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SEPTEMBER 26, 2023

BINANCE CROSSROADS

Binance, once hailed as the leading powerhouse in the crypto world, is now facing a daunting challenge. The threat of regulatory actions by U.S. Securities and Exchange Commission (SEC) has shaken the company to its core. Within the past few months, numerous high-level executives have departed, and Binance has been forced to downsize its workforce by laying off over 1,500 employees to cut costs and brace for a decline in business. Additionally, its dominance in the crypto market has waned, with Binance now facilitating only half of the direct cryptocurrency trades, down from 70% at the beginning of the year. The repercussions of Binance’s fate hold tremendous implications for the entire crypto industry due to its colossal size. Some experts believe that if Binance were to collapse, other exchanges would step in to fill the void. However, in the short term, the market may suffer from a loss of liquidity, potentially leading to a sharp decline in token prices. In anticipation of such a scenario, institutional traders have even conducted drills to swiftly withdraw their assets from Binance in the event of a meltdown. Nonetheless, Binance’s co-founder and chief marketing officer, Yi He, remains resolute in her determination to overcome these challenges. Moreover, Binance’s significance extends beyond its own operations, as it actively invests in third-party crypto projects and is recognized for nurturing innovation and growth.

LOOMING BATTLE

With just five days remaining until the deadline, the U.S. House and Senate are currently finding themselves embroiled in a battle over government spending, making the outcome uncertain at this point. Initially, both President Joe Biden and Republican Speaker Kevin McCarthy had aimed to prevent a shutdown by agreeing to discretionary spending levels. However, some right-wing Republicans have rejected this agreement, demanding significant cuts instead. Consequently, the two chambers have taken divergent paths, with the Democratic-controlled Senate planning to vote on a bipartisan stopgap funding bill that would keep the government operational beyond the current funding deadline. This would provide negotiators with extra time to reach an agreement on full-year spending. On the other hand, the Republican-controlled House, led by McCarthy, intends to push forward with four full-year spending bills that reflect conservative priorities, but they are unlikely to become law. If no resolution is reached, a shutdown could lead to hundreds of thousands of federal employees being furloughed and a wide range of essential services being suspended. Additionally, the potential consequences of a shutdown are far-reaching, including negative implications for the country’s credit rating.

POSSIBLE FURTHER HIKES

Neel Kashkari, the President of the Federal Reserve Bank of Minneapolis, has recently stated that the U.S. central bank may need to raise interest rates one more time this year if the economy outperforms expectations. Speaking at the University of Pennsylvania’s Wharton School, Kashkari emphasized that a significantly robust economy would necessitate slightly higher rates, which should be maintained for an extended period to moderate growth. Moreover, as one of the policymakers who forecasted another rate hike this year, Kashkari believes that the recent decision to maintain the benchmark interest rate at its highest level in 22 years shows that rates will need to remain elevated to keep inflation in check. Kashkari also mentioned that while the economy has exhibited resilience, the focus remains on lowering inflation to the desired 2% target. Furthermore, if inflation were to decrease rapidly next year, policymakers might consider reducing rates to avoid a tighter monetary policy stance.

IMPACT ON CONSUMERS

The financial landscape of Americans is being significantly impacted by the continuous rise in interest rates, as these rate hikes implemented by the Federal Reserve, are leading to increased expenses for individuals seeking loans for homes, cars, and credit cards. As a result, the dream of homeownership or purchasing a vehicle has become increasingly out of reach for many, given that mortgage rates have surged to approximately 7% compared to the previous 3%, and that car loans have also seen a steep rise in rates. In addition, the burden is equally felt by those grappling with credit card debt, as interest rates have skyrocketed from 14.6% to 20.7% within a short span of time. This situation places immense strain on individuals trying to manage their financial obligations. Moreover, this situation of aggressive rate increases is affecting even those individuals with investments, as interest rates on securities-backed loans have now soared to around 8%. Overall, despite the Federal Reserve’s efforts to lower inflation to 2%, the ongoing escalation of interest rates is definitely also having a negative effect as it is making it increasingly difficult for consumers across the board to manage their financial obligations.

INTERNATIONAL NEWS

Government bond yields in the euro zone are currently at multi-year highs due to the expectation of higher interest rates. Germany’s 10-year government bond yield, which serves as a key benchmark, briefly reached a 12-year high before stabilizing at 2.789%. However, the two-year yield, which is more sensitive to policy changes, experienced minimal fluctuations at 3.219%. As for now, there is currently disagreement among policymakers at the European Central Bank (ECB) regarding future monetary policy, with some advocating a rate cut, while others believe another rate hike is possible. ECB President Christine Lagarde maintains that keeping interest rates unchanged will help reduce inflation to the target of 2% in the medium term. Nonetheless, derivative markets suggest a less than 20% chance of another rate hike, and a rate cut is not expected until July next year. Moreover, rising concerns about oil and natural gas prices, along with excess liquidity and increased government bond supply, are adding pressure to peripheral bond markets.

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