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SEPTEMBER 12, 2023

CRYPTO SELL-OFF

According to Matrixport, a crypto services provider, the crypto exchange FTX is expected to sell a staggering $3.4 billion worth of crypto assets to repay its users in fiat currency instead of tokens. This planned sell-off is expected to have a lasting impact on altcoins throughout the year, creating an overhang in the market. FTX aims to offload $200 million worth of crypto assets every week until the end of 2023, signifying a prolonged period of asset liquidation. However, FTX is not alone in this as pressure mounts on crypto venture capital (VC) funds to return funds to their investors, leading them to become significant sellers of altcoins as well. The effects of FTX’s potential sales have already been felt by Solana (SOL), which has experienced a decline in value. Moreover, ApeCoin (APE), held by VC investors, have an unlock scheduled for September 17. This unlock will release 11% of outstanding tokens, potentially causing further price drops similar to what has been observed in the past following an unlock. Similarly, Axie Infinity’s token (AXS) has a sizable unlock planned for October 20, releasing another 11% of the token supply. Consequently, with the planned offloading of significant crypto assets and impending token unlocks, the market can expect continued downward pressure on altcoin prices in the coming months.

STABLE INFLATION EXPECTED

In a recent survey conducted by the Federal Reserve Bank of New York, findings revealed stable inflation expectations among U.S. consumers in August as although median one-year-ahead inflation expectations experienced a a slight increase, inflation expectations for the next three years declined. Nevertheless, the survey also revealed growing concern about personal finances, and a more negative perception of the job market was also evident as consumers expressed deteriorating views on current credit conditions and future prospects. The survey further indicated increased apprehension about higher unemployment rates in the following year and an elevated probability of job loss. In addition, access to credit emerged as a mounting concern, particularly among individuals with lower income levels or limited education. These findings raise questions about the effectiveness of the Federal Reserve’s previous measures to control inflation by raising interest rates, as they may have contributed to these concerning trends. However, with signs of cooling inflation and a stabilizing labor market, policymakers are expected to halt rate increases in their upcoming meeting.

SURGING CASH DEMAND

In the mist of the current economic uncertainty, the market has been witnessing a significant increase in demand for cash-like instruments, driven by individuals, corporations, and asset managers looking to secure a 5% yield and protect themselves from uncertain economic conditions. In particular, the market for T-bills has experienced a surge, with over $1 trillion purchased in the last three months alone. This attractive yield prompts investors to shy away from leaving T-bills with primary dealers for an extended period. Consequently, the substantial demand has drastically reduced the amount of T-bills held by these dealers – dropping to about $45 billion last month from a peak of $116 billion in July. Moreover, as investors await better entry points and seek clarity on the economy and the Federal Reserve’s policy, some money-market funds are adopting a cautious approach, and although a rate hike is not anticipated this month, swaps traders are currently pricing in approximately even odds of a quarter-point increase in November.

SKYROCKETING TREND

The increased use of brokered deposits has become a notable trend in the U.S. banking industry, prompting regulators to take notice. In particular, banks such as Zions Bancorp, Citizens Financial, Ally Financial, M&T Bank, KeyCorp, Comerica, Bank of America, and Wells Fargo have significantly increased their reliance on brokered deposits; and while brokered deposits remain a small percentage of total deposits for larger banks, they account for more than 10% of domestic deposits at some smaller regional banks like Associated Banc-Corp and Valley National Bancorp, raising concerns among regulators. The surge in brokered deposits is a response to the challenges faced by banks in attracting customer funds, but it also brings potential liquidity risks and lower quality, according to credit rating agencies like S&P Global and Moody’s Investors Service. Consequently, regulators, including the Federal Deposit Insurance Corp chairman Martin Gruenberg, stress the significance of closely monitoring any concentrations of these deposits.

CFPB’S UNCERTAIN FUTURE

The U.S. Consumer Financial Protection Bureau (CFPB) is facing a critical legal challenge that could jeopardize its future operations as two trade groups representing the payday loan industry are arguing before the U.S. Supreme Court that the CFPB’s funding structure violates the U.S. Constitution. This case, which has drawn significant attention, could disrupt the agency’s ability to safeguard consumers from financial misconduct. Supporters, including President Joe Biden’s administration and consumer advocacy groups, warn that dismantling the CFPB would leave consumers exposed to deceptive practices by lenders and debt collectors. On the other hand, pro-business conservatives and their Republican allies view this as an opportunity to curtail what they perceive as an overreaching federal bureaucracy.

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