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The first cryptocurrency has risen 30% in the last month, coming close to the $58,000 per BTC level. There are two reasons contributing to this move. They are crucial to understand what will happen in the coming years. So let’s focus on one of them in more detail today. And in upcoming articles on the other one.

BTCUSD

El Salvador has officially recognised bitcoin as a means of payment. Everyone has heard about it. But few have analysed the dynamics. And it is disastrous for the first cryptocurrency’s enemies.
The small state in South America is landlocked. The population is poor, even by the standards of Brazil and Argentina on the same continent. And almost 50% of families receive remittances from more fortunate relatives working in the US.
These remittances are probably where it all started. International payment systems such as Western Union charge a 5%-10% fee for the small amounts of remittances that Salvadoran citizens receive. But that’s hundreds of millions of dollars every year that just goes to waste in an already poor country.
Now all these commissions are effectively nullified. And all the money stays with the residents receiving the transfers. Yes, that’s not enough. Recognition of cryptocurrency means being able to pay for everyday goods and services with it. This has been made possible by the government, through a mobile app. Most of the country’s citizens have installed it.
And now for the worst nightmare for the IMF and central banks printing empty money. It turns out that 4 times more BTC is flowing into the wallets of Salvadorans than is going out. This is very, very important. That is, uneducated citizens, most of whom don’t even have a bank account, have realised the truth. Bitcoin, in their case, is not only a form of receiving transfers from abroad from relatives. It is also a substitute for banks + a means for investing, which they have been deprived of throughout their lives.
We’ve heard a lot of opinions on whether or not bitcoin is needed by the common people of planet Earth. In El Salvador, a real-time experiment has been put in place to show what’s in store for us in the coming years. Bitcoin will be recognised in many countries around the world. And their populations will start using it as a means of savings. And the more it is saved, the faster the price of the first cryptocurrency will rise.

08.00 German consumer price index for September
14.30 US Consumer Price Index for September
20.00 US Federal Open Market Committee meeting minutes

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

The first trading week of October is coming to an end and it is ending on quite a positive note. There is plenty of good news in the USA regarding the economy, which restores optimism in the markets and once again makes you buy.

S&P500

The first positive news is the clearing up of the crisis around the US national debt ceiling. There has been a proposal to suspend the national debt ceiling until early December, and the Senate majority leader has confirmed that such a proposal is likely to pass. Of course, no one thought that the government would allow a default. After all, it has been done so many times before. It would be better to abolish the ceiling altogether so as not to temporarily confuse investors. It will be impossible to stop the growth of debt in the foreseeable future anyway.
The second piece of news is that energy resources are getting cheaper. Vladimir Putin’s well timed speech about Russia’s willingness to increase gas supplies to Europe has dampened the fervour of the market and resulted in UK spot gas prices falling by almost 50% and futures prices falling by 7% over the next month. Optimism is returning. Following gas, oil began to fall. A record rise in US inventories, as well as statements by the US that it might be selling oil from its strategic reserves, put pressure on the market. As a result, oil fell to the $76 level. Demand for oil remains strong, so a correction is likely to be short.
And the third news is the virtual meeting between Biden and Xi Jinping before the end of the year. A good sign for a warming of US-China relations. Perhaps the leaders will discuss the current sanctions on Chinese companies that have been imposed by Trump. So far, Biden has yet to lift any.
Overall we can say that the backdrop is positive and the correction is probably over. Although many thought that rising bond yields would stop the stock market but the current percentage is not sufficient for that yet. For the big players to start moving into bonds, yields have to be at least 2%.

08.00 German trade balance for August
14.10 Address by ECB head C. Lagarde
14.30 US nonfarm payrolls for September

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

While the stock market is hanging sideways, it is worth looking at what is happening with bitcoin. The first cryptocurrency is approaching the next levels, which investors will be watching closely. The positivity in the crypto market is evident.

BTCUSD

There is likely to be a new period of growth for all cryptocurrencies. And here’s why. Just recently, Bank of America published a fairly large report on the prospects and trends of cryptocurrencies. According to the bank, cryptocurrencies are bringing new tools into the financial world, and blockchain technology will help develop new systems and business opportunities in the near future. One such example is the emergence of non-fungible tokens (NFT) and decentralised finance (DeFi).
The share of digital assets in investments by various companies is growing exponentially. The bank also noted that bitcoin has recently correlated better with inflation than gold. It is likely that very soon bitcoin will be used as digital gold, which is easier to buy and sell. Quicker to transfer, and also very easy to transfer or hide. The conclusion of the Bank of America report is that the world is at the very beginning of a long phase of blockchain technology adoption.
Jerome Powell’s announcement that no serious bans on cryptocurrencies are going to be imposed is an additional contribution to the current rise in bitcoin. Only the regulation of certain stablecoins needs attention.
So far, only the strong volatility of the instrument is making adjustments to its use. But as bitcoin’s capitalisation increases, its volatility decreases. Quite in the future, capitalisation will increase and there will no longer be sharp fluctuations. But as the saying goes, if capitalisation goes up, the price will go up, as there are a limited number of bitcoins in total.
Given rising energy prices, rising real estate values in the US, and inflation gaining momentum, bitcoin’s value will continue to rise. This active phase could continue until Christmas and the New Year holidays.

08.00 German industrial production for August
14.30 US initial jobless claims

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

The oil market is already up 60% since the beginning of 2021. The overbought nature of this asset is already beyond all bounds and technically there should be a reversal somewhere, but in this situation the trend is likely to continue.

OIL.WTI

The energy crisis is escalating. Gas has become so expensive that it will soon become cheaper to heat with oil-based products. The increase in production, together with the start of the heating season, has additionally made adjustments to the oil price.
All would still be well, but on Monday after the OPEC+ meeting it became clear that no build-up beyond current levels would take place any time soon. Moreover, there was not even an official statement on the current situation after the meeting. Everything remains at current levels and OPEC+ is happy with this situation. At least there were thoughts that OPEC+ would not allow oil to rise too much, so as not to taunt competing shale oil companies in the US.
The picture ahead is not yet very clear as to what levels oil could rise to. In the short term, fuelled from all sides, prices could fly quite high. As high as $90-100/bbl. Such high prices would in any case put pressure on the economy. Because of this pressure, demand for oil is likely to fall, and the price of black gold will fall as a result. For commodity markets, and oil in particular, there is a very good saying said by a fairly respected analyst – “High prices are the best cure for high prices”. And it almost always works.
It is also worth remembering that high oil prices have a direct impact on pricing. So high prices are accelerated inflation. Inflation in developed countries is now quite high and no one wants to see it go any higher.

11.00 EU retail sales YTD
14.15 ADP US private sector employment report for September

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

There are more and more moments in the market which indicate that troubled times are approaching. One of these moments can be seen in the Dow Jones, which right now on the daily chart is ending its uptrend and moving into a correction phase, or into the beginning of a downtrend.

Dow Jones

Unlike the S&P500 index, the DOW index includes the 30 largest US companies and shows what kind of mood investors now have towards the most powerful players in the US stock market. And the mood, unfortunately, is not a good one. If the biggest 30 companies are not growing, where will the rest get their strength from? Is the economy so strong that the big players don’t care about these companies at all?
In fact, the entire US market is now in search of some sort of vector of movement. The news buzz about the adoption of a sovereign debt ceiling is interrupting other issues that are emerging in the economy. It’s even laughable somewhere to see dignitaries talking seriously about raising the public debt limit in the US. Over the last 60 years, the flow of this debt has been raised 80 times. And here comes another moment when it has to be done “again”. Isn’t it ridiculous that it will be raised anyway? Maybe the moment should even have been cancelled in the US, because it only takes time and wastes the same public money while people are sitting. With the size of the debt, it is clear that it will go up further and for quite a long time.
The global crisis is escalating. Electricity problems in China will hit all manufacturing in the Middle Kingdom. Because China is “the world’s factory for just about everything,” there will be delays in the delivery of quite a large list of goods, which in turn will affect employment, sales and many other economic factors.
On October 1, a new fiscal year begins in the USA. New thoughts, new plans and new ideas. Usually October has always been quite positive for the markets, but will it be this year? The question remains open, given that the latest data shows that unemployment in the USA is starting to rise.

08.00 German retail sales YTD to August
11.00 EU Business Activity Index YTD
16.00 ISM manufacturing activity index in the US for September

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

The energy crisis in Europe is challenging the development of the European economy. The heating season is starting and there is not enough gas in storage. Gas prices have already risen above $1,000 per 1,000 cubic metres, putting strong pressure on the European currency.

EUR/USD

Additionally, oil prices are causing further turmoil for the Euro. It would seem that further growth in oil is being held back by already high prices, but production problems in the Gulf of Mexico as well as the emerging power supply crisis in China are keeping the price of black gold quite strongly in check. What will happen in China next is not very clear. Coal prices have soared to record levels; China is forcing production to shift to a 3-4 day work week to smooth out electricity consumption. China is now trying quite bravely to start changing its production and switching to environmentally friendly fuels, including gas and oil. This makes the whole energy market look scarce and strengthens the US dollar quite a bit.
In due course risky assets have been falling for several trading sessions. Investors are still wary of high inflation, which Jerome Powell talks about practically every time he gives a speech. And according to his statements, the high inflation zone will continue for some months to come.
Unfortunately the EUR/USD broke through the yearly support zone located at 1.1690-1.1670. Demand for the dollar is still high, as many investors have started to switch from risky assets to cheaper bonds. In the near term, a rise in the pair is possible, as the dollar is strengthening almost all September and a correction is inevitable, but a trend change can only happen after the energy market cools down.

08.00 UK second quarter GDP
14.00 German Harmonised House Price Index YTD
14.30 Annual US GDP data

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

It’s time for another round of pressure from China on Bitcoin. Last week China imposed additional restrictions. The list is quite large, and this time it will not only apply to legal entities but also to individuals.

BTCUSD

This news immediately knocked bitcoin down almost 10%, but are these bans really scary? Chinese cryptocurrency exchanges are already starting to shut down user accounts. It will likely be more difficult for Chinese residents to transact in cryptocurrencies now, but they will be anyway. Already we can see that such bans are benefiting so-called decentralised exchanges, such as Uniswap. This is essentially just a specific protocol that allows exchanges to take place between two users. It is not geographically located in any way, nor is it subject to any jurisdiction. Users will go there and continue to use cryptocurrencies. Therefore, these bans should not affect the bitcoin price very much.
It has long been clear that China does not have the power to completely ban cryptocurrencies, and most crypto investors have been watching the China-Bitcoin standoff for a long time. If such bans were implemented in the US, this market could be killed off very quickly, but for some reason the US does not do that. On the contrary, bitcoin futures are trading very well on the CME. There are rumors that the American top brass has created this product for implementing their future goals for the digital dollar.
Another thing is that bitcoin may be heavily influenced by the winding down of the QE programme in the USA. Which may start very soon.
The first hints of a rollback are already appearing in the bond market. The yields of the two-year Treasuries have reached a new high since the start of the coronavirus pandemic. In the medium term, if the sell-off in the bond market continues and yields rise, we could well see a revaluation of risky assets and hence a possible sell-off. In such a situation, bitcoin will have a hard time holding current levels.

11.00 EU industrial business optimism indicator for September
17.45 Address by Fed governor J. Powell
17.45 Address by ECB head C. Lagarde

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Still, the external backdrop for oil has been so strong and favourable that our past thinking has not yet been very realistic. In the future there will still be a decline in oil, but why there is such an increase now, let’s look into it.

OIL.WTI

Still, Hurricane Ida did a lot of business in the Gulf of Mexico, so quite a number of rigs have not been able to resume operations so far. One positive factor has been the strong decline in oil stocks in the USA. Stocks in the US have fallen significantly. But there are also signs of a possible imminent correction. Data from China, the main exporter, showed that oil consumption was at a record low for the last 15 months.
However, speculators who are very interested in the level of 80$/barrel are now in action. They might try to take that level by the end of the year because, first of all, the energy crisis in Europe is still going on. Gas is not going to fall. Secondly, the quantitative stimulus programme continues in both the US and Europe. This is going to have a big impact on the price of energy. Thirdly, winter and the heating season are starting, which will contribute to price adjustments. Fourth, economies are picking up. Imports need to increase in order to ensure GDP growth. With a pandemic and closed industries, this is harder to do. Oil demand is likely to grow faster than production growth.
This implies that the oil market will be quite volatile with a probability of a rise to the $80 mark. Of course this market is influenced by so many different factors and cannot be predicted long term, but the current situation at the end of 2021 shows that oil is in good demand.

14.30 US Durable Goods Orders for August

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

So the Fed meeting is over. Of course, many people were expecting some specific statements from it, but we did not get anything much. Jerome Powell said that he keeps pumping money into the system and thus maintains a favourable atmosphere for economic growth, and very briefly hinted that we will talk about future plans in October, when there will be more stable data on unemployment and inflation after all.

EUR/USD

The dollar is under attack. Not only has the Fed only hinted at a possible announcement of a plan to roll back support only in October, but problems with a possible default are increasing in the USA. Republicans are in no hurry to accept increased limits because of disagreement with Biden’s economic programme. If the congress does not agree on raising the debt ceiling, the Treasury will run out of money in October. That in turn will lead to a suspension of state employees’ salaries and various allowances. Such a situation would definitely put additional pressure on the US economy.
What does all this mean for the currency market? At the moment all central banks continue their programs to support the economy. But the practice shows that when investors start buying risky assets again, the dollar sinks. Because most commodities and stocks are traded in USD.
Therefore now after the meeting EUR/USD has a good opportunity to rise to 1.1820 and then to 1.1890 -1.19 in the medium term. If there are more problems with the sovereign debt ceiling, we could see short-term moves up to 1.1950.
Of course the European Central Bank will be watching the situation closely as Europe does not need an expensive Euro and is likely to make some manoeuvres to mitigate the fluctuations.

01.30 Japan National Consumer Price Index YTD
13.00 IFO business optimism gauge in Germany
16.00 New home sales in the US for August

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.

Bitcoin, an asset that is very prone to manipulation. Cryptocurrencies are now under the gun during the difficult situation with the quantitative easing programme because they are a risky asset.

Bitcoin

Why it is not a good idea to consider current positions for buying. First of all the problems in China with Evergrande. Even though it is a local Chinese company, but still if things go very badly there, it will affect the whole financial system. Not as dramatically as with Lehman Brothers, but the volatility will definitely increase. Money will very quickly run away from risky assets to a calmer place.
The second reason is the Fed will sooner or later begin to roll back its stimulus programme and this will once again affect risky crypto assets.
Another hint that cryptocurrencies are in trouble was the US Federal Reserve’s announcement that Stablecoins pose a serious threat to the financial security of countries around the world. Unregulated analogues of official money can undermine countries’ economies at any moment, and regulation of such currencies by states is very close.
The technical picture for bitcoin does not show anything good either. On the higher timeframes, a bearish movement is already visible. Risk appetite will fall more and more as the situation in the global economy is getting worse.
What can be said optimistically. The cryptocurrency infrastructure is developing. Countries are officially accepting bitcoin. Many countries are considering digitalising their currencies, so bitcoin is not going anywhere. Right now, this cryptocurrency should be seen as a highly volatile investment and nothing more. But while the turmoil of support contraction hangs over all global financial markets, it is worth refraining from buying such assets.

09.30 Markit Composite Business Activity Index for September
13.00 Bank of England meeting minutes
14.30 US initial jobless claims

Important Notes on This Publication:

The content of this publication is for general information purposes only. In this context, it is neither an individual investment recommendation or advice nor an offer to purchase or sell securities or other financial products. The content in question and all the information contained therein do not in any way replace individual investor- or investment-oriented advice. No reliable forecast or indication for the future is possible with respect to any presentation or information on the present or past performance of the relevant underlying assets. All information and data presented in this publication are based on reliable sources. However, Bernstein Bank does not guarantee that the information and data contained in this publication is up-to-date, correct and complete. Securities traded on the financial markets are subject to price fluctuations. A contract for difference (CFD) is also a financial instrument with leverage effect. Against this backdrop, CFD trading involves a high risk up to the point of total loss and may not be suitable for all investors. Therefore, make sure that you have fully understood all the correlating risks. If necessary, ask for independent advice.