October 2022 Market Review

Top Cryptos Price Movements

October has finally seen an improvement in the performance of the crypto market after a relentless year of bad news. Ethereum was up 20% in the month of October and Bitcoin up nearly 5%. Not bad considering the general negativity that continues around the state of the economy and risk assets.

Top Cryptos Trading Volume

Trading volume in USDT has reduced by 9.7% from $1.54T in September to $1.39T in October. Bitcoin trading volume has reduced by 9% from $1.1T to $1T over the same period and Ethereum volume is down 16% from $478B to $402B.

Crypto Market Performance vs GOLD vs S&P 500

Both Bitcoin and Ethereum have been relatively stable assets over the last five months compared to both shares and commodities.

Bitcoin has actually outperformed the traditional safe haven asset of 10-year US treasuries so far this year.

Inflation

Inflation continues to surge ahead in most western economies, with core inflation of essential goods now in double figures in many countries. The US has managed to bring its headline rate of inflation down by drawing down its strategic oil reserves ahead of the midterm elections, but this can only be a temporary fix, as the eventual replenishment of those reserves will lead to further inflation down the road.

Interest Rates

Interest rates continue to head higher in the western economies but are still well below the current rate of inflation, resulting in negative real interest rates.

The US FED continues to lead the pack with the most aggressive rate rises seen in 40 years.

Currency Values

The FED rate rises have continued to strengthen the US Dollar at the expense of other global currencies. However, the rate of increase in the US Dollar has decelerated, and the UK Pound and Euro have, perhaps temporarily, started to show modest recoveries over the last month.

The fundamentals for Europe remain very weak, with the Ukraine conflict and sabotage of the Nordstream pipeline leading to deeply embedded inflation in the European economies.

There currently appears to be no prospect of a negotiated settlement in Ukraine, so further inflationary pressure in Europe seems inevitable.

US Inflation

The official rate of inflation in the US of 8.2% is still more than double the current FED interest rate of 3.1%. The true rate of inflation in the US is almost certainly in double figures.

It is likely that the FED will continue to raise rates in the short term.

The FED will eventually be faced with the choice of either bankrupting the government, corporations and individuals by pushing interest rates above the level of inflation or pouring more petrol on the inflation bonfire by reducing rates and allowing debt to spiral even further out of control.

On every single occasion in the history of money, when authorities have faced this decision they have chosen to allow debt to spiral. It is the cowardly option and so it is the natural choice of politicians and beaurocrats.

For this reason, a FED pivot to reducing rates seems inevitable. It's just a question of when.

When Will the FED Pivot?

According to the CME forecast, US interest rates are now expected to peak at 4.8%, which is up from the peak expected rate of 4% last month.

The number of days until a FED pivot remains at 188 days, which is the same as last month, meaning that the expected pivot date has effectively rolled forward one month, to the end of April 2023.

The FED has managed to shave $0.07T (0.8%) off its balance sheet as part of its quantitative tightening programme this month. They still have a long way to go in making any meaningful impact of the massive quantity of money printing in recent years which saw the FED's balance sheet increase by over 800% since 2008.

All eyes are on the US unemployment rate as the key indicator of the FED having raised rates too high, too quickly. Official unemployment remains very low, but this lagging indicator may be on the cusp of starting to nudge upwards.