Bitcoin tumbles after SeWit2x fork cancellation
The price of Bitcoin flash crashed yesterday at around GMT 18:00 after Mike Belshe, CEO of BitGo, published a note explaining the reasons why they will not support the Segwit2x fork. The note was also signed by Wences Casares (CEO Xapo), Jihan Wu (Bitmain), Jeff Garzik (Bloq), Peter Smith (CEO Blockchain) and Erik Voorhees (CEO Shapeshift). The note explains that the initial purpose of SegWit2X was to improve Bitcoin scalability but also to reduce fess, which are quite elevated. However, this should be done by keeping the community together, Belshe explains, which cannot be done will only 30% support among miners. He regrets that they “have not built sufficient consensus for a clean blocksize upgrade at this time’.
Following the publication of the note, the price of Bitcoin exploded to $7,900 before falling as low as $6,978 at certain exchanges (13% move in less than 2 hours). The price finally stabilized at around $7,300 yesterday evening. Nevertheless, Bitcoin came under renewed selling pressing on Thursday morning as investors continues to price out the fork.
It is also worth mentioning that there were rumours that a small group miners (that represents only 30% of hash power) will carry out the fork. However, it seems that investors are not buying it as the price of BTC resumed its debasement. On the bright side, alt-coins have rallied strongly as investors sell BTC and reallocate their portfolio.
Mexico: Overnight rate should remain on hold
Banxico will likely keep its interest rates steady tonight at 7%. There are many reasons for that. First of all, inflation expectations are now getting lower as the central bank certainly raised too strongly the overnight rate by anticipating a stronger Fed tightening rate path. Indeed, at least 4 rate hikes were expected by markets from the Fed. Now that the Fed is on hold until December meeting, there is no rush for Banxico to act.
We recall that the Mexican central bank is monitoring the interest rate differential between the US in order to avoid any potential capital outflow. A narrow rate differential is clearly not at the advantage of Mexico but now the spread is so large that investors have a preference for the Mexican Peso which offers strong return.
However, the Fed will certainly raise rates one more time in December but we don’t believe this is going to go any higher at least in the medium-term or it will likely trigger the burst of the bond bubble.
Currency-wise, the MXN has strengthened from 22 to 16 MXN for one single dollar note which is why we have seen Mexican’s inflations expectations suffering. Right now, Fed monetary policy have driven the USD higher against the MXN and we believe that it is likely that we see Banxico reducing their overnight rate next year which would send the MXN lower. The MXN is overvalued at the moment.
