Invictus Capital: Weekly Wrap 11.06

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Market News

It’s been a busy week news-wise as Bitcoin dropped to around $30k along with broad market weakness before rebounding thanks to a potential watershed moment from little-known El Salvador, which became the first country to make Bitcoin legal tender. The historic announcement also helped to lift the broader market, with Solana a stand-out performer over the week.

Other noteworthy news includes PayPal users trading more than $300 million in Bitcoin in one day — a record for the company, while MicroStrategy is borrowing $500 million through a debt issuance to buy yet more Bitcoin. Impressively, the company received over $1.6 billion in orders in less than 24 hours, including interest from a large number of hedge funds, illustrating the continued attractiveness of Bitcoin to institutions. Positively, India’s tough stance on Bitcoin seems to be subsiding with the New Indian Express reporting that the government may be dropping its earlier plans for “a blanket Bitcoin ban in favor of classifying cryptocurrencies as an alternative asset class”. The news was not all positive, however, with the Chinese rumour mill running wild about the implication of the ongoing government clampdown on coal-fed mining operations.

In traditional markets, the S&P500 set yet another record high this week, with other equity indices globally rising in tandem as the dollar bled. This followed Thursday’s two major news items: that the European Central Bank would be accelerating quantitative easing in the coming months, and the release of May inflation numbers for the US. The latter figure was a surprise to the upside, with year-on-year inflation exceeding 5% for only the second time in 30 years (this reading is however inflated by the ultra-low inflation readings generated in the height of the pandemic’s impact last year). While last month’s reading was similar (though a larger upside surprise) the market reaction was markedly different this time, with bond yields falling slightly in the aftermath and risk assets turning up (last month yields spiked and a sell-off ensued). Markets appear to be buying wholeheartedly into the Fed’s insistence that elevated inflationary pressure will be transient.

Outside of equities, gold thrived as real yields dipped (making non-yielding gold that much more attractive) and as safe-haven demand picked up in anticipation of the Fed’s statement next week. Market watchers will be glued to screens around the Fed’s monetary policy announcement next week for any clues as to how the Fed’s thinking on the topic of tapering quantitative easing has evolved — expect a bout of volatility in its wake.

Indicators (04 — 11 June)

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