Daily Briefing: Blood in the Streets

Timothy Craig

Oct. 4, 2022

Bitcoin has held up against a slew of worrying news that might have sent it tumbling, signaling a shift in sentiment may be underway.

Shutterstock photo by Morrowind

Key Takeaways

Rumors of trouble at Credit Suisse and renewed missile tests from North Korea are the kind of news that normally rattles markets, but Bitcoin is holding steady.
As bond yields drop, investors may be looking toward crypto as an alternative place to park their money.
When news that normally shakes an asset stops having that effect, it's time to pay attention.

Amid rumors of a Credit Suisse default and further disruptions to geopolitical stability, a modest shift in sentiment seems to be unfolding in the crypto market.

Unfazed

This week, rumors that investment bank Credit Suisse could soon default is the big talking point. Everyone from Justin Sun to Jim Cramer has commented on the topic du jour and what a Credit Suisse collapse could mean for the broader financial markets. Many have noted that the bank’s implosion could cause contagion that would rival the 2008 financial crisis. Credit Suisse’s assets under management total a whopping $1.5 trillion—more than double the amount Lehman Brothers held when it went under.

If a major bank’s potential collapse wasn’t enough to put a damper on risk assets like stocks and crypto, North Korea has started firing off missiles over Japan again. After a five-year hiatus, the isolationist nation launched an intermediate-range ballistic missile that passed over the north of Japan and landed in international waters about 2,000 miles east of the country. The launch marks the third time North Korea has fired missiles directly over Japan.

With such worrying news, the expectation is that riskier assets such as crypto would head lower as investors flee to safer assets such as cash or bonds. However, despite this “conventional wisdom” seeming to work in the past, it appears that many investors are unfazed by these recent developments. Bitcoin has kept within a tight trading range, potentially signaling that selling pressure is drying up. And when events that would normally move the market fail to do so, it’s time to start paying attention.

While the market is clearly undergoing a change in sentiment, be careful not to get caught up in false narratives. Last week, everyone on social media appeared to be an expert on foreign exchange markets when the Great British Pound dropped hard against the dollar. Many were convinced the U.K.’s currency would follow the euro to the downside, but it’s since recovered, helped by the U.K. government’s u-turn on its recent tax cuts. Now with Credit Suisse in the limelight, the same pundits have suddenly become experts in credit default swaps.

I’m not knowledgeable enough about Credit Suisse’s situation to provide any meaningful commentary, but I will point out that the most accurate theories are often the simplest. I won’t make any bold predictions on where the market is heading in the short term, but I will share a straightforward explanation for why risk assets might be catching a bid despite all the negative news.

U.S. bond yields have soared since the Federal Reserve started raising interest rates in March this year. However, after hitting a peak of just over 4% on September 28, U.S. 10-year bond yield has been steadily dropping over the past week. Is it simply that when the risk-free rate drops, investors look toward riskier assets for exposure? I’ll leave that up to you to decide, but if you believe bond yields have peaked, then there’s a good argument to say that risk assets like crypto will have a hard time going lower.

Disclosure: At the time of writing, the author of this piece owned ETH, BTC, and several other cryptocurrencies. The information contained in this article is for educational purposes only and should not be considered investment advice.