[Daily] What if the US defaults?

Good morning! Welcome to The Daily Moon. It’s the end of the week. Nearly. Over the weekend, we would advise you to take a breath with memecoins. A report by an online sleuth states a hacker has manipulated people and made off with crypto worth millions of dollars through 114 memecoin scams. You’ve been warned. 🤷

As of Thursday, 7PM IST

The markets were spooked by reports of Mt. Gox investors and the US government moving large amounts of Bitcoin. The king crypto saw sell-offs on fears of a price slump. Ethereum witnessed profit booking by a few HODLers. S&P 500 and Nasdaq gained in early trade on buying in technology stocks. Back home, Sensex and Nifty had another winning streak on gains in realty, IT, and metal stocks.

TradFi Is Buying The Dip

Crypto had its Red Wedding moment in 2022. Terra’s depeg and the spate of bankruptcies that followed made it seem like crypto was uninvestable. But TradFi still wants a piece.

Why take risks?Heard of “buy the dip”? Traditional asset managers are on to something similar. The price of crypto assets crashed during the winter, so TradFi sees an opportunity. Even if there is a decline, fund managers are keen to get exposure before the assets get back to 2021 levels. Look at the discounts:

• Bitcoin’s price is ~27% lower than the same time last year.

• Ethereum is ~36% cheaper than last year.

• Solana is ~76% cheaper than in April 2022.

Critics might point to the price decline and caution investors. But TradFi has taken the glass-half-full approach and wants to buy tokens at current prices. Crypto remains an important strategy, which is why companies such as Goldman Sachs are expanding their crypto team amidst global layoffs.

Down, not outBitcoin and Ethereum have seen their bull and bear cycles. BTC, the king crypto, is back to the $30,000 levels. Ethereum has attracted institutional buyers because withdrawals are easier post the Shanghai upgrade. It has seen extreme periods of volatility as well.

TradFi isn’t a stranger to these situations. The asset managers are aware of crypto’s volatility risks and regulatory uncertainties, but are also attracted to its market opportunities. It is a risk worth taking.

Will BTC Crack If US Defaults?

Inflation is the talk of the town. But there’s something else that may trigger a crisis: US debt defaults. Economists have warned of a catastrophe if the US cannot repay its debt. It will inevitably affect Bitcoin too.

Wait, isn’t the US rich?Technically, yes. But the US has a statutory limit of $31.4 trillion, which is the maximum it can borrow (so far). This limit was breached in January, but the US Treasury essentially cut investments to pay the bills. The country may run out of funds as early as June. To get more breathing room, the government can increase the debt ceiling, but there are political landmines that need to be navigated.

What’s the BTC link?If the US doesn’t have cash, it will directly impact the economy. The country may tightly control spending, increase interest rates, and reduce the supply of money. This may push BTC HODLers (especially whales) to sell. Time to watch C-Span.

Microsoft’s Web3 Gaming Deactivated?

The UK’s competition regulator has blocked the $69 billion Microsoft-Activision Blizzard deal. It’s not the first roadblock it has faced, but this one is big because the UK is a significant market.

Web3 gaming ambitionsWill Microsoft have to put its web3 gaming plans on the back burner? It’s interesting that Microsoft hasn’t formally announced any specific plans around web3 in gaming. But the deal, when it was announced, was widely understood to have been the tech giant’s push into the metaverse. It invested in popular Korean video game developer Wemade in 2022, signalling an interest in this space.

Web3 gaming integrationWhat is interesting about Microsoft’s approach towards web3 is its stand on NFTs. Minecraft, which Microsoft owns, barred NFTs from the game. So these recent investments in NFT and Web3-based games could only mean it was planning to integrate them in some way into its Activision properties. Keep an eye on it.

Reality Is Expensive

We could forgive you for thinking we’re talking about life here. But we’re actually talking about Meta’s virtual reality division called Reality Labs.

Still losing moneyWell, the now Facebook-parent Meta reported first-quarter financial results on Wednesday. And surprised the financial markets with its good numbers but that was because the expectations were lowered. Reality Labs continued to be a drag, though. The overall first-quarter profit for the company was $5.7 billion, and the loss from Reality Labs was $4 billion. That’s a big bite.

Market believes in ZuckWell, it seems the market wasn’t unhappy with the Reality Labs numbers. You see, Meta got a lot of advertising business from China, whose retailers are trying to woo consumers in other countries. Mark Zuckerberg also took a dig at news reports predicting the end of his metaverse ambitions. “We’ve been focusing on both AI and the metaverse for years now, and we will continue to focus on both,” he said. Nothing is stopping the man.

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Who are we? This newsletter’s ambition is to educate (and to entertain). The world of money is changing everyday and we want to help you decode what’s happening in the world of crypto, public markets in the US and India.