Daily Analysis 20 September 2022 (10-Minute Read)

A wonderful Tuesday to you as investors remain on tenterhooks ahead of key Fed decision.


In brief (TL:DR)


  • U.S. stocks were higher on Monday with the Dow Jones Industrial Average (+0.64%), the S&P 500 (+0.69%) and the Nasdaq Composite (+0.76%) all up slightly.

  • Asian stocks extended gains after a rebound in the final hour of New York trading as investors shifted positions ahead of a flurry of central bank decisions this week led by the Federal Reserve.

  • Benchmark U.S. 10-year Treasury yields hovered near 3.5% while yields on the more policy-sensitive two-year rate hit the highest since 2007 (yields rise when bond prices fall).

  • The dollar was little changed below recent highs.

  • Oil was higher with October 2022 contracts for WTI Crude Oil (Nymex) (+0.23%) at US$85.93.

  • Gold edged higher with December 2022 contracts for Gold (Comex) (+0.26%) at US$1,682.50.

  • Bitcoin (+3.31%) rose to US$19,401, struggling to return to the US$20,000 level.


In today's issue...

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  1. Mark Zuckerberg’s Wealth Wiped out with Meta’s

  2. U.S. 2-Year Treasury Yields are Soaring and That’s Bad

  3. Could the U.S. SEC Really Have Jurisdiction over Ethereum?

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Market Overview

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Traders are betting the Fed will hike by 75 basis points Wednesday, signal rates are heading above 4% and will then pause.

The long hold strategy is rooted in the idea the central bank would avoid the disastrous stop-go policy of the 1970s that allowed inflation to get out of hand.

In China, banks kept their main lending rates unchanged after the central bank paused its monetary easing and defended a weakening yuan.

Asian markets were higher on Tuesday with Tokyo's Nikkei 225 (+0.44%), Sydney’s ASX 200 (+1.29%), Hong Kong's Hang Seng Index (+1.16%) and Seoul's Kospi Index (+0.52%) all in the green.

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1. Mark Zuckerberg’s Wealth Wiped out with Meta’s

  • Zuckerberg’s personal fortune has been cut in half from its all-time-high, dropping by US$71 billion this year alone, the most among the tech glitterati.

  • Meta is also being dragged down by the company’s investments in the metaverse which is expected to lose significant amounts of money in the next three to five years.

In October 2021, Facebook announced that it had changed its name to Meta (+1.18%), based on the sci-fi term metaverse, to describe its vision for working and playing in a virtual world.

But unfortunately, it’s been largely downhill from the name change as the social media giant struggles to regain its footing in the tech universe.

Even in a rough year for just about every U.S. tech titan, the wealth erased from Mark Zuckerberg, the CEO of Meta stands out.

According to the Bloomberg Billionaires Index, Zuckerberg’s personal fortune has been cut in half from its all-time-high, dropping by US$71 billion this year alone, the most among the tech glitterati.

Zuckerberg’s networth now ranks 20th among global billionaires at “just” US$55.9 billion, his lowest spot since 2014 having peaked at US$142 billion in September 2021, just one month before the company’s rebranding to Meta.

The price of Meta stock started a historic capitulation in February when the company revealed no growth in monthly Facebook users slashing the Zuck’s buck by US$31 billion, among the biggest one-day declines in wealth ever recorded.

There were many issues faced by the company at the same time, including being hampered by excessive regulatory scrutiny and intervention, the lower marketing spending due to concerns over an economic slowdown, and the pressure to get users back from Tiktok.

Meta is also being dragged down by the company’s investments in the metaverse which is expected to lose significant amounts of money in the next three to five years.

But Zuck’s bets may yet pay off, especially if the Metaverse, which dozens of companies are pouring millions into, comes to fruition.

In the meantime, the prospect of higher borrowing costs and a tightening U.S. Federal Reserve intent on putting a lid on inflation will mean that the bleeding is not entirely over.



2. U.S. 2-Year Treasury Yields are Soaring and That’s Bad

  • U.S 2-year yields are poised to crack above 4% for the first time since 2007 as the U.S. Federal Reserve’s steepest tightening cycle in a generation drives them higher.

  • Treasuries have sold off almost without pause since stronger-than-expected U.S. inflation data last week.

U.S. 10-year yields rose above 3.5% on Monday for the first time since 2011, while 2-year yields are poised to crack above 4% for the first time since 2007 as the U.S. Federal Reserve’s steepest tightening cycle in a generation drives them higher.

The yield on the benchmark short-end note climbed one basis point Tuesday to 3.95%, heading for a ninth straight day of gains. The yield has now risen more than 3.2 percentage points this year, and is set for the biggest annual increase since 1994.

Treasuries have sold off almost without pause since stronger-than-expected U.S. inflation data last week dashed speculation that cost pressures had peaked and on increased expectation the Fed will hike by at least 0.75%, with some estimates even suggesting a 1% hike is on the cards.

Fed Chair Jerome Powell has made it clear the central bank is committed to quashing inflation sooner rather than later, a view that has meant two-year notes - the most sensitive to policy moves - have been dumped in large amounts.



3. Could the U.S. SEC Really Have Jurisdiction over Ethereum?

  • A comment buried in the legalese of a U.S. Securities and Exchange Commission lawsuit hints that the regulator believes it has a case for U.S. jurisdiction over the Ethereum blockchain.

  • The SEC further argues that because the bulk of Ethereum nodes sit within America’s borders, “those transactions took place in the U.S.”

For the longest time, the war cry of cryptocurrency proponents has been that decentralization made them immune to regulation, regardless of jurisdiction.

Like a hydra with multiple heads, the entire thesis and value proposition of the blockchain was that it was ungoverned and ungovernable.

But that thesis is about to face its first real legal challenge as a comment buried in the legalese of a U.S. Securities and Exchange Commission lawsuit hints that the regulator believes it has a case for U.S. jurisdiction over the Ethereum blockchain.

While the Ethereum blockchain technically exists in the cloud, miners which used to secure the network are very much rooted to the earth.

In a lawsuit filed on Monday against the founder of a cryptocurrency investment research firm, the SEC alleges that Ether transactions do have a geographical provenance and “were validated by a network of nodes on the Ethereum blockchain which are clustered more densely in the U.S. than in any other country.”

The SEC further argues that because the bulk of Ethereum nodes sit within America’s borders, “those transactions took place in the U.S.”

Although the lawsuit does not hinge on this point, it does hint at the SEC’s view with respect to jurisdiction over blockchain transactions and in all likelihood, the outcome of the legal action is unlikely to decide definitively on this assertion.

According to data from Etherscan, an open source tool that allows searching of the Ethereum blockchain, about 46% of all Ethereum nodes, computers that secure the Ethereum blockchain, are in the U.S. followed by just under 19% in Germany.

Ethereum’s recent successful shift to the far more energy efficient Proof-of-Stake method to secure its blockchain has also raised the ire of the SEC, which argues that because Ether holders can earn financial rewards by allowing the network to use their assets in the form of “staking,” it could fall under securities laws and therefore the ambit of the SEC.

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