GiD Report#194 — The party is over

Published in

GlobaliD

6 min readJan 11, 2022

Welcome to The GiD Report, a weekly newsletter that covers GlobaliD team and partner news, market perspectives, and industry analysis. Check out last week’s report here.

This week:

The party is ending sooner than expected
Chart of the week — 10-year note edition
Regulatory wrangling continues
Chart of the week — Crypto fraud edition
The end of data retention
Stuff happens

1. The party is ending sooner than expected

Last week, we talked about the 6 stories that matter in 2022 — one of them being the end of the Fed’s easy money party.

That story is playing out sooner than expected. Here’s Axios:

Things change fast in a pandemic. And a rapidly changing economy has the Federal Reserve playing catch-up, Axios’ Neil Irwin writes.

Less than a month ago, the Fed made an abrupt pivot toward a more hawkish monetary policy stance. By the end of last week, the data was pointing toward an even faster withdrawal of stimulus.

Why it matters: Cheap money has become baked into the economy, so the Fed’s moves to take it away will bring risks of abrupt swings in markets that could spill back over into the economy.
By the numbers: Friday’s jobs data are Exhibit A. While initial headlines focused on soft growth in payroll numbers, the report points toward a labor market that has become exceptionally tight, contributing to already high inflation.

The unemployment rate is down to 3.9%. In the last economic cycle that level was not reached until May 2018 — at which point the Fed had already raised interest rates six times (now: zero).
Wages are not only rising, but rising at an accelerating pace. Average hourly earnings rose 4.7% over the entire course of 2021, but at a 6.2% annual rate in the final three months of the year.

…
The bottom line: The labor market has gotten tighter, faster than most people, including at the Fed, thought possible just a few months ago. Now, policy is on track to follow suit.

Goldman Sachs now predicts the Fed will hike rates four times next year.

Once the Fed starts hiking rates, they’ll also start shedding their balance sheet, essentially sucking easy money out of the system.

When that money gets sucked out, it gets sucked out of riskier assets like certain equities and crypto.

We’re now entering that part of the cycle.

Relevant:

2. Chart of the week — 10-year note edition

Axios:

3. Regulatory wrangling continues

One of the other 6 stories that matter in 2022 was regulators.

The big story last week is that the CFTC fined Polymarket, concluding an investigation that was first reported back in October.

Here’s Coindesk:

Polymarket is a crypto betting service that allows users to pick one of at least two options on given trades, such as who might win the 2020 presidential election. According to the order published by the CFTC, Polymarket offered at least 900 such markets over the last 18 months.
These markets are swaps under federal law.
Polymarket cooperated with the investigation, according the CFTC’s press release, leading to a reduced fine. The company will stop offering markets by Jan. 14 and commit to making all funds available to users by Jan. 24, according to the order. Polymarket will also cease and desist any further violations of the CEA, though it doesn’t appear the company itself will be shut down.
Elsewhere, Berlin-based Neuhaus is preemptively shutting down a “viable security token business” due to lack of regulatory clarity (via /gregkidd):
Our concept-proving case — Greyp Bikes — made the full cycle, from issuing tokenized shares for retail investors, through corporate governance on blockchain, to the exit to Porsche and proceeds distribution via ERC20 tokens. Effectively, there were never any compliance issues, technical problems or security breaches. An European tech company fundraised through the issuance of securities using a decentralized technology. And more than 1,000 investors from dozens of countries participated. How cool.
Yet, we are closing the Neufund business.
Why? Because today, more than two years after Greyp fundraised, we still are unsure whether regulation allows us to repeat the Greyp fundraising model with other similar companies. Despite engaging with regulators for years, we didn’t manage to get out of the limbo of legal uncertainty.
And, I dare say, no DeFi (decentralized finance) company, aiming for regular investors on a bigger scale, has ever made it so far.

Not the most encouraging updates. As much as this is a technology game, it’s still going to be decided by regulations.

Relevant:

4. Chart of the week — Crypto fraud edition

Axios:

From their report:

Illicit activities like cybercrime, money laundering and terrorist financing made up only 0.15% of all crypto transactions conducted in 2021, according to a new report from Chainalysis, a blockchain data platform.
Why it matters: This is a sign of crypto’s growing mainstream popularity — and a rebuke to critics who say digital currency is mainly for criminals.
Yes, but: Crypto crime is at an all-time high in absolute terms, the report found. It’s just that the growth rate of legitimate activity far outpaced the growth rate for illicit activity, Kim Grauer, director of research at Chainalysis, tells Axios.

Relevant:

5. The end of data retention

Here’s the German Minister of Justice (via /m):

“I reject data retention without any reason and would like to remove it from the law once and for all. It violates fundamental rights. If everyone has to expect that a lot about their communications will be stored without cause, then no one will feel free anymore”, said the Federal Minister of Justice in an interview with the Funke Mediengruppe.
“That’s why [German] courts have repeatedly stopped the use of data retention without a specific reason.”

Relevant:

GiD Report#194 — The party is over

1. The party is ending sooner than expected

2. Chart of the week — 10-year note edition

3. Regulatory wrangling continues

4. Chart of the week — Crypto fraud edition

5. The end of data retention

6. Stuff happens

Written by GlobaliD