlled financial currencies and markets. That’s why many have thought for the last 10 years that the Bitcoin price would shoot up if the stock market were to crash.

However, almost as soon as the US stock markets started to crash in February, the price of Bitcoin showed very strong market correlation and also declined. The Bitcoin price halved from around $10,000 to $5,000 in a matter of weeks, shedding thousands of dollars in just a few days. This proves that the first move of many investors wasn’t to rush to trade their stocks for Bitcoin. It was to trade their Bitcoin for US dollars and stablecoins.

Oil’s price action is a testament to the instability of the legacy market infrastructure prevalent in the global economy unable to balance the fundamentals of supply and demand. Bitcoin, however, which continues to dance in and around these traditional markets, held in price against the shocking decline of demand for black gold which has breathed new life into its potential safe-haven status.

While BTC’s movement remains on track to make its post halving bull run seemingly undeterred by the oil crash, the truth is it is just far too early to make a call on its ability to act as value store that will survive through the pandemic crisis.

Another potential issue that hardcore Bitcoiner’s do not appear to be recognizing is that bringing new blood to the market will not be as easy as continually pointing out the failures of our system. Essentially, Bitcoin will only be recognised as a safe haven when its market action reflects this through holdings by investors, but why would these investors suddenly turn to a nascent technology that they hardly understand in the middle of COVID chaos, while in reality, traditional safe-haven Gold is now performing as expected?It may be too early to tell if Bitcoin has gotten away clean from this latest incident in the rising global financial crisis brought on by the COVID-19 pandemic, and it’s still far too early to speculate if it will prevail as a safe haven.

World Economic Forum Warns Leaders to Brace for Long-Lasting Global Recession as Cybercrimes Surge

The World Economic Forum (WEF) suggested that leaders around the world need to do more to ensure a quicker and more sustainable recovery for the global economy caused by the COVID-19 pandemic.

Amongst the 350 top risk professionals in the world surveyed, these risk managers expect a prolonged global recession, as a number of areas of concern were identified in the report compiled by the Forum’s Global Risks Advisory Board, Marsh & McLennan Companies Inc, and Zurich Insurance Group.

Half of the respondents expressed expected bankruptcies and industry consolidation, and failure of industries to recover, and a disruption of supply chains. The World Economic Forum published a report on the importance of blockchain in supply chain disruption amid the pandemic.

Saadia Zahidi, Managing Director of the World Economic Forum said, “The crisis has devastated lives and livelihoods. It has triggered an economic crisis with far-reaching implications and revealed the inadequacies of the past.”

With the onset of the new infectious disease, cybercrimes and the breakdown of IT infrastructure and networks have taken a swerve for the worst. The Forum concluded that around 500 million people would be at risk of falling into poverty, an anticipated fall of 13 to 32 percent in global trade, and a 1 percent of increase in unemployment, which could result in a 2 percent increase in chronic illness.

Levels of unemployment continue to grow, especially in the younger cohort, a lack of progress in reducing carbon emissions are also possible side effects of the pandemic as well. The US federal authorities found that a group of international fraudsters may have been attacking the US unemployment systems, funneling millions of dollars in payments that were intended to support those who were affected economically by COVID-19.

The Forum’s take on blockchain and digitization to address supply chain disruption

The World Economic Forum recently published a new blockchain deployment toolkit aimed to help governments, major institutions, and companies of any size to be able to maximize the benefits of integrating blockchain technology in the supply chain sector. The Forum also highlighted the importance of blockchain for addressing the disruption of supply chain caused by the COVID-19 pandemic.

The toolkit was tested by businesses for a period of time, to make sure it is user-friendly and can have an impact on companies in the future. Nadia Hewett, Blockchain Lead at the World Economic Forum said, “Not only are we now providing the toolkit and all the lessons in subsequent COVID blockchain activities to our partners, governments and private sector; while we developed the toolkit and other ongoing projects, we brought in partners to help co-create and design it with a user-centric approach in mind.”

The World Economic Forum believes with the accelerated release of the blockchain deployment toolkit will also help with the economic recovery post-pandemic. Hewett says that many countries will rely on digitization for its economic recovery, as digitization for trade could act as a way to reduce trade barriers, given all the geopolitical issues.

Feds suspect fraudsters attacked US unemployment systems costing millions

With the number of infections in the US growing at an appalling rate, so far, 1.5 million American citizens have been infected, with over 90,000 related deaths. The unemployment crisis in the country has surpassed the rate since the Great Depression, as the official US unemployment rate is at its highest in recorded history, at an alarming 14.7 percent.

The New York Times obtained a memo from the US Secret Service, indicating that the fraud scheme was coming from a “well-organized Nigerian fraud ring,” and could result in the loss of hundreds of millions of dollars in the American financial system.

These fraudsters may have leveraged detailed information about US citizens, including social security numbers, which have been obtained from previous cyber attacks. The attackers have also filed claims on behalf of people who have not been laid off, according to officials.

Risks of UK supply chains ahead of Brexit

Ahead of Brexit, the British are facing issues in disrupted supply chains due to the coronavirus pandemic. With just seven months to go before Brexit takes place, 82 percent of small to medium-sized manufacturers say that the COVID-19 pandemic has affected their supply chains.

Image via Shutterstock

Opinion: How Bitcoin Options Might Help Survival amid the Bear Market?

The Federal Reserve is raising interest rates at the most aggressive rate in nearly 30 years. With inflation at an all-time high and a looming recession, protecting capital is at the forefront of every investor’s mind.

Cash and government bonds were once safe assets during bear markets, but with inflation running amok and central banks struggling to stabilize bond yield curves, these traditional safe havens are looking shaky.

Options contracts can be a good way to hedge some of your risks, as they give you the right, but not the obligation, to trade an asset in the future at a predetermined price. A call option is the right to buy, and a put option is the right to sell.

There are two styles of options contracts. A trader using American-style options can exercise his or her contract at any point during the lifetime of the contract, whereas European-style options can only be executed only at the expiry date.

If it is not profitable to exercise your put or call option at the date of expiry, you can let it expire and take no action. In this scenario, your cost is limited to the amount of money you paid for the options contract when you bought it.

Multiple trading strategies use options contracts. But in this article, I’d like to share some approachable strategies that allow a certain amount of protection without needing to sell your assets.

Let’s take Bitcoin as the underlying asset. If you buy a put option at a strike price equal to or higher than the current price, it gains value as Bitcoin moves lower.

So, if your Bitcoin is in the red, your options contract will be green. And, if the market trends higher, nullifying your option, then Bitcoin will have appreciated covering some of the cost of the contract.

This strategy is best suited to traders who hold Bitcoin as long-term investments and do not wish to sell. This allows them to avoid a worst-case scenario: cascading liquidations that drag Bitcoin down dramatically. Buying a put is like buying insurance for downside risk.

So, if you suspect a further leg down is on the horizon, you can buy a put option as a type of insurance that pays out should the market move lower. Timing is crucial, especially during a bear market.

For example, if you believe the market will trend lower very quickly in the following days, buying a put may well be worth the initial investment, but if the market moves down slowly. You may not be able to recover the premium you paid to buy the put option. The same principle applies to call options as well.

Another popular use of options contracts is selling call options while holding the underlying asset. You can be paid immediately by selling a call option to another party, giving them the right to buy your Bitcoin should the price increase to or beyond a certain amount.

For example, if you sell a call option agreeing to sell 1 BTC at $30,000, you collect the price of that contract — the premium — right away, which acts as a hedge against the downside. Your only risk would be missing out on any gains beyond the strike price, which would be owned by the buyer of the option.

If Bitcoin doesn’t hit the strike price, then the option expires, and you keep the premium. The main risk with this strategy is that the underlying price of Bitcoin falls in the interim.

The bear market affecting crypto and other capital markets is a time to protect capital, so when the good times return, there will be plenty of opportunities to reallocate. Bitcoin price could whipsaw traders in troubled times. By using the options hedge, you can create a more robust portfolio while still HODLing your Bitcoin stack.

To Avoid a Global Recession the Fed Should Ease Interest Rate Hikes – UN Report

Caution should not be thrown to the wind when it comes to tightening fiscal and monetary policies because this could trigger a global recession, according to a UN agency report.

The Trade and Development Report 2022 by the United Nations Conference on Trade and Development (UNCTAD) highlighted:

“The world is headed towards a global recession and prolonged stagnation unless we quickly change the current policy course of monetary and fiscal tightening in advanced economies.”

The Federal Reserve (Fed) has been setting the ball rolling in terms of interest rate hikes, which have been detrimental to the crypto market as bears continue to bite.

Since June this year, the Fed has adopted the strategy of increasing interest rates by 75 basis points (bps), a scenario last seen in 1994.

Market analyst Michael van de Poppe recently pointed out that the situation had become dire to the extent that the crypto market is positively skewed towards the decisions made at the federal open market committee (FOMC) meetings.

Sam Bankman-Fried, the CEO of crypto exchange FTX, also noted that despite the federal reserve being caught between a rock and a hard place, it was driving the current crypto downturn because both markets and people were scared.

Therefore, the interest rate hike trend has made UNCTAD concerned since tightened macroeconomic conditions affect the most vulnerable. Per the report:

“All regions will be affected, but alarm bells are ringing most for developing countries, many of which are edging closer to debt default.”

UNCTAD stated that raising interest rates sharply would make life harder for heavily indebted governments, households, and firms. Moreover, growth would be slashed altogether.

“There is still time to step back from the edge of recession. The current course of action is hurting the most vulnerable. This is a matter of policy choices and political will,” UNCTAD Secretary-General Rebeca Grynspan added.