This rally won’t last
In today’s edition, metaverse’s a dud, FIIs return, and regulators undecided.
Good morning! Welcome to The Daily Moon. Tether is tired of the China rumours. The crypto platform has clarified that Chinese commercial papers don’t make up its stablecoin reserves. It even plans to reduce its commercial paper holdings in general. Once again, someone somewhere is spreading FUD.
The market was in a bullish mood. Bitcoin is close to $23,000 and Ethereum cozying up to the $1,650 mark. Nasdaq rose in early trade. Back home, Sensex and Nifty ended high on positive global cues.
Fed Gifts A Rally
The 0.75% rate hike by the US Fed was a welcome change, at least for the crypto markets. Bitcoin rallied ~8% while Ethereum was up ~11%. The crypto market cap also crossed the $1 trillion mark post the announcement.
This was a given
Markets hate surprises, so an interest rate hike on expected lines was a positive. Fed chairman Jerome Powell also confirmed that rate hikes would be slower from now on since inflation was in line with regulatory estimates. Bitcoin raced above $23,000 and Ethereum moved to $1,650 levels.
But not everyone gained. Crypto investors going short faced over $200 million in losses.
FYI Crypto shorting is a trading strategy where investors sell crypto in the hope of a price decline.
Don’t rush in
Yes, there is a rally. But numbers can be deceptive. US inflation is still high at 9.1% and the Fed hasn’t indicated when the rate hike cycle will conclude. Experts believe that the crypto bull run could be short-lived because of the lack of clarity. Let’s break it down:
If interest rates fall, bond yields drop. So alternatives such as crypto outperform.
But if interest rates rise, yields will rise too. That means bonds could still be preferred.
With crypto firms under financial distress, the bear market has continued for the industry. Meanwhile, the US is in a technical recession since GDP contracted by 0.9% in Q2.
Meta’s Meta Dream Is Bleeding
Meta’s virtual reality ambitions proved to be costly. The company’s VR division, Reality Labs, lost $2.8 billion in the June quarter. Meta itself saw a quarterly revenue decline for the first time.
It’s all red
In Q2, Reality Labs earned ~ $450 million in revenue, but to build this dream. Billions have been invested into the metaverse push even as there are no concrete timelines yet. There’s more pain as the FTC has sued Meta to halt a VR app acquisition citing anti-competitive practices. But Zuckerberg is fixated on the metaverse. To cut costs, the company will reduce its employee count in 2022. Critics have said Meta’s ambitions to build a virtual universe where people will hang out with each other and slap on an Oculus is a pipe dream. It’s either growing pains or the beginning of the end.
Foreign Funds Are Back
After months of heavy sales, foreign investors are back in the Indian markets. Sensex and Nifty rose ~2% on revival in FII interest. These global investors brought Rs 870 crore to the Indian markets as of July 25.
Back in focus
Foreign inflows have turned positive after 10 months. The selloff was a concern because India saw $29 billion exiting the stock market. A reversal has helped evoke a “buy” sentiment for equities.
Why the shift?
Foreign investors have returned because steep interest rate increases, of 1% or above, have been ruled out for now. A shaky US economy has brought back FIIs to emerging markets such as India.
Can’t Make Up My Mind
Stock, security, and now property. Crypto has many names. Just days after the US SEC termed several crypto tokens as securities, the UK wants to classify crypto as property.
What’s the confusion?
The regulators do not have a consensus on what exactly is crypto. And just three options exist—equity, stock, or property. Each country has chosen one of the options.
Meanwhile in India
With a 30% plus 1% tax structure on crypto, India has gone heavy. The RBI wants to ban crypto altogether.
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