When will the Everything Bubble start inflating again?

Lines Drawn


The news from Planet Ruby—Friday, May 10, 2024

  • Signal: Liquidity
  • Noise: Politicians

It's a mixed picture in TradFi, as the correction from the recent market highs plays out. The DXY has bounced, after spiking down to 104.5 on Friday. It remains below the 106 level (just above 105 at the time of writing). Moving back above 106 could signal further downward pressure on risk assets. For now, the trend is unclear.

The S&P heading back up towards all-time highs, closing in on 5200, though a stronger dollar could be a headwind if the DXY doesn't roll over soon.

A big factor now in play could be the collapse of Japan's currency, which hit 160 yen/USD at the end of April. It dipped 5% following intervention by the Bank of Japan, but is now heading back to levels not seen since 1990.

Yen/USD, TradingView
The US may be forced to intervene to stabilize the yen.

This is a problem for the US, since Japan's foreign reserves consist almost entirely of US Treasuries, and it will start dumping them if the slide continues. Per ZeroHedge, "The Japanese may well be caught in a doom loop, where they need to sell more foreign reserves to prop up the currency, which cause US yields to rise, which causes the Yen to weaken further and so on."

What can the US do?

Bail out Japan, of course. The Fed is reportedly set to open a huge swap line with the BoJ: Essentially an agreement to buy a certain amount of their currency, to help stabilize its value. This necessarily entails a large amount of dollars (many tens of billions per month) entering the markets, and hence one side effect is that this would serve a similar role as cutting interest rates.

Bitcoin Stumbles, Recovers...

The stage is set for bitcoin, which responds promptly to global liquidity changes. For now, after an impressive recovery last week above key levels, bitcoin has faltered and headed back lower. It has recovered somewhat since tapping $61k yesterday, potentially putting in a higher low (to be confirmed).

The range has been established for this correction, which is now about to enter its third month. Nonetheless, there's room for more pain ahead and this phase of the market could end with another spike downwards.

ETF flows have been mixed, with some positive and some negative days. GBTC actually saw its first ever inflows last Friday and on Monday, which is hard to explain. Perhaps Grayscale are just advertising hard and a bunch of people didn't know there were better alternatives.

Sentiment and volumes are promisingly low (if you are a contrarian). If we had to stake our reputation on it, we'd say we were much closer to the end of this correction than to the beginning.

Battle Lines Drawn

In the US, the clear political divide regarding crypto is crystallizing further. The Biden administration has threatened to veto legislation that would allow banks to custody crypto, claiming it could disrupt the SEC’s work to protect investors.

Meanwhile, Donald Trump has gone on the record saying he will be friendly to crypto businesses if he is elected again. The division couldn't be more stark.

Until then, the SEC is free to continue its games. The agency has issued a Wells Notice (warning of pending enforcement) to Robinhood, despite their strenuous efforts to maintain compliance. At this point, the SEC looks like it's completely off the rails. It's going to end badly, for the SEC, since the regulator is now facing multiple lawsuits against it. The SEC has also once again delayed decisions on the ETH ETFs.

What's New In The SKALEVERSE?

Check out @SkaleNetwork for the week's updates. On Wednesday, SKALE CEO Jack O'Holleran will be joining other blockchain experts at Token Expo SF for a panel discussion on enterprise blockchain use.

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