JPMorgan Chase President Daniel Pinto has vivid memories of what life is like when a country loses control of inflation.
As a child growing up in Argentina, Pinto, 59, said that inflation was often so high, prices for food and other goods spiked on an hourly basis. Workers could lose 20% of their salary if they didn’t rush to convert their paycheck into U.S. dollars, he said.
“Supermarkets had these armies of people using machines to relabel products, sometimes 10 to 15 times a day,” Pinto said. “At the end of the day, they had to remove all the labels and start over again the next day.”
The experiences of Pinto, a Wall Street veteran who runs the world’s biggest investment bank by revenue, informs his views at a key time for markets and the economy.
After unleashing trillions of dollars in support of households and businesses in 2020, the Federal Reserve is grappling with inflation at four-decade highs by raising rates and pulling back on its debt-buying programs. The moves have cratered stocks and bonds this year and rippled around the world as a surging dollar complicates other nations’ own battles with inflation.
Living with pervasive inflation was “very, very stressful” and is especially hard on low-income families, Pinto said in a recent interview from JPMorgan’s New York headquarters. Price increases averaged more than 300% a year in Argentina from 1975 to 1991.
Aggressive Fed
While there is a growing chorus of voices who say that the Federal Reserve should slow or halt its rate increases amid some signs of price moderation, Pinto is not in that camp.
“That’s why when people say, `the Fed is too hawkish,′ I disagree,” said Pinto, who became JPMorgan’s sole president and chief operating officer earlier this year, solidifying his status as CEO Jamie Dimon’s top lieutenant and potential successor.
“I think putting inflation back in a box is very important,” he said. “If it causes a slightly deeper recession for a period of time, that is the price we have to pay.”
The Fed can’t allow inflation to become ingrained in the economy, according to the executive. A premature return to easier monetary policy risks repeating the mistakes of the 70s and 80s, he said.
That’s why he thinks it’s more likely the Fed errs on the side of being aggressive on rates. The Fed funds rate will probably peak at around 5%; that, along with a rise in unemployment, will likely curb inflation, Pinto said. The rate is currently in a 3% to 3.25% range.
Markets haven’t bottomed
Like a string of other executives have said recently, including Dimon and Goldman Sachs CEO David Solomon, the U.S. faces a recession because of the Fed’s predicament, Pinto said. The only question is how severe the slowdown will be. That, of course, is being reflected in the markets that Pinto watches daily.
“We’re dealing with a market that is pricing the probability of recession and how deep it’s going to be,” Pinto said.
The economic situation this year has been unlike any other in recent history; apart from booming price increases for goods and services, corporate earnings have been relatively resilient, confusing investors looking for signs of a slowdown.
But profit estimates haven’t fallen far enough to reflect what’s coming, according to Pinto, and that could mean the market takes another leg down. The S&P 500 has dropped 21% this year as of Friday.
″I don’t think we’ve seen the bottom of the market yet,” Pinto said. “When you think about corporate earnings heading into next year, expectations may still be too elevated; multiples in some equity markets including the S&P are probably a bit high.″
‘Big Black Swan’
Still, despite higher volatility that he expects to remain, Pinto said that the markets have been functioning “better than I was expecting.” With the notable exception of the U.K. gilt collapse that led to the resignation of that country’s prime minister last week, markets have been orderly, he said.
That could change if the Ukraine war takes a perilous new turn, or tensions with China over Taiwan spill onto the global stage, upending progress on supply chains, among other potential pitfalls. Markets have become more fragile in some ways because post-2008 crisis reforms forced banks to hold more capital tied to trading, which makes markets more likely to seize up during periods of great volatility.
“Geopolitics is the big black swan on the horizon that hopefully doesn’t play out,” Pinto said.
Even after central banks get a handle on inflation, its likely that interest rates will be higher in the future than they were in the past decade and a half, he said. Low or even negative rates around the world has been the defining characteristic of the previous era.
That low-rate regime has punished savers and benefited borrowers and riskier companies who could continue to tap debt markets. It also led to a wave of investment in private companies, including the fintech firms taking on JPMorgan and its peers, and supercharged the stock of tech companies as investors paid up for growth.
“Real rates should be higher in the next 20 years than they were in the last 20 years,” Pinto said. “Nothing crazy, but higher, and that affects many things like the valuations of growth companies.”
Crypto: ‘kind of irrelevant’
The post-financial crisis era also gave rise to new forms of digital money: cryptocurrencies including bitcoin. While JPMorgan and rivals including Morgan Stanley and others have allowed wealth management clients to get exposure to crypto, there appears to be little progress recently in terms of its institutional adoption, according to Pinto.
“The reality is, the current form of crypto has become a small asset class that is kind of irrelevant in the scheme of things,” he said. “But the technology, the concepts, something is probably going to happen there; just not in its current form.”
As for the broader economy, there are reasons for optimism amid the gloom.
Households and businesses have strong balance sheets, which should cushion the pain of a downturn. There is far less leverage lurking in the regulated banking system than in 2008, and higher mortgage standards should result in a less punishing default cycle this time.
“Things that triggered problems in the past are in a far better position now,” Pinto said. “That said, you hope nothing new pops up.”
The market is currently in a news-driven environment where the prices of cryptocurrencies have been determined by news agenda rather than fundamentals.
Bitfinex analysts have warned crypto investors to be cautious as bitcoin’s (BTC) recovery over the weekend is not a sign that its correction is over; the asset could witness more bloodshed in the near term.
In the latest Bitfinex Alpha report, experts deemed the market’s reaction this week critical, especially as supply alleviated over the weekend could return when traditional markets open.
“No Man’s Land”
Since Saturday, bitcoin has risen almost 10% from $57,600 to $63,000, closing last week in the green. The asset has surged above the 125-day range low of $60,200, which it broke through earlier this month after news of the German government’s massive BTC selling hit the market.
Market sentiment began to improve after reports that wallets linked to the German government were almost empty. However, the positive sentiment may not be sustained for long as the BTC the German authorities moved to trading desks and exchanges are yet to be sold.
While the supply from Germany appears to have been factored into bitcoin’s market price, Bitfinex analysts believe the end of selling pressure depends on how the involved trading desks execute their trades in the coming days.
Although the shift in sentiment underscores the market’s capacity to integrate new information and adjust expectations quickly, analysts think the market’s reaction over the first two trading days of the week cannot be overlooked for two reasons.
First, the low support level in the $60,200 range has now become a potential resistance line. Second, trading patterns over the past three months suggest that weekends are usually favorable for markets, especially on Saturdays when supply pressure seems to subside.
“We are now in no man’s land until we get clear resolution above or below this level,” the analysts said.
A News-Driven Environment
Besides the potential resistance level and three-month weekend trading pattern, the market is currently in a news-driven environment, where the prices of cryptocurrencies have been determined by news agendas rather than fundamentals.
Since selling pressure concerns are not yet completely obsolete due to upcoming Mt Gox creditor distributions, Bitfinex analysts expect such headlines to continue to have some impact on price movements. As such, the analysts urged investors to exercise caution in their trading strategies.
BlackRock’s IBIT led with $117.25 million in inflows on July 15, also being the most traded Bitcoin ETF.
The US spot Bitcoin ETFs recorded a daily net inflow of $301 million on July 15th. This extended their winning streak to seven consecutive days amidst a broader market recovery.
None of the ETFs recorded outflows for the day.
Bitcoin ETFs Rake in $16.11B in Net Inflows Since Jan
According to the data compiled by SoSoValue, BlackRock’s IBIT, the top spot Bitcoin ETF by net asset value, recorded the largest net inflows of the day at $117.25 million. IBIT was also the most actively traded Bitcoin ETF on Monday, with a volume of $1.24 billion. Ark Invest and 21Shares’ ARKB came in close behind with net inflows of $117.19 million.
Fidelity’s FBTC experienced net inflows of $36.15 million on Monday, while Bitwise’s BITB saw $15.24 million in inflows. VanEck’s HODL, Invesco and Galaxy Digital’s BTCO, and Franklin Templeton’s EZBC funds also recorded net inflows. Meanwhile, Grayscale’s GBTC and other ETFs, such as Valkyrie’s BRRR, WisdomTree’s BTCW, and Hashdex’s DEFI, registered no flows for the day.
A total of $2.26 billion was traded on Monday. The trading volume for these ETFs was less than in March when it exceeded $8 billion on some days. Meanwhile, these funds have collectively attracted $16.11 billion in net inflow since their January launch.
What’s Next For Bitcoin?
Earlier this month, bitcoin’s price decline was mainly due to fears of massive selling pressure from Mt. Gox and the German government’s BTC sales.
But the assassination attempt on pro-crypto former US President and presumptive Republican candidate Donald Trump at Saturday’s rally seemed to spark a recovery in the world’s largest digital asset, and experts are bullish on the asset’s price trajectory going forward. Bitcoin surged more than 9% over the past week and was currently trading slightly below $64,000.
Veteran trader Peter Brandt discussed bitcoin’s price outlook, suggesting a potential major rally. He referred to a pattern he terms “Hump->Slump->Bump->Dump->Pump” and highlighted that the July 5 double top attempt was a bear trap, confirmed by the July 13 close. He sees a likely continued upward trend but warned that a close below $56,000 would negate this bullish view.
“Bitcoin $BTC could be unfolding its often-repeated Hump…Slump…Bump…Dump…Pump chart construction. Jul 5 attempt at the double top was a bear trap, confirmed by Jul 13 close. Most likely scenario now is that bears are trapped. Close below $56k negates this interpretation”
PeckShield alert reveals LI.FI’s protocol vulnerability is similar to a March 2022 attack, with the same bug recurring.
The decentralized finance (DeFi) platform LI.FI protocol has suffered an exploit amounting to over $8 million.
Cyvers Alerts reported detecting suspicious transactions within the LI.FI cross-chain transaction aggregator.
LI.FI Issues Warning After $8 Million Exploit
LI.FI confirmed the breach in a statement on July 16 via X: “Please do not interact with any http://LI.FI powered applications for now! We’re investigating a potential exploit.” The team clarified that users who did not set infinite approval are not at risk, emphasizing that only those who manually set infinite approvals seem to be affected.
According to Cyvers Alerts, more than $8 million in user funds have been stolen, with the majority being stablecoins. According to on-chain data, the hacker’s wallet holds 1,715 Ether (ETH) valued at $5.8 million and USDC, USDT, and DAI stablecoins.
Cyvers Alerts advised users to revoke relevant authorizations immediately, noting that the attacker is actively converting USDC and USDT into ETH.
Crypto security firm Decurity provided insights into the exploit, stating that it involves the LI.FI bridge. “The root cause is a possibility of an arbitrary call with user-controlled data via depositToGasZipERC20() in GasZipFacet, which was deployed 5 days ago,” Decurity explained on X.
“In general, the risks behind routers, cross-chain swaps, etc. are about token approvals. Raw native assets like (unwrapped) ETH are safe from these kinds of hacks b/c they don’t have approvals as an option. Most users & wallets also no longer do “infinite approvals” which gives a smart contract total control on removing any amount of their tokens. It’s important to understand which tokens you’re approving to which contracts.
This dashboard looks for all transactions of a user that intersects Lifi. Not all of these transactions indicate risk- but you can see how, broadly, integrations & layers of tech (like how Metamask bridge uses Lifi on BSC) can complicate how users do or don’t put their assets at risk. Revoke Cash is the most well known approval manager app.
But it’s also good security practice to simply rotate your address. New addresses start with 0 approvals, so starting fresh by moving your tokens to a fresh address is another good security practice.” – commented Carlos Mercado, Data Scientist at Flipside Crypto.
Recent Exploit Mirrors March 2022 Attack
Further analysis by PeckShield alert revealed that the vulnerability is similar to a previous attack on LI.FI’s protocol that occurred on March 20, 2022. That incident saw a bad actor exploit LI.FI’s smart contract, specifically the swapping feature, before bridging.
The attacker manipulated the system to call token contracts directly within their contract’s context, making users who had given infinite approval vulnerable. This exploit resulted in the theft of approximately 205 ETH from 29 wallets, affecting tokens such as USDC, MATIC, RPL, GNO, USDT, MVI, AUDIO, AAVE, JRT, and DAI.
“The bug is basically the same. Are we learning anything from the past lesson(s)?” PeckShield Alert said in a July 16 X post.
Following the 2022 incident, LI.FI disabled all swap methods in its smart contract and worked on developing a fix to prevent future vulnerabilities. However, the recurrence of a similar exploit raises concerns about the platform’s security measures and whether adequate steps were taken to address the vulnerabilities identified in the previous breach.
LI.FI is a liquidity aggregation protocol that allows users to trade across various blockchains, venues, and bridges.
