28 Nov WHAT WILL BE THE RAMIFICATIONS OF THE COLLAPSE OF FTX?

Posted at 14:18h in Market Commentary by
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What will be the ramifications of the collapse of FTX?  Traditionalists believe a currency is only worth its backing, a backing earned by years of consistent economic and monetary policy and laws and regulations to support its value and its legitimacy…what is the backing of cyber currencies?

According to the Heritage Foundation there are 191 nations and only two utilize cybercurrencies…The Central Africa Republic and El Salvador.

In some regards, government anathema towards cyber currencies is perhaps one of the few topics that China, US, Japan, North Korea, etc. have in common.  China banned the mining of cyber currencies.

It is widely accepted, knowing where and what society spends or saves its money is a type of control.

In many regards and perhaps with governmental tacit approval, some have argued the privacy of society has been destroyed by its own actions via the massive growth of social media.

Has society voluntarily bugged their homes via Alexa?  Has society given a list of friends via Facebook?  Do others know what we watch on TV via Netflix?  Do others know where we are going via the GPS and “ping function” of cellphones and Apple and what we are interested in via Google?    And then there is the intrusion of email and texting.

It is suspected that all governments have access to this information and is widely but discreetly believed that governments turned a blind eye to the abuses of these companies and the monopolistic nature of these firms to gather information (and control) over its citizens.  Society voluntarily gave up their personal information.

And then there is cyber currencies, which on the other hand is the inverse of social media and is difficult to track by design.  It is evident from the natural gas pipeline hack that occurred in the US earlier in the year which shut down transmissions, and the ransom that was paid via cybercurrency to permit the restarting of transmissions the perpetrators can be discovered but such was found after great effort.

In other words, cybercurrencies impedes transparency and voluntary disclosure, the inverse of social media.

There are several central bankers that have stated cyber currency has no value, perhaps the result of lack of transparency and backing.  As indicated China has banned the mining of cyber currencies and last week New York placed a two-year moratorium on any new mining firms in the state under the guise of protecting the environment for such mining is very energy intensive.

Will the collapse of FTX be the excuse for government to regulate and perhaps extinguish cyber currencies?  The answer to the former portion of this question could be yes.

Perhaps the larger question at hand will cybercurrencies be tulips or lightbulbs.

While it is largely believed the collapse of FTX is not systemic to the financial system, it has perhaps altered the landscape and is perhaps a further catalyst in the quest to increase regulations for the technology and social media companies.

Several bulge bracket firms including Goldman and JP Morgan have suggested increased governmental regulation is a potential major headwind for the technology sector.

As stated many times, depending upon how the companies are classified, technology comprises anywhere between 25% and 45% of the S & P 500 capitalization and increased regulation is often regarded as major hinderance to growth and profitability.

Commenting on the Minutes from the November Fed meeting, Fed officials concluded that it would soon be appropriate to slow the pace of rate increases, signaling a possible downshift to a 50 bps hike in December.  The Minutes also indicated “the ultimate level of the federal funds rate would be necessary to achieve the Committee’s goals was somewhat higher than they had previously expected.”

Officials also discussed the lags of monetary policy.

The Minutes contained no surprises.

What will happen this week?

The economic calendar is comprised of several top tier indicators a sentiment indicator, revised 3Q GDP and its ancillary inflation data, several housing statistics, the JOLTS Job openings statistics, the ISM and various employment surveys ending Friday with the all-inclusive BLS labor report.  The data can have considerable impact upon the psychology of the markets.

Last night the foreign markets were down.   London was down 0.36%, Paris down 0.97% and Frankfurt down 0.94%.  China was Japan down 0.43%  and Hang Seng down 1.57%.

Dow and NASDQ futures are down 0.50% and 0.75%, respectively on COVID protests in China  The 10-year is up 2/32 to yield 3.68%.

 

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