Interlacing Regulation, War, Growth, and Macroeconomic Anxiety, What Breaks First?

Many things influence the global economy, that is currently more evident than ever before. So, what are the primary drivers of our current economic anxiety? And what is the outlook?
By Yoaquim Boom
October 22, 2022

In this week’s report

  • Markets expect the FED to save us. It won't happen, and here's why.
  • European authorities want an eye on the Ethereum blockchain.
  • Chinese Regulators considering allowing the virtual currency asset class to be traded in Hong Kong
  • Ethereum addresses hit all-time high.
  • Global escalation continues. Rumoring more economic danger ahead.
  • Dow Jones Industrial Average (US30) price analysis.
  • Bitcoin price analysis.

The FED Can't Save Our Economy

Indisputably stock markets have proven to be a lagging indicator of the global economic situation.

They are not the cause of an economic crisis but rather a delayed symptom of a problem that long predated the stock crash.

We have seen quite a big crash in stocks since November 2021. This means the problem predated November, the problem is rooted deep in our global economy.

Part of this problem is the FEDs historical ability to perform Quantitative Easing (QE) whenever it appealed to them.

This time that isn't quite possible due to the trillions of QE dollars that ultimately created this mess.

Unfortunately this mess was completely avoidable, and FED chairman Powell and his colleagues surely knew this to be the inevitable outcome of their actions.

“Meanwhile, we look like we are blowing a fixed-income duration bubble right across the credit spectrum that will result in big losses when rates come up down the road. You can almost say that that is our strategy" (Powell, 2012 Fed Meeting).

They knew that they were creating a massive financial bubble and that when they raised rates that bubble would collapse causing serious economic damage.

Yet, they kept expanding the bubble, no one with half a brain and a little bit of logical thinking should unironically claim that the central bankers were “blind” or ignorant. This is a long thought and engineered crash on many levels., not the accidental crash we wish it to be.

They knew this was going to happen but allowed it, why? I won't endeavor to speculate.

What I will say with near complete certainty is that they won't save us, in fact, they can't save us.

If they return to QE then an inflationary calamity ensues and just moves it up to the next generation. In order to save our economy they win inevitably have to hurt the economy and the people.

A planned implosion of the economy to provide the government with a full reset? For what? Who knows. But it surely doesn't look sweet for the lower-class population of the west, since they will be most affected by the calamity caused by the blindly 'trusted' officials.

Cryptocurrency Regulation

On the note of the incompetency of our 'trusted' officials, European authorities have voiced their desire to implement automated software to monitor the on-chain activity on the Ethereum blockchain.

Let's allow the government to look into one of the few private forms of communication we still have...

The EU officials stated their project named the 'study on Embedded SUpervision of Decentralised Finance',“ will seek to benefit from the open nature of transaction data on the Ethereum blockchain, which is the biggest settlement platform of DeFi protocols. Its main focus will be on automated supervisory data gathering directly from the blockchain to test the technological capabilities for supervisory monitoring of real-time DeFi activity.”

Since the Ethereum merge in which Ethereum consensus switched from a Proof of Work network into a Proof of Stake network, Ethereum already gave up much of its guarantee of decentralized security.

Proof of Stake in its very nature can't be proven to be decentralized. This is due to the fact that there is no tangible traceable commodity behind the consensus mechanism.

Essentially, we can't prove there is no holder that holds over 60% of the network and discontinues unwanted transactions.

Add onto this a governmental eye on all the transactions on the network. We have a slowly deteriorating 'decentralized' network that is undoubtedly slowly turning into a centralized governmentally curated entity.

On another note, Hong Kong regulators are considering allowing exchanges and other intermediaries to sell virtual assets to retail investors directly.

It also reassured businesses that the city’s official stance on cryptocurrencies is separate from mainland China.

Ethereum Network Growth

Continuing with Ethereum as our topic of conversation, The Ethereum network just saw its biggest day of growth so far in 2022.

The network's total number of wallet addresses hit a fresh all-time high over the weekend (Fig. 1).

Per data from the crypto analytics firm Santiment, a surge in new addresses created on Ethereum was seen on Saturday, when as many as 135,780 new wallet addresses were created on the network.

What evoked this sudden spike in address creation? We can only speculate. My assumption may be regulatory mandates or global flocking to a form of holding money that no one can take from you due to the current state of global tension.

Usually, a large spike in Ethereum wallet addresses created predates a strong bullish rally, whether this will be the case this time is yet to be seen.

Nonetheless, a good sign for network adoption.

Fig. 1 Number of Active Ethereum Addresses (Santiment)

Global Escalation

The European Energy Crisis

Russia has completely cut off natural gas supplies to Europe, representing around 40% of all EU energy resources.

Who really is the culprit of this? That is undoubtedly something to debate about, self mutilation doesn't seem too far-fetched currently.

Europe’s benchmark natural gas prices spiked by 28% a week ago, on top of already existing inflation signaling poorer times.

Oil supplies are also in steep decline for Europe and the EU government has pledged to cut what’s left of Russian oil imports by the sea at the end of the year.

Stress on the global supply chain is also imminent since producers of goods in Europe will have to cut down on energy expenditure, meaning less production of goods, no bueno.

Putin, Russia, China, Ukraine and the Western Choice

Vladimir Putin is set to meet with China’s Xi Jinping and the nature of the conference is not clear.

China and Russia have obvious immense mutual interest, if they do band together a new global superpower has indisputably formed.

With the amount of propaganda coming from Ukrainian Intelligence and NATO, it’s hard to pin down exactly what is going on in Ukraine, but either way, that doesn't look too favorable for the global situation either.  

My problem is as follows. US officials have repeatedly admitted the war is unwinnable for the west, but they also refuse to go into peace talks with Putin, so what exactly is the game plan?

It's a complete and obvious lose-lose situation in that case. They are providing the American and western populations with just one option: war and destruction.  

I believe it is obvious that the ball is in the court of the western officials to form a more peaceful agreement, but they seem hell-bound on destruction.

And unfortunately, this destruction is not just the wherefore mentioned economical destruction, but evermore likely the destruction of millions of homes and lives.

Dow Jones Industrial Average (US30) Price Analysis

As stated in our newsletter last week:

"While the major indexes continuing lower is still more likely than not, countertrend rallies tend to come once the index reaches a high level of extension below key moving averages in a bear market."

"In these extended downtrends, you tend to see shorts taking profits, this can lead to a nice rally in between the immense bear pressure."

"To me, it would appear that this isn’t the bottom and is a short rally before continuing lower is more likely than a long-term bottom."

And here we have it.

Since I wrote these quotes last week we have seen a rally of over 7% in the US30.

We are getting close to the top of the channel, which means people will begin to get cautious one more soon.

A continuation up to 32500 seems the most likely scenario, this price target is reached at about the same time as the next Fed Rates meeting and would be the perfect catalyst for the beginning of a strong new down-trend.

Fig. 2 1D DJIA Oct 2021 - Oct 2022 (TradingView)

Bitcoin Price Analysis

Comparatively to the stock market bitcoin has shown immense stability, not making moves to the up or downside nearly at all.

This complete indecision in the market shows that people may not only be treating bitcoin as a long-term investment but that this is the lowest holders are willing to let the price slip.

Unfortunately, if, and likely when, it does slip below these prices, it will slip quickly.

Still, no new lows have been put in for Bitcoin since the June low, in comparison to the constant lows we have seen in stocks, this is a good sign for Bitcoin bulls, and something the community will certainly look back at and be proud of.

The final bear-market target for BTC still seems clear anywhere from 9-14k.

In light of the final target, the current descending triangle seen in Figure 3 is no good sign for Bitcoin bulls.

As I stated last week, a breakout to the upside is possible with the right global market conditions, but it is certainly nothing to bet the house on.

Fig. 3 1D BTC Feb 2022 - Oct 2022 (TradingView)