Market Event, General

Weekly review: Bitcoin breakout and Fed warning

Benjamin Weiss, Friday, 31 July 2020

WR 31 JUL

Bitcoin has finally broken out and maintained a position above that all-important $10,000 level, but it’s nothing new. We’ve seen breakouts like this many times before, so why could this one be different and what’s next for the crypto? Elsewhere, the Fed had some cautionary words and in Asia, a brand-new index was launched this week.  

Bitcoin breakout 

Bitcoin is of course the headline-grabber, but in truth, this week saw movements for a few cryptocurrencies. With many most moves in cryptos it’s often unclear as to exactly why the price has gone up or down in the way they do. This week’s sudden spike, however, can probably be attributed to the HODLing rate reaching new highs. The HODLing (slang for holding) rate records the number, or rather percentage of unmoved Bitcoin on the Blockchain over the past 12 months.  

[Text Wrapping Break]Typically, if a lot of people are keeping hold of Btc, it reduces the amount that is available to buy. The only other way of attaining Btc apart from buying it is mining it, but we know at this point this is particularly difficult and requires a whole lot of computer power to do so. The 12-month HODLing rate is up to 63% at the time of writing.  

After Bitcoin’s price lingered around the $9,200 level, it has broken out this week and currently at $11,200 at the time of writing. Similarly, Ethereum is up over 40% to $344, Ripple up 19% to 0.245 and Litecoin up 30% to $58.  

If, and it’s a big ‘if,’ Bitcoin can now break above the $11,500 level, it could symbolise the beginning of a bull run. It’s failed to break this level a few times before, and has even suffered heavy subsequent bearish periods, but if it does break past this level and maintain its position, it would be a major breakthrough for the crypto.  

Fed standing put...for now

The Fed’s FOMC met once again this week to discuss how best to combat the ongoing pandemic. In 2020, they have been quick to drop interest rates and introduce new stimulus packages to stem the economic bleeding businesses have suffered from the coronavirus, and to an extent they’ve been successful. Without any intervention, there’s no doubt the US economy would be in a significantly worse situation than it is now. 

So this week’s decision on monetary policy was not only crucial, but also very interesting for investors. Why? Because fears of a second wave forcing states to re-enter lockdown and reimpose restrictions are finally coming to fruition. The Fed’s choice: act now and risk prematurely shutting down the economy. Or, leave it and risk a more natural economic slowdown.  

They went for the latter, opting to leave rates unchanged and not make any major alterations to ongoing stimulus measures. In truth, we didn’t really hear anything we didn’t already know. The Fed gave cause for optimism by relaying that the economy had picked up and unemployment was improving. However, there was a warning that a slowdown is expected as cases begin to spike once more.  

It’s assumed that some form of action will be taken at the next FOMC meeting, but as for what that could be - with rates at lows and the chances of them going negative unlikely - it’s not yet known. What this means is that there will be an even greater emphasis on the next FOMC meeting.  

Big tech fiims smash expectations  

It’s been an hirstoric day today, with Alphabet, Amazon, Apple and Facebook all release earnings at the same time. However, not only that but they all smashed estimates, reporting a strong Q2. 

Alphabet  

Revenue for Google’s parent company fell for the first time in its history, but the firm still beat estimates. Revenue fell by $1.6 billion, down to $38.3 billion. Earnings per share expectations were absolutely eclipsed, coming in at $10.13 compared to $8.21 that was forecast.  

Amazon  

Amazon’s share price rose over 5% after it reported strong earnings after close on Thursday. Earnings per share absolutely obliterated expectations. It came in at $10.30 compared to the $1.46 that was expected. Revenue also beat expectations, coming in just shy of $89 billion. The US firm had to expand capacity of its warehouses to satisfy levels of demand that it didn’t expect to see until 2021.  

Apple  

Apple gained 6% as it released its earnings this week. In a similar trend to Amazon and Alphabet, with earnings per share and revenue both coming in ahead of expectations. The only major metric the firm fell short on was its services revenue generated, which only just fell short of estimates.  

Facebook 

The social media giant reported its slowest monthly growth since going public, and yet still saw revenue increase in Q2. Monthly active users, daily active users and average revenue per user all came in slightly ahead of expectations as well.  

A new Nasdaq-equivalent?  

A new index doesn’t come about every day, nor every week or even every year. But this week, we saw a new index launch in Asia.  

The Hong Kong tech index, dubbed a Nasdaq-equivalent, had a less-than-spectacular debut, with the Hang Seng Tech index losing around 1.3% on its first live day trading. Despite this setback, it’s estimated that the stocks included within the index (including giant Alibaba) have seen a combined rise of 40% in total across 2020 so far.  

It will be interesting to see just how well the Hang Seng Tech index will be able to compete with competition from China, but experts say it could vastly increase exposure for certain Hong Kong firms.  

 

 

 

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