The $1.5 trillion U.S. junk bond market is starting to feel the effects of soaring inflation and supply chain bottlenecks as the first signs of stress on the volatile market start to emerge. Until recently, junk bonds have avoided most of the recent worries associated with the U.S. economy. Many bond issuers also had ample cash reserves, which have been impacted by the Fed's tightening monetary policy.
Investment mogul and Senior Chairman of Goldman Sachs Lloyd Blankfein said on Sunday that he "would be very prepared for" an upcoming U.S. recession, stating that odds are "very high" for consumers and business owners. Goldman's economic team expects U.S. gross domestic product to expand 2.4% this year, down from their initial estimate of 2.6%. They also reduced their 2023 estimate to 1.6% from 2.2%.
In a radio interview over the weekend, Fed Chairman Jerome Powell stated that he would have raised rates "a little sooner" to help get inflation back on track. When asked if prepared to do more than a fifty basis point rate hike, Powell remarked that the Fed is not actively thinking about such a drastic increase.
Cryptoeconomics Are Shifting
The Luna Foundation Guard, responsible for managing the treasury of Terra Luna (UST) to maintain an algorithmic stablecoin peg to $1, announced on Monday morning that they sold all of their bitcoin in an unsuccessful attempt to keep UST's peg as close to $1 as possible. After loaning their bitcoin holdings to professional market makers last week, the price of LUNA, which is reflexive to the redemption of UST and subsequent burning of LUNA tokens, crashed to zero, and maintaining the peg proved impossible under market conditions. Following these events, Terra Luna founder Do Kwon proposed forking Luna to remove the stablecoin aspect early Monday afternoon.
The Bitcoin Mining Market is Thriving
A bill in Norway seeking to strike down energy-intensive cryptocurrency mining initiatives was rejected with a majority vote on May 10, according to a translated report from a local Norwegian newspaper. The proposal was first surfaced by a party in Norway seeking to achieve a "classless society", whose objective was to focus energy on more appropriate uses.
Domestically, Bitcoin mining giant Riot Blockchain reported a miss on first-quarter revenue of $79.8 million, missing the expected consensus of $83.7 million. Despite the miss in earnings, the mining company posted a record increase in quarterly revenues of 244%.
Despite uncertainty in all markets and growing fears over systemic risks like inflation and supply chain bottlenecks, bitcoin mining has seen drastic growth for the past several years. From start to full deployment, the process of mining is very time-consuming and capital-intensive. As a result, much of the hash rate recently added to the network was planned at least two years ago. After the delays and supply chain disruptions during the global COVID-19 response, miners are aware of market conditions and continue operating and expanding accordingly.