I’ve held this market update until Thursday for the best possible reason: FOMC.

The Federal Open Markets Committee met for the fourth time this year yesterday, increasing the bottom line interest rate 75 basis points (bps), from 1.5% to 2.25%. The rate increase follows June’s 75 bps raise–the most aggressive rate hike since 1994–and March’s raise of 50 bps from 0% to 0.5%.

The market started pricing in rate hikes as early as January, after the Federal Reserve’s notes were published. At the time, the Fed argued for a policy pivot based on “persistent” inflation values. Listed crypto firms suffered immediate but unsurprising losses, as represented by Coinbase, Silvergate, Microstrategy, Riot Blockchain and Marathon Digital. Losses have continued into the summer.
 

Some analysts think we are at the end of the bleeding season. The precedents set by both Bitcoin and Ethereum last cycle of a roughly 80-90% drawdown mirrors current losses well. A possible bottom? Why shouldn’t crypto-equities trade like the coins?

Mining equity could trade differently from coin cycles, however, because of the fixed obligations, leveraged Bitcoin exposure and, most importantly, debt. 

As Galaxy Digital head of mining Amanda Fabiano pointed out in a tweet thread yesterday, debt raises have outpaced equity based raises almost three-to-one since January 1. When miners can’t meet debt obligations and associated interest payments, you get restructurings and liquidations. Outstanding orders for machines, rack space and general infrastructure could see many former practitioners sell equipment in mass.

Distressed asset season might just be starting.

- William Foxley