⚠⚖️ Lawsuits & Rising Debt - Danger Ahead?

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What’s on the Menu 🍴

Risk and reward - the KEY to measuring your investing decisions.

And today’s newsletter is all about looking at the risky side of that equation.

We hate doom-and-gloom fear mongers, but always want to think about what “could” go wrong.

So, let’s dive in!

• Consumer Debt: Danger Ahead? ⚠

• Turbulence for Binance and Kraken Amid Lawsuits ⚖️

• Chart of the Day - Bitcoin Dominance 💪

• Are Bitcoin Mining Stocks DOOMED? 📺

Today’s newsletter is a 4 minute read.

Consumer Debt: Danger Ahead? ⚠

We track consumer credit card delinquencies for a gauge of real-time consumer health, and these metrics are flashing some worrying signs lately…

Delinquency rates on credit cards issued by US banks have now overshot their pre-pandemic levels:

This was something we highlighted as a possibility back in July.

Is it time to sound the alarm bells on the consumer & the economy?

While it’s definitely concerning, it’s probably not a reason to panic YET.

When in doubt, zoom out!

Here’s a look at credit card delinquencies on a longer timeframe:

As you can see, prior to the global financial crisis of 2008/2009, card delinquencies consistently averaged between 3% to 5% of total borrowers.

After the GFC, many banks and credit card issuers tightened their loan standards and stopped lending to households with very low credit scores.

This helped push delinquency rates below 3% in the post-GFC era, and delinquency rates dropped below 2% during the stimulus fueled pandemic period.

Delinquency rates have been normalizing in 2023, but now they look poised to break above 3% for the first time since 2012.

However, we don’t think the 3% level is particularly concerning.

It would concern us if delinquency rates start to accelerate towards the 5%+ level. Historically that tends to coincide with recessionary periods.

One bright spot is that delinquent balances on auto loans, student loans, and mortgages remain at low levels versus history:

Mortgages and home equity loans still look very healthy.

Student loan data may not be useful right now since payments were suspended until last month (October).

Consumer credit metrics could be an important tell for the economy in the coming months, especially after the holiday season.

We think investors will have a renewed focus on whether or not the economy is weakening in 2024.

The health of the consumer may also be the key to whether the Fed relents and begins cutting interest rates in 2024.

We’ll continue to keep a close eye on these trends for you here at the Daily Dough!

Turbulence for Binance and Kraken Amid Lawsuits

The U.S. has been on the attack against crypto exchanges for things like money laundering, securities law violations, and mishandling customer funds.

This week brought more settlements and lawsuits against some of the largest exchanges.

Here’s what you need to know:

Binance's Legal Tussle:

• Changpeng Zhao, CEO of Binance, has agreed to step down amidst U.S. anti-money laundering charges.

• The crypto exchange faces a hefty $4.3 billion fine.

• Despite his resignation, Zhao retains majority ownership but is barred from executive roles.

• This case echoes the BitMex scenario, where its CEO faced similar charges.

• Notably absent is a settlement with the SEC, leaving room for more potential settlements or charges.

Kraken's SEC Lawsuit:

• The SEC has launched another lawsuit against Kraken for operating unregistered as a securities exchange.

• Jesse Powell, Kraken's co-founder, expresses his frustration on Twitter.

• This action follows a recent $30 million fine for Kraken's staking services.

• SEC’s stance: Kraken chose profits over compliance, leading to an investor-risky business model.

• The lawsuit fuels debates on the regulation of the crypto industry, suggesting possible overreach.

Market Reactions and Analysis

Following these developments, altcoins have seen a pullback, halting a month of gains. The market reflects a mix of bullish and bearish sentiments:

Bullish Viewpoint: Some optimists believe these regulatory moves pave the way for future ETFs.

Bearish Take: A former SEC regulator offers a lengthy anti-crypto perspective.

Daily Dough Take:

Chris Dunn recently posted a video detailing how we’re approaching these developments.

Here’s the TL;DR

• Altcoins face increased risks of delistings and lawsuits.

• Diversifying exchanges is crucial; Binance's downfall could drag many tokens with it.

• Prudent investment in a few well-researched cryptos with solid tokenomics is key.

• Don't bank on a universal market rally; 2017 and 2021 might not repeat.

• Strategy: Focus on relative strength, be ready to cut losses and exit gracefully if necessary.

Bottom Line

The crypto landscape is evolving under regulatory pressures. Smart moves involve cautious optimism, strategic diversification, and an eye on regulatory developments.

Chart of the Day - Bitcoin Dominance 💪

The “Bitcoin dominance chart” is like a score that tells us how much of the total value of all digital currencies combined is held by Bitcoin.

If the score is high, it means Bitcoin makes up a large part of the value of all digital currencies.

If the score is low, it means other digital currencies are growing and hold more value.

So, it's a way of seeing whether Bitcoin or other digital currencies are more popular at any given time.

And bitcoin’s been eating up more value of the crypto economy over the past year.

Right now it’s sitting above 50% and looks to be heading higher.

This usually means it’s a smarter bet to hold bitcoin over other crypto-assets.

Sure, you can find the odd crypto that’s up a ton… But on average they’re losing ground to the OG of digital currencies.

So until this trend changes, we’re stacking as much bitcoin as we can get our hands on!

Are Bitcoin Mining Stocks DOOMED? 📺

Bitcoin has surged lately, so why have Bitcoin mining stocks gotten crushed?

In today’s video, Travis dives into the crypto mining stocks like RIOT and MARA to find out why they are underperforming.

He also analyzes the businesses to figure out if they could ever make sense for our long term HODL portfolio.

Food For Thought 🧠

"If there is one common theme to the vast range of the world’s financial crises, it is that excessive debt accumulation, whether by the government, banks, corporations, or consumers, often poses greater systemic risks than it seems during a boom."
- Carmen Reinhart

DISCLAIMER: We are not investment advisors, and this content is for educational purposes only. We don’t offer financial, legal, or tax advice. Nothing we say is a recommendation to buy or sell any assets. Trading and investing are extremely risky, so please be careful and do your own research.