Crypto News

Sam Bankman-Fried: Sentenced to 25 Years In Prison For Fraud

Sam Bankman-Fried, aged 32, co-founder and former owner of the once-dominant cryptocurrency exchange, FTX, has been handed a 25-year prison sentence.

In November 2023, the disgraced executive was convicted of grave financial crimes, including fraud and money laundering. These offences led to the complete collapse and bankruptcy of his company, causing significant harm to customers and investors.

Bankman-Fried was found guilty of embezzling billions of dollars from FTX customers. He used these ill-gotten gains to purchase property, make political contributions, and invest in other ventures. Despite pleas from his defence team for leniency, Judge Lewis Kaplan emphasised the severity of his financial misconduct during sentencing. The judge noted Bankman-Fried's lack of remorse and his untruthfulness during the trial.

The impact of these events on Bankman-Fried's family, particularly his parents, has been profound. They expressed deep sadness and pledged continued support for their son as his legal team prepares to appeal the verdict.

While prosecutors argued for a prison term of over 40 years, Bankman-Fried's defence sought a much shorter sentence of 5 to 6.5 years, citing his autism as a mitigating factor. However, Judge Kaplan rejected this argument, stating that the imposed sentence should suffice to deter future criminal behaviour. Despite Bankman-Fried's acknowledgement of managerial errors, the judge emphasised his refusal to fully accept responsibility for his actions, particularly his theft of over $8 billion from customers.

As part of his punishment, Bankman-Fried has been ordered to repay $11 billion to compensate his victims. This sizeable sum will likely consume the remainder of his life, effectively preventing him from any future investments. Judge Kaplan recommended that Bankman-Fried be housed in a non-maximum security prison, as he is not deemed a violent threat by the court.

Kucoin Under Fire: Crypto Exchange Accused of Criminal Activity by Regulators

The second-largest cryptocurrency exchange globally, Kucoin, boasting over 20 million customers, finds itself in dire straits as it grapples with allegations of illicit activities involving two of its founders, Chun Gan and Ke Tang. Facing charges of facilitating money laundering, fraud, and the employment of ransomware, the exchange is under intense scrutiny, sending shockwaves through the cryptocurrency community. With traders and investors likely rushing to withdraw their funds, Kucoin's future hangs in the balance.

The U.S. Department of Justice has levelled serious accusations against Kucoin, asserting that it flouted regulations mandated by American regulatory bodies. Notably, the exchange failed to register with the Commodity Futures Trading Commission (CFTC), prompting legal action. Moreover, Kucoin's lax implementation of essential protocols, such as verifying millions of customers and establishing a robust 'Know Your Customer' framework only last year, enabled illicit activities. Criminal elements could exploit the exchange to launder money, raising significant concerns.

The case also implicates Kucoin in dealings with Torando Cash, allegedly linked to a sanctioned crypto mixer. An individual associated with this mixer received a substantial sum of over $3.2 million in cryptocurrency, further tarnishing Kucoin's reputation. Reacting to these developments, authorities, including Homeland Security and U.S. attorneys, accused Kucoin of attempting to conceal its U.S. user base, highlighting its prominent role in the cryptocurrency sector.

Following the announcement, Kucoin's value plummeted by 5%, reflecting investor apprehension. This narrative echoes a similar trajectory seen with Binance, embroiled in legal controversies leading to the departure of its CEO, Changpeng Zhao, in November 2023. Despite the uncertainty, Binance managed to weather the storm. The question now looms: Can Kucoin emulate Binance's recovery, or will it succumb to the mounting pressure? Only time will tell.

Unprecedented Surge: Real World Assets Reach Record Highs

The tokenisation of Treasury Bonds has soared to an impressive $1 billion mark, reflecting the fervour within the cryptocurrency sphere for Real World Assets. In recent months, this trend has been particularly pronounced, with investment behemoth BlackRock leading the charge by introducing its own USD Institutional Digital Liquidity Fund (BUIDL). This tokenised fund comprises cash, U.S. treasury bills, and repurchase agreements, positioning it as a close contender to Franklin Templeton’s Franklin OnChain U.S Government Money Fund (FOBXX).

The value of Real World Assets has skyrocketed by as much as 1200% since the year's inception, fuelled by companies acquiring assets and subsequently converting them on blockchain platforms like Ethereum, Polygon, and Avalanche.

Beyond conventional financial assets and monetary transactions, tokenisation has extended to encompass other valuable assets like property and gold, historically regarded as effective hedges against inflation. This transformation of Real World Assets into tokenised forms underscores the immense potential of blockchain technology and the broader crypto-space.

Crypto Analysis

Bitcoin (BTC)

Bitcoin closed the week consolidating at recent highs, signalling a potential retest of the March 14th all-time high of $73,794, albeit accompanied by some short-term sideways movement.

As mentioned in last week's analysis, the prior week ended on a bullish note with Bitcoin producing a significant green candle on Sunday. The following day, price smashed through and closed above daily resistance around the and attempted another bullish move, though ultimately closing below the daily high. Since then, there has been a retest of the former resistance level and the 10-day exponential moving average (EMA), both of which have now turned into reliable support levels, although we are producing this sideways chop. At the current time of writing on Monday afternoon, Bitcoin is currently retesting that 10-day EMA.

On Sunday, another bullish candle formed, indicating strength at the upper end of the consolidation zone highlighted by the rectangular green-shaded area. The 100-day and 50-day EMAs continue to slope upwards, indicating a robust primary uptrend, while the RSI remains in mid-range, suggesting potential for further growth. Volume is decreasing as price is moving sideways which could be a sign that a larger move is about to happen.

The weekly chart illustrates a successful test of weekly support at the 0.236 Fibonacci level from the September lows to the recent all-time high, which stood at $62,260. This test resulted in an extremely bullish pin-bar formation and last week saw a break above the previous week's high, further confirming bullish sentiment.

In examining the monthly chart below, I aim to explore potential scenarios with a bold and possibly extravagant perspective. The chart presents an outlook that aligns with this approach. My decision to use the all-time low as the starting point for the Fibonacci Trend Extension, as depicted in the left-hand chart, stems from the recent printing of an all-time high. This choice offers, although slightly eccentric, in my view, gives the best opportunity to capture the ultimate Fibonacci level between these two critical price points, occurrences that are rare and significant in the chart's history.

The key price points are as follows: the November 2022 low of $2, the November 2021 all-time high of $69,000, and the major monthly intervening low in November 2022, which marked the end of the recent bear cycle. The initial major Fibonacci extension, denoted as (1), stands at $84,801, a level that warrants close monitoring should we approach it. The subsequent 1.236 Fibonacci extension is at $101,085, a threshold that is so close to the magic $100k mark, would likely lead to considerable buying and selling activity around that milestone.

It's improbable, although not impossible for price to precisely hit $100k and then reverse; instead what is more likely would be a spike above it, taking stops out before a reversal. This particular price level could play a significant role. Lastly, the final Fibonacci extension, the 1.618, stands at $127,442, nearing the long-term levels that Bitcoin has been projected to attain over recent years. I anticipate revisiting Bitcoin's trajectory next week.

Returning to the current scenario, Bitcoin continues to adhere to its bullish primary trend. The potential breakdown resembling a Head & Shoulders pattern, which we discussed in the previous newsletter, seems to have been largely averted as the price reclaimed its position above the previous right shoulder. All indicators point towards a potential retest of the all-time highs.

TOTAL3 (Excluding Bitcoin & Ethereum)

The Total3 chart, encompassing all altcoins except Bitcoin and Ethereum, exhibits a bullish pattern akin to Bitcoin's trajectory before reaching new all-time highs. Firstly, there is a sequence of higher highs, indicating a sustained uptrend where every dip is promptly bought up, with no breaches of support observed. Price remains above the 10-day exponential moving average (EMA), while the RSI has yet to enter overbought territory, suggesting further potential for growth. Additionally, all major EMAs are ascending and widening, signifying a robust uptrend.

A break and close above the horizontal green-shaded zone on the daily chart could sustain the uptrend, given the significant momentum accompanying previous breaks of local highs. Notably, there is no substantial support until around the $665B area, which would signal the first sign of a breakdown.

Despite a potential bearish divergence, indicated by the RSI sloping down while prices make higher highs, and volume slowly decreasing as price increase,  the overall bullish indicators outweigh the negatives currently. These two factors could be a sign of consolidation before an upward break instead of a weakening of the primary trend. Another similarity to Bitcoin's chart is the approaching 0.618 Fibonacci level, calculated from the previous all-time high to the December 2022 significant monthly low, standing at $808.554B. Previously, breaching Bitcoin's own 0.618 level led to a retest of former all-time highs, a trend echoed here.

The Total3 chart, encompassing all altcoins except Bitcoin and Ethereum, exhibits a bullish pattern akin to Bitcoin's trajectory before reaching new all-time highs. Firstly, there is a sequence of higher highs, indicating a sustained uptrend where every dip is promptly bought up, with no breaches of support observed. Price remains above the 10-day exponential moving average (EMA), while the RSI has yet to enter overbought territory, suggesting further potential for growth. Additionally, all major EMAs are ascending and diverging, signifying a robust uptrend.

Daily candles consistently hold above the 10-day EMA, resembling Bitcoin's rapid ascent to its highs. A break and close above the horizontal green-shaded zone on the daily chart could sustain the uptrend, given the significant momentum accompanying previous breaks of local highs. Notably, there is no substantial support until around the $665B area, which would signal the first sign of a breakdown.

Despite a potential bearish divergence, indicated by the RSI sloping down while prices make higher highs, the overall bullish indicators outweigh the negatives currently. Another similarity to Bitcoin's chart is the approaching 0.618 Fibonacci level, calculated from the previous all-time high to the December 2022 significant monthly low, standing at $808.554B. Previously, breaching Bitcoin's own 0.618 level led to a retest of former all-time highs, a trend echoed here. 

Near Protocol (NEAR)

Near Protocol appears to be experiencing the calm before a potential surge, with price forming a bullish W pattern as indicated on the chart below. A continued upward trajectory could lead to a retest of the horizontal resistance level highlighted on the daily chart. A decisive break above this level could propel Near Protocol towards its recent mid-March highs of $9.01.

It is important to note that a solid daily close above this threshold is needed, and possible retest of old resistance turned new support to confirm this pattern, coinciding with a breach of the weekly Fibonacci levels illustrated on the accompanying chart, derived from Near's all-time highs to the significant lows of October 2023, particularly the 0.382 Fib level at $8.46, may trigger substantial upward momentum. Historical data suggests that breaks of these specific M and W patterns often yield favourable outcomes, warranting close monitoring as the target level approaches.

Decreasing volume amidst declining prices may signify accumulation and anticipation of a significant upward movement, coupled with current fluctuations around the 10-day EMA. The widening and upward-sloping EMAs indicate a robust primary trend. Initial support lies at the horizontal green shaded area around $6.2, though if price strength persists, this support zone may remain untouched.

Considering these factors, the Near Protocol chart appears primed for a significant move, with the likelihood of an upside breakout outweighing downside risks. However, it's crucial to remember that market dynamics can swiftly change direction, and this analysis should not be construed as financial advice, but rather as an observation of potential market movements. At the current time of writing on Monday afternoon, price has dropped on decreasing volume, forming a bearish engulfing candle, but still stays within the daily consolidation.

In Summary

The cryptocurrency market as a whole is showing positive signs, with each short-term dip seemingly attracting buyers. Despite occasional abrupt downward movements of 5 to 10%, the market consistently rebounds, and the recent dip appears to follow this pattern. It's important to remain vigilant for any potential topping patterns, even though the prevailing sentiment suggests continued upward movement. Following such patterns, it becomes crucial to identify support areas. At present, the market is in a bullish "wait and see" mode, characterised by anticipation of further upward momentum.

Macro News & Analysis

Last week was quiet with data coming somewhat noisily around expectations and no clear signal other than it was enough for Powell to confirm his “first thought on PCE was it came in line with expectations” and the “February reading is definitely more along lines of what we want to see”.

The S&P 500 (SPX) and Dow Jones Industrial Average (DJI) indices both closed the week at new all time highs and the Russell 2000 (RUT) small cap closed the week decisively above $2,090 for the first time since January 2022 whilst the tech heavy Nasdaq 100 (NDX) lagged. This rotation out of mega caps into 2024 and throughout Q1 has greatly improved market breadth. 75% of names that make up the NDX and DJI are over their 200 day moving averages whilst that statistic for RUT and SPX is over 80% and weakness now showing, particularly in the Nasdaq.

Given the slow (and shortened) week, I’ll focus today’s newsletter on what’s driving this bull market and why, whilst of course anything can happen, I don’t see it ending soon.

Pressure Mounts on JPow to Cut as Fiscal Dominance Takes Hold

More people, including me, seem to think the Fed will cut this year and Powell appears to have confirmed as much at last month’s FOMC press conference. Since Powell’s distinct change from a hawkish to more dovish tone in December though, he’s been sending mixed signals and continuing to stress the FOMC’s dependence on data.

Not that that matters to markets. The Powell Pivot was clear and, combined with Janet Yellen’s heavy bills-to-bonds issuance in November, risk assets saw the green light and didn’t hold back. Boy have risk assets performed, regardless of Fed messaging and hot data prints. We’re in any news is good news mode as far as markets are concerned and economic data is consistently backing that up.

This is leading some, such as Jim Bianco of Bianco Research, to question why the Fed would cut rates if everything’s going so well

My answer to the closing question above is explained better than I could by Craig Shapiro who posted on X “Issuing more t-bills at an accelerating pace is a precondition to becoming a banana republic. This is the type of thing you see emerging markets do, not the issuer of the world's reserve currency and neutral reserve asset.”

Treasury Issuing Bills over Bonds: That’s Bullish

Craig included this Bank of America chart which shows the extreme weighting of bills over longer duration (and lower yield) notes and bonds.

The US Treasury yield curve is still inverted, where short term rates (T-bills) yield more than longer tenor T-notes and T-bonds. This makes issuing debt in bills very expensive for the US government. At current rates, T-bill issuance costs the Treasury just over 5%/year in interest payments, whereas 5-10 year T-notes currently yield (ie. cost the Treasury) ~4.2% annually.

The Fed’s Shadow Mandate: Treasury Market Stability

This is, I think, the most plausible explanation for Powell’s dovish pivot. The Fed has a dual mandate of maintaining price stability (ie low inflation) and low unemployment. But there’s a shadow mandate which really is their primary responsibility: to maintain stability in the US Treasury market.

US Treasuries are the foundation of the global financial system and must remain liquid and stable. 2008 was a result of instability in this global market and proved nobody really understands how this complex beast really works. Since then, any hint of the Treasury market seizing up is met with huge liquidity – at any volume/cost – to restore market confidence and plug the latest financial plumbing leak.

So we have governments around the world spending like drunken sailors (which is inflationary). We have central banks trying to rein in this inflation by hiking interest rates. We have Treasury departments paying interest on this debt, which gets more expensive as central banks raise rates.

Fiscal Dominance is Here

According to a 2023 St Louis Fed publication, “Fiscal dominance refers to the possibility that the accumulation of government debt and continuing government deficits can produce increases in inflation that "dominate" central bank intentions to keep inflation low.”

The Financial Report of the United States Government, published 16th February 2023, states “Under current policy and based on this report's assumptions, [government debt relative to GDP] is projected to reach 566 percent by 2097. The projected continuous rise of the debt-to-GDP ratio indicates that current policy is unsustainable.”

As I said above, fiscal dominance is here and it’s a real problem for the Federal Reserve.

There is so much debt outstanding that government income doesn’t cover the whole budget, which means new debt must be issued to pay existing interest obligations. This is a vicious circle that ends either by spending cuts (aka austerity) or interest rates cuts (got the scissors handy, Jay?).

On austerity, let’s just say that’s not something we’re likely to see any time soon (or not so soon), according to the US Congressional Budget Office who project US federal debt to reach nearly 200% of GDP by 2053:

That’s a very scary thought, not to mention the CBO tend to under-estimate these things. And this looks to be confirmed by monetary debasement hedges such as gold, bitcoin and mega cap stocks.

It seems pretty safe to say that, whilst large parts of the population and economies around the world have – and continue – to feel significant stress, there’s no realistic argument for an official, economy-wide recession in the US.

To Cut or Not to Cut?

Whilst I’m far from a fan of Keynsian economics, I have grown rather fond of the John Maynard Keynes quote “When the facts change, I change my mind. What do you do, sir?” I love this. At the moment, the facts haven’t changed much, so I see no reason for the trend to change either. We’ve had a correction in bitcoin and crypto, and stock indices are due a pullback, but that doesn’t change the macro trend. And that trend is definitely up.

When will we see rate cuts? Maybe this year, maybe next. It seems to me that it doesn’t really matter either way for financial markets – higher rates means more money printing to cover debt service costs and lower rates means looser financial conditions. Either way, equities and crypto benefit in the medium term.

The Week Ahead

Economic Calendar

Monday

• Japan Tankan large manufacturers index

• China Caixin manufacturing PMI

• US construction spending, ISM Manufacturing

• Canada manufacturing PMI, business outlook, consumer expectations surveys

• Fed’s Cook speech

Tuesday

• RBA meeting minutes

• Eurozone S&P Global Manufacturing PMI

• France S&P Global Manufacturing PMI

• Germany S&P Global/BME manufacturing PMI, CPI

• UK Nationwide housing prices, mortgage approvals & lending, S&P Global/CIPS manufacturing PMI

• US factory orders, light vehicle sales, JOLTS job openings

• Fed’s Bowman, Williams, Mester, Daly speak

Wednesday

• Japan Jibun Bank services PMI final

• China Caixin services PMI

• Eurozone unemployment, CPI

• Hong Kong retail sales

• US ISM Services

• Australia Judo Bank Services PMI Final

• Fed’s Bowman, Goolsbee, Chair Powell, Barr, Kugler speak

Thursday

• Eurozone S&P Global Services PMI, PPI

• Canada balance of trade

• US initial jobless claims, balance of trade

• Fed’s Barkin, Goolsbee, Mester speak

Friday

• Eurozone retail sales

• Germany factory orders

• France industrial production

• Hong Kong PMI

• Japan household spending

• Russia GDP

• US unemployment, nonfarm payrolls

• Fed’s Musalam, Kugler, Collins, Barkin, Bowman speak

Earnings Calendar