Hello there,

A fantastic Friday to you as markets float above the surface with Asia providing some good cheer ahead of the weekend.

In brief (TL:DR)

• U.S. stocks were down marginally on Thursday with the Dow Jones Industrial Average (-0.33%) and S&P 500 (-0.13%) inching back, while the Nasdaq Composite (+0.06%) was up but not meaningfully.

• Asian stocks rose Friday amid a bout of calm in global markets after U.S. Federal Reserve Chairman Jerome Powell again pushed back against speculation of more aggressive interest-rate hikes.

• Benchmark U.S. 10-year Treasury yields rose four basis point to 2.89% (yields fall when bond prices rise) but were still below recent highs, tempting more stock investors back into the market.

• The dollar was on course for its longest streak of weekly gains since 2018.

• Oil was higher with June 2022 contracts for WTI Crude Oil (Nymex) (+1.22%) at US$107.42.

• Gold edged lower with June 2022 contracts for Gold (Comex) (-0.10%) at US$1,822.70.

• Bitcoin (+13.19%) recovered to US$30,392 (at the time of writing) as the cryptocurrency industry recovers from the demise of algorithmic stablecoin TerraUSD.

In today's issue...

1. Meme Stocks are back?

2. Meme Stock Platform Robinhood in Bed with Crypto Exchange FTX

3. US$200 billion Cryptocurrency

Market Overview

The latest U.S. data showed producer prices jumped 11% from April last year, signaling that consumer inflation could continue to stay high.

U.S. Federal Reserve Chairman Jerome Powell reaffirmed the central bank is likely to raise rates by a half point at each of its next two meetings and isn’t “actively considering” a 75 basis-point move, which helped to calm markets.

Monetary tightening, China’s Covid lockdowns and Russia’s war in Ukraine have roiled a range of assets this year and left world shares near a bear market.

Asian markets rose Friday with Tokyo's Nikkei 225 (+2.64%), Hong Kong's Hang Seng Index (+2.68%), Seoul's Kospi Index (+2.12%) and Sydney’s ASX 200 (+1.93%) all up in the morning trading session on the prospect of bite-sized rate hikes by the Fed.

1. Meme Stocks are back?

• Earlier this week, as key indices such as the S&P 500 and Nasdaq Composite tanked, marquee meme names such as GameStop (+10.12%) and AMC Entertainment (+8.06%) shocked observers by staging sharp rallies.

• Gains in these meme stock names come at a time when broader markets remain volatile and could indicate that investors are clawing their way back into riskier assets.

The timing seems unlikely, but meme stocks could be making a comeback.

Even as the cryptocurrency markets burn and bounce back through a wholly avoidable disaster of Terraform Labs’ making and while traditional equity and bond markets are roiled, there appears to be an appetite still for the most speculative corners of the market.

Earlier this week, as key indices such as the S&P 500 and Nasdaq Composite tanked, marquee meme names such as GameStop (+10.12%) and AMC Entertainment (+8.06%) shocked observers by staging sharp rallies.

At one stage, GameStop soared as much as a third, triggering at least four trading halts as investors flipped shares of once white-hot meme stock names.

That rally spilled over to AMC Entertainment, the other poster-child of the meme stock mania that gripped Wall Street in January last year, and at one stage the movie theater company rallied by more than 30%.

Gains in these meme stock names come at a time when broader markets remain volatile and could indicate that investors are clawing their way back into riskier assets.

On Thursday, both GameStop and AMC Entertainment were among the most bought companies on Fidelity’s trading platform, suggesting that the demographic for buyers of the stock may be changing.

Last January’s meme stock rally was fueled primarily by zero-commission trading apps such as SoFi and Robinhood Markets, whose user-friendly interfaces made trading easy and fun.

While both GameStop and AMC Entertainment are well down from their all-time-highs, they remain up by over 400% from the start of 2021 and a basket of 37 meme stocks tracked by Bloomberg rallied 7.9%, looking set to snap a 5-day losing streak that wiped off over a fifth of value.

All things being considered, the Bloomberg tracker of 37 meme stocks is down only around 60% from a June 2021 high and that compares favorably to blue-chip tech companies, some of which are as much as 80% down from their all-time-highs.

It’s probably too early to call a rebound in meme stocks, but it’s definitely a sector worth keeping an eye on.

2. Meme Stock Platform Robinhood in Bed with Crypto Exchange FTX

• One of the world’s largest cryptocurrency exchanges by trading volume, FTX has made its founder Bankman-Fried a billionaire and when it was revealed that he owned a 7.6% stake in Robinhood Markets, shares of the online trading app surged by almost a third.

• Robinhood could see a second lease of life as a gateway to cryptocurrency trading which could get settled on FTX or allow it to offer access to cryptocurrency derivatives via LedgerX, moves that could shore up user and revenue base when the cryptocurrency markets rebound.

What happens when you take speculative assets like meme stocks and mix them together with even more speculative cryptocurrencies – the world is about to find out as shares of Robinhood Markets (+5.03%) surged after FTX founder Sam Bankman-Fried reports 7.6% stake.

One of the world’s largest cryptocurrency exchanges by trading volume, FTX has made its founder Bankman-Fried a billionaire and when it was revealed that he owned a 7.6% stake in Robinhood Markets, shares of the online trading app surged by almost a third.

Robinhood Markets was the poster-child for last January’s meme stock frenzy, a trade that is starting to show life again, with shares of AMC Entertainment and GameStop rising by around a third in as many days.

Robinhood has struggled since the meme stock frenzy of last January, with heightened regulatory scrutiny over its payment for order flow business to market makers as well as lifting pandemic restrictions seeing a sharp drop in trading activity.

Cryptocurrency trading on Robinhood, which contributed a healthy amount to the company’s revenue has also thinned as U.S. Federal Reserve rate hikes have soured sentiment on risk assets across the board.

By the end of last year, Robinhood had amassed an impressive 22.7 million users, but that pace of growth has slowed and the number of active accounts has declined sharply.

Robinhood’s founders see cryptocurrency trading as a potential area to focus on for its next phase of growth.

Crypto trading revenue contributed 18% of Robinhood’s total net revenue in the first quarter of this year, a sharp increase from the 13% in the last quarter of 2021.

Robinhood has also been quick to respond to market demand and listed four new cryptocurrencies, including Compound, Polygon, Solana and Shiba Inu and a strong partnership with FTX makes absolute sense.

Although the Robinhood stake is held by Bankman-Fried as an individual, FTX has been on an acquisition spree of late, from other cryptocurrency exchanges like Japan’s Liquid, to game developers to support its push into GameFi.

But more importantly, as the cryptocurrency sector has drawn more regulatory scrutiny, FTX has acquired LedgerX, a U.S.-regulated cryptocurrency derivatives exchange.

FTX is not regulated in the U.S. and is domiciled and regulated in the Bahamas.

But having strong partnerships with regulated brokerages like Robinhood as well as owning LedgerX will increase FTX’s ability to provide more comprehensive cryptocurrency and securities trading options through regulated entities.

Robinhood could see a second lease of life as a gateway to cryptocurrency trading which could get settled on FTX or allow it to offer access to cryptocurrency derivatives via LedgerX, moves that could shore up user and revenue base when the cryptocurrency markets rebound.

3. US$200 billion Cryptocurrency Bloodbath

• According to data from CoinMarketCap, a whopping US$200 billion of market cap was wiped out in just 24 hours from digital assets.

• The cryptocurrency sector looks like it’s due for a bit of soul-searching and there are signs that the smart money has moved into a sector that at the very least has some provable use case – blockchain gaming.

In what many have claimed was cryptocurrency’s Lehman moment, a whopping US$200 billion of market cap was wiped out in just 24 hours from digital assets, according to data from CoinMarketCap.

The collapse of the TerraUSD algorithmic stablecoin and the LUNA token that was used to stabilize it roiled cryptocurrency markets.

LUNA now trades at close to zero, from an all-time-high of US$119 while TerraUSD is cents on the dollar at the time of writing.

Although TerraUSD was a rising stablecoin, helped in no small measure by Anchor Protocol which promised 19.75% annual yields on deposits of the stablecoin, it’s not as systemically entrenched in the rest of the cryptocurrency market.

Nevertheless, concerns over TerraUSD’s failure, in what is supposed to be a stablecoin, rocked an industry that is accustomed to its fair share of price shocks.

By Friday in Asia, most cryptocurrencies had recovered, but are still down from before the collapse of TerraUSD, led notably by gains in GameFi projects such as Axie Infinity.

As in the Lehman crisis, there was no white knight, no 11th hour rescue for TerraUSD or Luna and while steep declines were marked across the industry, there are green shoots of a rebound.

Sentiment had been poor already before the TerraUSD failure, but the collapse of the algorithmic stablecoin also provided at least some investors with a lower jump-in point and that may have spurred some who had been sitting on the fence when it’s come to cryptocurrencies to take the plunge.

Even as Luna was plummeting to zero, there were still last-minute gamblers betting on the ferocious volatility in an attempt to make a quick buck.

The cryptocurrency sector looks like it’s due for a bit of soul-searching and there are signs that the smart money has moved into a sector that at the very least has some provable use case – blockchain gaming.

If DeFi was built purely on speculation, then at least with GameFi, investors could justify the entertainment value that will facilitate greater adoption of cryptocurrencies.