Hello Investors,

In this edition:

1. Inflation, rate cuts, and FED all over again - What does higher CPI mean for investors?

2. Halving is coming

3. Ethereum ETF hopes fade

4. EigenLayer closer to Mainnet

5. SEC takes on Uniswap

Enjoy.

Inflation, rate cuts, and FED all over again

Yesterday was a CPI* day. And it disappointed the markets.

The US inflation in March rose by +0.4%, the same as the month before (s), which means the actual numbers are higher than the expectation.

*CPI is a consumer price index, the price of a weighted average market basket of consumer goods and services purchased by households.

Impact 1 - Rate cuts

This leads to the probability of rate cuts in June decreasing to just a 16% chance, shifting the anticipated timing to the September FOMC meeting.

You can track the FOMC meetings and expected rates at CME FedWatch Tool.

Impact 2 - Markets

Both S&P 500 and Nasdaq lost 1%, while crypto is surprisingly stronger and gains +1.55%.

These are not big moves and suggest investors are already tired of the inflation speculations.

The impact on the bond market is bigger, there is a direct inverse relationship between the interest rates and bond prices.

Impact 3 - Elections

Higher inflation also puts a lot of pressure on the current administration, mainly the FED’s chairman Jerome Powell, and Joe Biden as the president.

No matter how strong are other economic data it is how people feel about the economy that matters.

Seeing higher prices affects the upcoming elections where Joe Biden would be losing votes as perceived as damaging to the economy, while the opposing candidate could be seen as a solution.

Donald Trump already mentioned many times he does not approve of Jerome Powell’s policy and he will not remain the chairman of FED if Trump gets elected.

My Take

Seeing disappointing numbers 4 times in a row brings more attention to economist Lawrence Summers, who predicted post-covid high inflation.

Lawrence believes FED will not cut the rates, but the next move will be up again.

If that happens, the markets could experience significant turmoil, potentially resulting in swift pullbacks, as the current sentiment is expecting more liquidity coming in, not out of the markets.

This is perfectly aligned with my long-term market expectations.

The rate cuts will bring liquidity and that’s inevitable, but also it will take longer than many investors expect. I’m looking toward the end of this year, maybe even the beginning of 2025.

Before that, we will either see calm periods during summer or, if Lawrence’s vision of rate hikes starts to play, a few important corrections that would mark great entry points - to buy the dip.

I keep buying my monthly “boring” DCA portfolio - a mixture of stocks (US, China, EMs), Bonds (Long-term > Short-term), and commodities.

I’m taking profits on individual stocks and dividends, and putting that into crypto with every dip.

I’m ready to rotate even more into crypto if I see a correction there. Otherwise my ratio stocks:crypto is already where I wanted it to be and I’m happy to keep it unchanged as well.

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Halving is coming (s, s, s)

• The 4th Bitcoin halving is coming on April 19 (most likely).

• However, according to Wintermute, miners have been steadily selling Bitcoin.

• So much so that their holdings reached a three-year low in BTC terms.

• That is an unusual move since halving is perceived as a catalyst for the bull run.

My Take:

Selling before the event is a sign of anticipated correction and “sell the news”.

Historically the market didn’t start moving right after halving, this effect takes longer to show off.

This year it might be slightly different with institutions onboard - they don’t plan their buying according to halving, they set up a strategy for months and years, and follow that.

Ethereum ETF Hopes Fade (s)

• Speaking at the Paris Blockchain Week, VanEck CEO Jan van Eck shared his pessimism about the chances of an Ethereum ETF approval.

• "We were the first to file as well for Ethereum in the U.S., and we and [Ark Invest CEO] Cathy Wood, are kind of the first in line for May, I guess, to probably be rejected," he told CNBC's Arjun Kharpal.

• The final deadline is the end of May.

My Take:

The approval is coming, that’s clear, but the question is when and how it will impact the price in the short term.

For me, a long-term investor and believer in ETH, this can only bring a new buying opportunity based on FUD around the end of May.

EigenLayer closer to Ethereum mainnet (s, s)

• EigenLayer, a hyped restaking protocol with over $13 billion locked, is getting closer to exiting Testnet and hitting the real world.

• They opened the restaking delegation on Tuesday.

• The first AVS will be the Eigen Labs-built EigenDA, but others are expected to come in the next weeks.

• Payment (yield) to restakers and node operators will be postponed until the market stabilizes.

• Some concerns have been raised about potential risks associated with restaking.

My Take:

Many people anticipate a significant airdrop and a new big player to enter the DA narrative together with Celestia.

I’m not smart enough to fully understand the risks associated with EigenLayer.

To me the problem is always there when you start introducing extra layers, complexities, and especially financial derrivates - just remember the 2008 housing market.

Yet I’m a big fan of modularity and I’m really looking forward to how the DA layers will change the Ethereum ecosystem. Time will tell.

SEC takes on Uniswap (s, s, s, s)

• Yesterday, the SEC delivered a Wells Notice to Uniswap Labs, indicating that they intend to pursue enforcement action against them.

• It’s the never-ending fight of what’s security, and who meets the criteria of a securities broker or an exchange.

• “This fight will take years, may go all the way to the Supreme Court, and the future of financial technology and our industry hangs in the balance,” Uniswap inventor Hayden Adams said. “If we stand together we can win.”

• Uniswap is down 16% after the announcement.

My Take:

We covered this in the last newsletter when discussed the SEC vs. Ethereum.

I feel Gary Gensler is trying as much as possible before he leaves the office, most likely next year after the elections.

But in general, this worries me because of a simple thing - if the SEC and other regulators forbid the usage of decentralized solutions, centralized alternatives will take place.

That means switching from UniSwap to the TradFi version of UniSwap, controlled and overseen by a big company, possibly creating another FinTech giant, like Revolut, Robinhood, and others.

Similarly to changing from USDT to a central bank-controlled CBDC.

This is one of the reasons why I don’t favor tokens of top-tier DeFi protocols. Others might be targeted as well, resulting in price dips, while the smaller projects rise higher on similar news.

What’s your big highlight of this week?

All the best,

Matt.