Daily Update: January 18, 2023

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Crypto’s Terrible, Horrible, No Good, Very Bad Year

The “crypto winter” that surprised Wall Street in 2022 shows some signs of thawing in the new year, though analysts remain cautious.

Crypto investments swelled to new heights throughout 2021 before peaking early in 2022. Yet as 2022 came to a close, institutional investor, private equity and venture capital investments in cryptocurrency and decentralized finance had fallen to their lowest quarterly level in two years, according to data compiled by S&P Global Market Intelligence in mid-December 2022. That marked a spectacular fall that few would have predicted 12 months earlier.  

What happened? The collapse of a pair of so-called stablecoins in May 2022 shocked the market and left investors rethinking their assumptions. This was followed by the demise of the FTX cryptocurrency exchange in November 2022, which further rattled investors. A recent rally for bitcoin and certain other digital tokens shows some investors are ready to jump back in, but there is widespread expectation that regulators will be taking a harder look at cryptocurrencies and decentralized finance in 2023. 

“As a professional economist, I take some comfort from this fact: crypto coins that claim to be stable must be credibly backed by liquid and high-quality assets,” wrote S&P Global Ratings’ Global Chief Economist Paul Gruenwald in a 2022 year-end report recounting crypto’s terrible year. “Moreover, the use of anonymous technology does not obviate the need for transparency, disclosure and guardrails set by the authorities,” Gruenwald said. 

When questioned as to how much risk crypto posed to the wider banking industry after FTX’s collapse, U.S. banking regulators told federal legislators in November 2022 that the fallout was fairly contained. 

Still, banks with significant exposure to digital asset deposits saw noticeable fluctuations last year, according to an S&P Global Market Intelligence analysis. Two of the largest cryptocurrency banks by deposit size, Signature Bank and Silvergate Capital Corp., reported digital asset deposit drops of 8.9% and 10.8%, respectively, between the second and third quarters of 2022. Cryptocurrency-related deposits at Metropolitan Bank Holding Corp. fell nearly 40% sequentially in the third quarter. 

Meanwhile, in November 2022, New York became the first U.S. state to ban crypto mining powered by fossil fuel plants due to environmental concerns, pointing to another emerging regulatory risk.  

Amid all the uncertainty, firms handling digital assets should turn to automated workflow software to help navigate a complex and changing market, wrote Adam Goldberg, a regulatory subject expert with S&P Global Market Intelligence, in a Jan. 9 blog post on the crypto landscape. 

“In this environment, firms must seek out regulatory certainty wherever they can find it,” Goldberg said. 

As for vendors attempting to service blockchain networks, 451 Research analyst Alex Johnston pointed to a need to proceed cautiously. While additional regulation and attempts to identify more sustainable business models could provide some benefits for the blockchain market, Johnston said in a Dec. 1, 2022, research note, it is likely the crypto crisis will scare some investors away and thus reduce funding for future projects.  

Today is Wednesday, January 18, 2023, and here is today’s essential intelligence.

Written by Christina Mitchell.

Economy

Singapore Economic Expansion Moderates As Global Economy Slows

The Singapore economy grew at a pace of 3.8% year-on-year in 2022, helped by significant easing of pandemic-related restrictions. However, Singapore's manufacturing sector faced increasing headwinds during the second half of 2022 due to the slowdown in the U.S., EU and mainland China. This has been mitigated by improving conditions in the service sector, notably the rebound in international tourism, business conventions and air travel as border restrictions are easing across much of the Asia-Pacific region.

—Read the article from S&P Global Market Intelligence

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Capital Markets

Contextualizing Style Shifts

The S&P U.S. Style Indices are designed to provide broad and exhaustive exposure to the market’s value and growth segments. The index methodology bifurcates a parent index’s market capitalization into roughly equal portions on the third Friday in December, using six measures shown in Exhibit 1.

—Read the article from S&P Dow Jones Indices

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Global Trade

Trade Review: Alumina Prices To Be Supported In Q1 By Output Cuts, High Energy Prices

Alumina markets globally are likely to be supported in the first quarter by ongoing supply disruptions in Australia and high energy prices amid the Russia-Ukraine war, while a recovery in aluminum demand remains uncertain and depends on the degree to which China is able to resume and sustain operations after easing COVID-19-related restrictions. Australia implemented a ban on alumina exports to Russia in March 2022 amid the war in Ukraine and market sources have said that any amendment to this policy will lead to significant price moments in Q1 and likely the rest of the year.

—Read the article from S&P Global Commodity Insights

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Sustainability

Beyond ESG With Key Sustainability Trends In 2023

As the new year unfolds, S&P Global Sustainable1 explore key sustainability trends impacting progress toward both near- and long-term sustainability goals. Join S&P Global Sustainable1 for the next episode in our Beyond ESG webinar series to hear from specialists from across S&P Global on how water scarcity, biodiversity loss and climate goals may factor into priorities; how developing sustainability disclosure standards could impact both investors and companies; and how shifting workforce expectations may influence sustainable employment practices amid recessionary risks.

—Register for the webinar from S&P Global Sustainable1

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Energy & Commodities

Cold December Boosts Hydrogen Production Costs, As Market Price Indications Emerge

Hydrogen production costs rocketed in the U.S. in December with exceptionally cold weather pushing up feedstock grid power and gas prices, with smaller gains seen elsewhere globally, the Platts Hydrogen Price Wall from S&P Global Commodity Insights showed. The exception was Australia, where a transition to warmer summer weather and increased renewables output pushed feedstock prices down for electrolytic hydrogen.

—Read the article from S&P Global Commodity Insights

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Technology & Media

Fuel For Thought: Automotive Supply Chain And Technology Themes For 2023

The end of cheap capital — combined with worsening macroeconomic conditions, the war in Ukraine, raw material uncertainties and the continuing chip shortage — will combine to mark 2023 as the beginning of an era when demand-side considerations replace the current supply-side fixation.

—Read the article from S&P Global Mobility

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Upcoming Events

CERAWeek by S&P Global — Navigating A Turbulent World: Energy , Climate and Security

Join global leaders, policymakers and executives from across energy, climate, finance, technology and industry at CERAWeek 2023 for timely dialogue, shared learning and connection.

—Register for CERAWeek

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