News on Macro Economic Data
The headline number in today’s employment report seemed to reinforce strength in the US economy. The report showed the addition of 199,000 non-farm jobs. However, upon further inspection, the numbers point to a fundamental weakness. 25% of the gains came from the ending of the UAW and SAG strikes, 38% was health care, 25% was government, and 8% came from social services. Including education, approximately 35%+ of job gains represent “non-GDP growth jobs” requiring sustained growth in government spending at a time when government spending needs to decline. Additionally, consumer surveys suggest that 31% are working overtime or have taken a second job.
These numbers suggest very little growth in GDP-focused industries, and in fact, show job losses in key industries. Adding to this, JP Morgan released a bearish report for 2024 in which they suggest that, aside from the top 1%, all other segments will fall below the level of liquid assets they had, adjusted for inflation, in March of 2020. And they expect a 23% fall in the S&P by mid-2024.
This overall dim picture of the macro environment should please the Fed, and perhaps point to possible rate declines sometime in 2024.
Crypto Public Company Activity
“Not your keys, not your coins” has been a refrain from the beginning of the crypto industry. Self-custody, holding your own keys and storing your crypto in your own hardware device that is offline, provides complete security that crypto assets cannot be stolen electronically or lost due to exchange risk. However, there have been numerous examples of users losing either their private key or access to the storage device resulting in complete loss of funds. As of a September report from Chainalysis, about 25% of bitcoins are believed to be lost forever due to lost private keys, with about 70% of that representing early investors.
Due to those experiences and the added convenience, a migration to custodial wallets/centralized custody has been popular and provided by exchanges. However, if the exchange ceases to operate, or is hacked, customers lose access to their funds, as customers of FTX and others discovered.
Despite the fact that users would have greater control, pay less in fees, have a higher level of security, and more privacy, they remain wary of self-custody. This could be mitigated with a better user experience and a greater ability to recover assets if keys and/or devices are lost.
Enter Block’s recent announcement of Bitkey Bitcoin Wallet, the main elements of which are a mobile app, hardware device, and recovery tools. The app and hardware device serve as two of the necessary three keys to access the wallet, and the third key is stored with Bitkey. The key stored with Bitkey is also used to recover the wallet if the phone and/or hardware device are lost or stolen.
There are many benefits to Block’s Bitkey wallet, but it seems the most important is ensuring that the benefits of self-custody are provided in a user-friendly manner with a reliable recovery path.
Bitkey is expected to ship in early 2024.