Ethereum’s Popularity Might Be Starting to Vanish 💨

🐺 Hi pack-mates,

This is Howling Markets, the flashy Times Square banner that points you towards the most delicious dished prepared in the financial markets’ kitchen!

Today we will be covering:

• What Is the Zero Lower Bound (ZLB)? 💲

• Ethereum’s Popularity Might Be Starting to Vanish? 💨

• BoJ keeps Negative Interest Rates and the Yen Falls 📉

• Equity and Debt Markets Daily Update ⚖️

• And more!

Market Watch 👀

What is The Zero Lower Bound (ZLB)?

In recent years we have thoroughly discussed negative nominal interest rates, especially during the recovery period following the pandemic.

During this unique macroeconomic enviroment, almost all central banks around the world decided to lower interest rates below zero for the first time ever, essentially making savers pay for not spending their money. The intent of this policy was to artificially prop up investments and consumption, increasing the GDP and avoiding a recession.

However, what if I told you that a couple of centuries ago people believed that nominal interest rates couldn’t go below zero?

This theory is called the Zero Lower Bound, which stated that nominal interest rates could at most be lowered to zero, but not below it.

This theory was based on the idea that if bank deposits and cash are perfect substitutes, the moment in which interest rates become negative, every individual would withdraw all their money from the bank and keep it as cash.

On the other hand, over the last couple of years we have seen that due to the imperfect substitutability between cash and bank deposits, central banks have managed to effectively lower interest rates below zero, breaking the zero lower bound.

However, many modern economists still believe that a more flexible concept of zero lower bound might apply, based on the idea that if the interest rates become negative enough, savers would do anything in their power to take their money out of the bank.

Ethereum’s Popularity Might Be Starting to Vanish

Ethereum, the second largest cryptocurrency by volume and popularity after Bitcoin, is starting to face some strong competition!

The main issues that crypto enthusiasts face with the Ethereum network are the high transaction costs and the slow transaction speeds. On average, transaction fees on the Ethereum network average around $1.5 and it typically takes around a minute to carry out a transaction on this network.

Since Ethereum was created in 2014, many other networks have been created to compete with the “top dog” of the industry. Two of the most popular Ethereum competitors are Solana and Avalanche.

Avalanche can perform 6,500 transactions per second, as opposed to the 15 transactions per second of Ethereum, and the average fee on this network is $0.08.

Likewise, Solana can handle more than 50,000 transactions per second and the transactions on this network average less than a cent of commissions.

On the other hand, it must be said that Ethereum has a much larger capitalization than Solana and Avalanche combined. Additionally, it is much more developed in the fields of NFTs and Decentralized Finance (DeFi), so it will take some time before one of these two other networks will have the full potential to dethrone Ethereum.

Do you think that an alternative network will have the potential to become the go-to choice, replacing Ethereum? Or do you believe that in the future there will be more competition and all networks will hold a similar share of the market?

Today’s Howling Question

Have you been keeping up with the crypto world? Do you know approximately how much did Solana jump (or fall) since the beginning of October?

a)  -20%, it lost to the market

b)  0%, it remained constant

c)  +15%, just like the US stock market

d)  +50%, exceptionally well

e)  +250%, through the roof

Hint: the market has gained quite a lot over the two and a half months, and there has been quite a lot of optimism surrounding Solana and other networks.

Try to answer the question and then check out the correct option after the last interesting news.

Yen’s Value Plummets as Japan’s Central Bank Keeps Interest Rates Negative

While almost every country is actively combatting against inflation, Japan is still trying to solve their historic deflation problem that has been lasting for decades!

After last week’s Fed pivot where at the FOMC meeting the US central bank had adopted a more dovish tone and started to talk about rate cuts, many investors believe that a similar, but opposite pivot, would have happened on the Bank of Japan’s (BoJ) Tuesday meeting.

Japan has been batting for the last decades against deflation, and in order to do so, the BoJ has lowered interest rates into negative territory. On Tuesday, the central bank of Japan mentioned that their policies are working as expected and that it is more and more likely that they will be able to achieve their inflation target.

However, they also did not leave any room at all to talk about future rate hikes. They stated that even if in the US is occurring a Fed pivot, it would be imprudent for Japan to take the eyes off the ball, as it could give deflation a chance to come back.

Keeping in mind what we said about the exchange rates in previous newsletters, do you believe that a prolonged negative interest rate might hinder Japan’s imports, exports or both?

Equity and Debt Markets Update ⚖️

And now, our daily markets update!

Following the same train of though presented in yesterday’s newsletter, both the S&P500 and the debt markets have recorded a performance extremely similar to the previous day’s trading session.

The SPX closed up +0.59% on the previous day while the 10 years US government bonds slid down -0.10%.

Additionally, due to the further increase in SPX’s price, the RSI continued to increase, reaching 82.19. Through some further analysis, I discovered that this RSI reading has only occurred 3 times since the 25^th of November 1996!

It goes without saying that all these three readings have been followed by a 5%-10% retracement shortly after, but at this point everything seems to be following the market’s optimism rather than technical and fundamental analysis.

Do you think that by the week’s end we will be able to see some significant moves in the market?

Or do you believe that the market will consolidate moving sideways for a while?

Answer

The correct answer is d) +250%, through the roof.

The performance of Solana, mostly because of the optimisms we talked about in the first news of today, has been exceptional over the last two and a half months, outperforming most tradable instruments!

Solana started from a price right above $20, but in this short time frame it jumped to around $73 where it has been stalling for the last couple of weeks.

Howl-Worthy Memes 😂

🐺 See you next time!

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