Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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Road blocks and ramp-ups
Jacob Pouncey
Cryptocurrency analyst, Saxo Bank
Summary: As Chinese crypto miners become a casualty of the US trade war, advances are seen elsewhere, as Bitcoin spikes on news about Tether and asset manager Fidelity announces a new digital asset business.
This week the entire crypto market cap fell by 3% to around $210 billion. Ethereum fell by more than 8%. However, Bitcoin finished the week relatively flat, trading slightly lower by a third of a percent. This past week there has been a lot of developments in the market regarding infrastructure, institutional demand, and stable coins.
Trade war hits Chinese miners
In our new Q4 outlook which was released today, we cover emerging markets and the relation to the cryptocurrency industry. We cited China as a dominant force in the crypto mining industry, however its hardware manufacturers may be under threat from recent US trade tariffs. Based on a recent classification of crypto mining hardware, it is now subject to an over 25% import tax when shipped to the US. This could affect the recent valuation numbers of the three largest miners which are looking to IPO soon on the Hong Kong stock exchange.
Bitcoin price spikes on Tether news
On Monday the price of Bitcoin spiked as the stable coin tether broke its peg to the dollar. Tether which claims to be backed 1:1 to the US dollar fell as low as to $0.85 on Kraken, while Bitcoin traded on Bitfinex at a $1,000 premium. This price action was a result of news released stating that Tether and Bitfinex, one of the largest exchanges, were having banking troubles (again). This caused massive selling of Tether into the market resulting in a price bump in cryptos and a devaluation of Tether. Typically, arbitrageurs keep the price of Tether close to $1, however, selling pressure was too large and too fast for effective arbitrage. The price of tether has returned slightly below $1 but in response to the mayhem around the largest stable coin on the market by over 45x, exchanges have begun listing its competitors such as the Winklevoss GUSD.
Fidelity announces new digital asset business
One of the largest asset managers, with over $7 trillion under management, announced the creation of an institutional platform for digital assets. The 100-employee subsidiary will provide institutional grade custody and execution services to its clients, and it is set to launch in early 2019 to the public. The firm is onboarding customers now. This announcement is huge considering the clientele and capital of Fidelity, as this initiative will allow for more capital to flow into digital assets, as enterprise-grade custodianship is seen as a necessity for institutional adoption. However, this is no guarantee that the capital will follow just yet, as Coinbase recently closed down its institutional offerings citing a lack of demand.
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