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Good morning everyone,

Last week's volatility has subsided. Bitcoin has been trading sideways for most of the week. But make no mistake, that doesn't mean there isn't more volatility ahead.

In The Pomp Letter this week I came across this chart which shows a 25% increase in volatility from July to November of election years. Keep in mind that crypto amplifies the volatility of traditional markets. This gives you an idea of how choppy things could get over the next three months leading up to the US presidential election in November.

Remember, the big money is in the waiting, as Charlie Munger famously said.

In the meantime, here are three news stories I found interesting this week.

DISCLAIMER: This newsletter is not financial advice. It does not take into account your financial situation, is general in nature, and is for educational purposes only.

Also, this newsletter contains affiliate links. This means that I may receive a commission from them. But for Crypto Down Under, I only choose products I use myself and can recommend wholeheartedly. Don’t forget to do your own research.

1. Interest rate relief

The Reserve Bank of New Zealand (RBNZ) cut its cash rate by 25 basis points to 5.25% this week. The move came as a surprise, with economists expecting the central bank to leave rates unchanged at 5.5%.

The RBNZ also lowered its forecast for the cash rate to 4.92% by December, implying another rate cut before the end of the year.

As noted in this newsletter, we've seen the beginning of the end of the global tightening cycle.

With a few exceptions, the world's developed economies move in unison, tightening monetary policy (aka raising interest rates) when inflation gets too hot, and loosening monetary policy (aka lowering interest rates) when inflation comes down to its target range and the economy shows signs of damage (for example, when unemployment rises).

Not all economies have raised interest rates to the same level, and not all are lowering them at the same pace. Australia, for example, has a moderate cash rate of 4.35%, compared with a federal funds rate of 5.25%-5.50% in the US. By the same token, Australia may see its first rate cuts later than the US.

However, the RBNZ's rate cut is a clear sign that the current tightening cycle is coming to an end. New Zealand was the first economy in the Asia-Pacific region and the first of the G10 currency nations to raise interest rates in October 2021. The cash rate has been 5.5% since May 2023.

The advantage of being an early mover is that you also get out early on the other side. That now appears to be the case for New Zealand.

In similar news, US CPI (aka inflation) data rose 0.2% in July, in line with expectations, bringing the 12-month inflation rate to 2.9%.

Long story short: The stage remains set for the Federal Reserve to start cutting interest rates at its upcoming meeting in mid-September.

2. Goldman Sachs is eating its own words (again)

“We’re not believers in crypto”, Sharmin Mossavar-Rahmani, the chief investment officer of Goldman Sachs' wealth management division, told the Wall Street Journal in April.

“We do not think it is an investment asset class.” 

I warned you in this newsletter not to listen to what crypto critics say, but to look at what they do.

A few weeks ago I mentioned that Goldman Sachs' global head of digital assets announced that his firm was planning to launch three tokenization projects by the end of the year.

Well, once again it turns out that what Goldman Sachs is doing is the opposite of what it's saying.

According to a 13F filing, Goldman Sachs holds over USD400 million in Bitcoin ETFs.

A 13F filing is a quarterly report required of all institutional investment managers with at least USD100 million in assets under management. It discloses their stock holdings and can provide insight into what the smart money is doing in the market.

According to the filing, Goldman Sachs holds positions in seven of the 11 Bitcoin ETFs in the US.

Long story short: It's still early days. Bitcoin adoption takes time. Mahatma Gandhi famously said, "First they ignore you, then they laugh at you, then they fight you, then you win." I think we are somewhere between the "then they fight you" and "then you win" stages.

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3. Stablecoins are coming soon to a wallet near you

In crypto, Bitcoin and stablecoins are the two things that "normies" (non-crypto people) tend to understand quickly.

Bitcoin because it can be described in a one-liner as "digital gold". (I think in a few years we'll be calling gold "analog Bitcoin". Just saying.)

And stablecoins because they are easy to understand. They behave like the US dollar or any other government-issued currency, but in the digital realm and without the payment rails of a bank.

Everything else in crypto, which can be summarized as DeFi or Web3, is much harder to understand, partly because the industry is still figuring out the product-market fit. (Point in case: Is Ethereum ultrasound money or an app store for the next generation of internet services? Who knows.)

My take is that Bitcoin and stablecoins will see the fastest adoption, Bitcoin as a store of value (aka for saving) and stablecoins as a medium of exchange (aka for spending).

This week we saw some progress in making stablecoins more accessible.

First, Apple will begin allowing third parties to use the iPhone's payment chip to process transactions, a move that will allow users to set any wallet of their choice as the default option.

The move follows years of pressure from regulators, including those in the European Union. Apple said it will allow developers to use the component starting with iOS 18.1, an upcoming software update for the iPhone.

Put simply, the move will allow users to use crypto wallets to tap and pay with stablecoins on their iPhones.

Second, MetaMask, the popular self-custodial crypto wallet for Ethereum, will begin rolling out its blockchain-based debit card, developed in partnership with payments giant Mastercard and crypto payments specialist Baanx.

Again, the move will allow users to spend stablecoins with a debit card linked to their MetaMask wallet.

The MetaMask card will initially be available to users in European Union countries and the UK. Full rollout to other regions is planned for the coming quarters.

Long story short: Some jurisdictions, such as Australia and the US, are still lagging in terms of a clear framework for stablecoin regulation. Once this is in place, I expect stablecoins to be adopted fast and furious.

Have a great weekend, everyone.

Want to store your Bitcoin yourself in a cold wallet? Use the link below to purchase a Ledger Nano S Plus wallet.

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