Hello Investors,

Growth slows and inflation rises. That doesn’t sound good.

We also had the 4th BTC halving, a long-anticipated market catalyst that didn’t do much, did it?

Meanwhile, Biden is proposing the highest tax in 100 years.

A productive week I would say.

Let’s explore.

Growth Slows & Inflation Raises

Yesterday, the Commerce Department released a snapshot of its growth report for the first quarter. The US GDP grew by only 1.6%, its slowest pace in nearly two years, and well below its 2.4% forecast.

The reason for positive GDP growth was fixed investment and government spending, lower values came from consumer spending, private inventory, and increase in imports.

Meanwhile, the PCE (Personal Consumption Expenditures price index), a key inflation variable for the Federal Reserve, rose at a 3.4% annualized pace for the quarter, its biggest gain in a year.

David Donabedian, chief investment officer of CIBC Private Wealth, says the GDP report was the worst of both worlds with both slower-than-expected growth and higher-than-expected inflation.

Markets declined following the news, with futures tied to the Dow Jones Industrial Average by more than 400 points. Treasury yields moved higher, with the 10-year note benchmark at 4.69%.

Taxes

To keep the news coming, President Biden has formally proposed the highest top capital gains tax in over 100 years.

From the Biden 2025 budget proposal:

The proposed Biden top capital gains tax rate is more than twice as high as China’s rate.

China’s capital gains tax rate is 20%, with Biden’s combined federal-state capital gains rate of 59% in California is almost triple.

That’s a lot of news for one week.

Biden’s new tax is directly aimed at investors and “the rich”.

It feels like a move to win voters rather than a way to effectively increase the budget.

When the government increases taxes too much, people either stop working or move their assets.

In this scenario, the latter is more likely.

However, this is far from approved and might change multiple times before it gets through the cycle.

As of today, I believe this will further increase the polarization and tension before the elections.

On the GDP and inflation note, this might turn the FED even more hawkish, signaling they should keep the rates higher for longer, maybe even hike one more time before changing the course.

September rate cut chance dropped to only 44.6%, with 39.7% expectation for rates to remain at today's levels.

We have an FOMC meeting next week, which should give us a better idea of what to expect.

Combined with the decrease in consumer spending and an increase in debt, we might wait a little longer for the excess liquidity to arrive in risky assets such as stocks or crypto.

For me, this means the same — more time to accumulate before macro plays the positive note.

Halving is done, what happened?

Last Friday we also had a big milestone on the crypto front — the 4th BTC Halving.

This means miner rewards are slashed in half, reduced from 6.25 to 3.125 BTC per block.

And the impact? For the first time, miners were getting more rewards from fees rather than block rewards.

Why? Runes.

Runes is a new protocol for BTC, which is more effective than previous Inscriptions and can be used to create a whole new set of memecoins.

And that’s exactly what’s happening.

The result of this BTC memecoin mania is high fees.

On April 20, the halving day, average fees on BTC topped $128.

That’s more than the record of the previous bull market, which was $58.

To give an idea of how high the fees are, on April 20 the daily fees topped $78m, 11x more than 2 days before.

My Thoughts

Runes are a new narrative.

It has the power to create, at least temporarily, a new BAYC ecosystem,

and people will venture into Runes to get their high double-digit multipliers.

As long as they do this, the fees will be high, incentivizing mining and keeping the BTC price higher.

Because the more people trade on the BTC network, the more BTC they need to cover the high fees.

• The stablecoin supply hit its highest levels in ~2 years, signaling more buying ahead. (The Block)

• Robert F. Kennedy Jr. vows to put the US budget on blockchain, indicating a significant potential shift in financial transparency. (Decrypt)

• Shiba Inu draws a $12M investment in a token sale to build a privacy-focused blockchain, marking a significant raise from institutional investors. (CoinDesk)

• Stacks begins a 2-step rollout of a major 'Nakamoto' overhaul, unfolding a new era for the Bitcoin L2. (CoinDesk, BlockWorks)

• Hong Kong Bitcoin & Ethereum ETFs to start trading on April 30th. (CoinTelegraph)

• The US Department of Justice requested that Binance founder and former CEO Changpeng Zhao “CZ” spend three years in prison & pay a $50M fine. (CoinDesk)

• BlackRock and Grayscale filed amendments to their Ethereum ETF applications, indicating that both firms are gunning to have their spot ETH ETFs approved by the SEC as soon as possible. (Decrypt)

What’s your big highlight of this week?

All the best,

Matt.