Dear Readers,
It’s Thinking Time! This week we cover mortgage rates and what makes them move, how European luxury good are linked to the Chinese housing market, and the HBO documentary that claims to have uncovered the identity of Satoshi. (It didn’t.)
TBL Thinks summarizes important paywalled reads relevant to bitcoin and global macroeconomics, helping you cut through the noise.
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HBO Documentary Suggests Bitcoin Creator Satoshi Nakamoto is Developer Peter Todd (BBG) On October 8, HBO released its documentary on the origins of Bitcoin. Called “Money Electric: The Bitcoin Mystery” the documentary claims to have unmasked the long debated creator of the cryptocurrency.
The documentary names Canadian software developer, Peter Todd, as the creator pseudonymous Satoshi, and uses circumstantial evidence such as postings on an early bitcoiner forum to reach its conclusion. Todd, for his part, laughed off the idea, and called it ludicrous.
Bitcoin was first introduced to the world on October 31st, 2008, via Satoshi’s Bitcoin whitepaper in which a decentralized currency was proposed. The creator then went through great lengths to hide their identity to reinforce the idea of a decentralized currency that belongs to a community. Alex Thorn, Head of Firmwide Research at Galaxy, writes that money is a major factor behind the constant speculation around the identity of the creator who is estimated to have as much as 1 million bitcoin, which would be worth over $60 billion today.
Satoshi’s identity might be sought after for decades to come, but the relevance of the “who” behind bitcoin diminishes as the years pass. The protocol has been maintained by hundreds of incredibly crucial software developers over the years, including Todd, and for well over a decade without Satoshi. Bitcoin’s importance as a tool of financial freedom is unprecedented in human history, and we at The Bitcoin Layer believe in promoting the awareness of this new technology.
Why Mortgage Rates Haven’t Fallen Since the Fed Cut (WSJ) We all heard it, the Fed’s going to cut rates so mortgage rates will fall. We said it here too, the Fed’s going to cut rates, so get those refi docs ready. So what happened?
Mortgage prices are often aligned with longer-term benchmarks like 10s as opposed to short-term rates set by the Fed. So in essence, mortgage rates are not directly proportional to the actions the Fed takes on interest rates, but more so to yields on 10-year Treasuries.
The Fed’s moves on policy rates are heavily dependent on the economic expectations for the economy’s performance, while Treasuries (10s) and mortgage bonds often reflect factors much more widespread than simply policy rates.
Volatility tends to push mortgage rates higher because it results in a lower demand for mortgage bonds and widens their spread to benchmark Treasuries which in turn puts upward pressure on the rates offered by lenders. At TBL, we want to emphasize the segmented nature of mortgage rates--of course they are related to the Fed, but when zooming in, the factors that caused lower mortgage rates all year when the Fed was on pause are not explicitly present going forward while the Fed is cutting rates.
It is also important to remember that mortgage rates beginning with a two- or three-handle are not the norm, with average weekly Freddie Mac measure of 30-year fixed rates over 5% in this century alone. It's not our base case that mortgage rates return to 3%, especially with signs of a steeper curve now that the Fed has begun cutting rates.
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China’s Ghost Cities are a Problem for European Luxury Brands, Too (WSJ) Luxury brands saw stocks fall this week after China failed to announce additional measures to kickstart growth, but the sector is still up 10% on average since Beijing announced its initial stimulus measures.
The People’s Bank of China (PBOC) recently announced plans to cut its benchmark interest rates, and the amount of cash banks need to keep in reserve. It also announced its plan to cut rates on existing mortgages, and lower down payments for existing homes, with the hope that these measures will help jump-start the country’s housing market.
Luxury spending in China has been correlated with home prices, rather than economic growth or financial markets. Falling home prices have eliminated ~$18 trillion in household wealth, roughly $60,000 per family, since 2021 (when about 60% of household wealth was tied up in property). This, plus overarching worries about the economy have all led to reduced consumer confidence.
Europe’s luxury companies rely on Chinese consumers for a third of global luxury spending, and after the pandemic hoped that a comeback in Chinese spending would make up for the slump in European and American spending. The outlook for luxury companies looks bleak according to UBS which expects luxury sales to Chinese shoppers to shrink 7% in 2024 and by 3% next year. Prior to the pandemic, the last time the luxury industry faced this kind of stormy weather was between 2014 and 2016 when Beijing was cracking down on corruption, and barely grew for two years during China’s anticorruption drive, which also coincided with a property-market correction in the country.
Measures to kickstart consumption are expected to be announced soon, but are more likely to target mass-market products, with trade-in subsidies for home appliances already rolled out earlier this year along with a range of consumption coupons.
Until next time,
TBL Thinks
Unchained empowers you to fully control your Bitcoin with a collaborative multisig vault, where you hold two of three keys and benefit from a dedicated Bitcoin security partner. Purchase bitcoin directly into your cold storage vault and eliminate exchange risks with Unchained's Trading Desk.
Unchained also offers the best IRA product in the industry, allowing you to easily roll over old 401(k)s or IRAs into Bitcoin while keeping control of your keys.
Don’t pay more taxes than you need to. Use code TBL for $100 off when you create an account.
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