AB Moonletter🚀 #3

...a newsletter from the moon...

Apr 14, 2023

The AB Newsletter is for informational purposes only. Do not construe any of the following as investment, financial, or other advice. You make your own decisions.

The AB Moonletter🚀 is a culmination of research & perspectives from the diverse minds of the AB Team. Ultimately our focus and mission is financial freedom. Letter #3 includes:

Highlights:

Crypto Market - Macro Update
Digital Securities - BlackRock Enters The Chat
Traditional Finance (TradFi) - The Perfect Storm
Altcoins - Buys & Watchlist

1. Crypto Market - Macro Update: Blockchain Architecture Improving…

Following the latest Ethereum Upgrade “Shapella”(formerly known as Shanghai) on April 12th 2023, Ethereum has now completed its transition from a ‘Proof of Work’(PoW) blockchain to a ‘Proof of Stake’(PoS) blockchain. This massive live update process was rolled out in 3 stages over the course of 3 years.

Starting in December 2020, stage 1 was when “The Beacon Chain” officially launched, allowing Ether (ETH) holders to “stake” their ETH. Staking ETH allows holders to receive additional ETH rewards from new ETH issuance and protocol activity – broadly similar to earning dividends from holding a company’s stock – only much more evolved, complex and cool.

The second stage occurred in August of 2022 with “The Merge”. In short this upgrade “merged” Ethereum’s old blockchain history with its future blockchain history, improving compatibility between old and new network infrastructure, and reducing Ethereum's energy consumption by ~99.95%.

And now this week the completion of stage 3 (“Shapella”) finally enabled ETH stakers to withdraw their locked up ETH. When ETH staking first launched in 2020, staking was known to be a one way deposit until Shapella would arrive. Years later the upgrade has smoothly landed, proving incredible large scale network coordination and resilience. Amongst other achievements, this is a tremendous positive signal for investors of all sizes, as staking (passive yield) as an investment strategy has become far less risky.

2. Digital Securities - BlackRock Enters The Chat

The world’s largest asset manager, Blackrock, as confirmed by their March 17 investor letter is exploring digital assets in the form of digital equities held on a blockchain.

BlackRock CEO, Larry Fink believes “tokenization will be ‘the next generation for markets’”. BlackRock being one of the largest equity holders of private real estate and wealth assets, has true potential to shift markets and create market trends based on their own actions.

Backing assets (specifically private assets) to a blockchain can lead to increased liquidity, improved data, access to investors, and quicker settlement times. These are all notable benefits when considering how fragmented and analog most private assets are.

Larry cites the ability for blockchain to lower costs in both private and public market transactions. The powerful CEO expresses his belief that tokenization of real world assets is a better application of blockchain than to “speculative assets”. We take it he does not like DOGE. 🐕 Sad!

3. Traditional Finance (TradFi) - The Perfect Storm

It’s no secret the digital asset ecosystem undergoes market cycles, largely influenced by two major factors: the actions of the Federal Reserve, and Bitcoin Halvings.

The Federal Reserve's actions directly affect macro asset prices and economic activity, while Bitcoin Halvings influence the supply of Bitcoin, typically boosting the entire market's prices. When observing the market capitalization of the entire digital asset ecosystem over the past decade, it becomes evident that halvings and Fed actions demarcate the lows and highs of price cycles. Looking ahead to the next 12-24 months, two bullish catalysts are anticipated: Federal Reserve easing, and the 4th Bitcoin Halving. This suggests we are likely at the starting point of the 4th major price cycle.

Adding to the likelihood of this potential cycle is the growing mainstream narrative of de-dollarization and a banking crisis. This narrative began with the recent banking collapses and is being fueled by the BRICS nations taking steps to reduce their dependence on the dollar. As an alternative to the fiat currency system, the digital asset ecosystem is poised to gain traction during this tumultuous period.

Traditional financial markets remain range-bound as a series of long-awaited economic data emerges. The Consumer Price Index (CPI) increased by 0.1% in March and 5% year-over-year, marking the lowest levels since June 2022. These figures slightly surpassed the consensus estimates of 0.2% and 5.1%, respectively. This news brings relief to investors who continue to evaluate the Federal Reserve's strategy for curbing inflation and avoiding recession. Moreover, the Producer Price Index (PPI) declined by 0.5% in March and rose 2.7% year-over-year, significantly outperforming estimates of 0.1% and 3.0% increases.

As inflation cools and the Federal Reserve's plan yields results, a massive potential issue looms: the impending recession. The likelihood of an additional 0.25% rate hike in May has dropped to 68%, down from the 73% expected earlier this month. As the Federal Reserve wrestles with this decision, investors are growing concerned that a pause in rate hikes could lead to an inevitable recession, as seen in previous cycles.

On Wednesday, the Federal Reserve released the minutes from the Federal Open Market Committee meeting, in which officials discussed lowering the target interest rate due to its impact on the banking industry. Federal Reserve officials also considered the possibility of a rate hike pause in May and, unlike previous meetings, projected a "mild recession" for the second half of 2023. Before the banking collapses in March, the Federal Reserve had anticipated that the US would avoid a recession altogether. It appears the Federal Reserve officials have come to terms with the fact that the delayed start and rapid increase in interest rates have finally disrupted the US financial system.

The cryptocurrency market has not encountered a formal recession besides Covid, making it challenging to predict its response. Markets typically look ahead, so some analysts argue that the S&P 500 Index (SPY) and risk assets, such as cryptocurrencies, have already priced in the forthcoming recession. Fortunately, as mentioned earlier in this newsletter, the digital asset ecosystem is likely to be invigorated by the upcoming Bitcoin Halving and Federal Reserve's dovish stance – irrespective of a recession happening or not.

4. Altcoins: Recent Buys & Watchlist

Disclaimer: Our buys & watchlist should not be takin as financial advice nor investment suggestion. We share this information in the nature of education & transparency. We value the ability for our network to be aware of new projects and ecosystems we are actively researching/participating in. Always invest responsibly. And remember…Fundamentals over Pumpamentals!

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