Hi Investors!

*** This will be the last newsletter of 2023 - I'm taking next week off to spend time with my family - Merry Christmas and a happy new year to all of you. Look out for more great content coming in the new year! ***

Welcome back to another week of Market Movers, where I summarise some of the top headlines that attracted my attention to keep you up to speed with the markets and give you some light reading for the Christmas break.

As usual, lets start with a look at the general markets, followed by the digital asset space and finally some top headlines.

Don't forget to check out the Risk On Investor resources page for access to the growing selection of calculators, tools and video guides to help you become a better investor. There is also more content posted frequently on the YouTube channel to keep you informed and entertained!

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Have a great Christmas and new year!

Chaz (RiskOnInvestor.com)

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Major Market Indices

After a wild week last week, with all the positive news coming out of Jerome Powell's speech and the markets hearing it as "RATE CUTS ARE COMING!" things settled down this week.

This time of the year usually has very thin trading volumes as traders pack up for Christmas, the main action seemed to happen in UK markets this week where the headline inflation print came in at +3.9% YoY, significantly lower than the +4.4% estimates and core inflation fell from +5.7% to +5.1%, also well below expectations.

The UK markets rallied on this news, especially after comments in the last few months from the governor of the Bank of England, Andrew Bailey, seemed to indicate that the UK will remain 'higher for longer' than most of the other major international markets which had dragged down returns in the UK.

It's not all sunshine and roses in the UK though.

As I discussed in last week's newsletter, the UK seems to have a very similar pattern to the US, where even though headline rates are declining fast, the services aspect of inflation appears to be remaining stubbornly high.

I personally think this will continue to come down slower than the other constituents of inflation as wage growth has picked up in the UK which will directly filter through to service prices over the coming year.

Let's talk about the black gold, oil.

Brent and West Texas crude have both generally been falling over the last year into a stable range (stable for oil anyway!) which has eased prices for shipping and consumers, and been a major driving force in inflation prints coming down across the world.

Price levels are generally flat when looking over the last year now suggesting that most of the price shocks experienced from Russia's invasion of Ukraine and the Pandemic supply chain issues have filtered through the markets.

Russia has also seemingly not cut it's production over the last 12 months, and at the latest OPEC+ meeting a number of countries have voluntarily committed to reducing oil production in 2024, Russia included. It will be interesting to keep an eye on Russia over the coming year. With the ongoing war in Ukraine, Russia still needs the oil revenue to fund the war machine, but needs to balance selling oil with not producing too much to keep prices higher.

The US has generally been keeping global prices supressed with it's own exports growing and demand internally falling - if OPEC+ can win the fight against the US we might see a double top inflation with another spike in energy prices, but at the moment the US seems to be winning the oil war and most of the western world is breathing a sigh of relief.

Europe will also be looking at gas export data from Gazprom, a major Russian gas provider, to Europe and thinking mission accomplished.

When Russia invaded Ukraine most of Europe was gripped in a dash for gas to try and secure reserves for citizens across the winter months.

With Nordstream still down, Gazprom's gas exports through Ukraine to Europe are effectively capped due to the capacity in Ukraine with the Turkstream network (route through Turkey) having picked up some of the slack - but not enough to replace the quantity of gas Russia was exporting to Europe before the war.

Europe's economies have generally managed to ween themselves away from Russian gas - although I'm sure many European leaders will still have their fingers crossed for a mild winter, especially with elections on the horizon. If energy prices can stay low it boosts re-election chances

Keep your eyes on these countries for their elections in Europe this year:

• Finland - January elections and hardening stance on Russia
• Belarus - February election and a keen ally of Russia
• Portugal - High likelihood of government change/policy direction
• Russia presidential election - A formality? But still worth watching
• Ukraine - Not sure if elections will take place under martial law, if it does take place we may get to see sentiment on the war from the general public
• Slovakia - April
• Lithuania - May
• Iceland - June
• Belgium - June
• European parliament - June
• Croatia - July
• Austria - September, another country with a high likelihood of government/policy change at the election
• Georgia - October
• Lithuania - high likelihood of government/policy change
• UK - Election date TBC, high likelihood of government/policy change
• Moldova - TBC
• Romania - TBC

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Digital Assets

Digital assets continued to show strength into the end of the year, most of the gains being found in the altcoin market, in particular the Solana ecosystem.

The Jito airdrop appears to have been a defining moment for the Solana ecosystem and effectively created a new multi billion dollar protocol at fully diluted value. Whilst I think Jito is over valued at the moment and won't be buying in, it's a very promising sign of what's to come.

Since the Jito airdrop, value locked on Solana has done a 5x which has seen it overtake some of the Ethereum layer 2's, namely, Base, Optimism and Polygon but still needs to double again to reach the size of Arbitrum.

I personally think this marks the start of airdrop season and am now actively looking for projects to farm.

I discussed in the last newsletter about the development of fee markets on Bitcoin and the promise that has for fixing the long term sustainability issue with Bitcoin - I believe there could be some exciting airdrop opportunities around Bitcoin as it effectively starts to build out it's own protocol layer around ordinals, OP_RETURN tokens and anything new the Bitcoin builders can develop!

We've seen some of the first Bitcoin airdrops already taking place just for holding certain projects. If you think you are aware of some strong projects with a high chance of an airdrop I would be interested to hear about them!

I realise this will annoy many Bitcoin maxis who don't think that ordinals and inscriptions in general are beneficial to the network, but as a 'risk adjusted profit' maxi I'm all for it if it makes Bitcoin more sustainable in the long return (less risk) and gives me the opportunity to make some extra money (more return!)

[DISCLOSURE - Chaz holds MSTR in an ISA and $ETH + $GALA in an unsheltered position]

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Chart of the week

With sentiment seemingly shifting on crypto in Wallstreet it's time to start looking for the next narrative.

One such narrative I believe could appear next year is the Ethereum scaling narrative. In the last crypto cycle Ethereum became almost unusable for the retail trader as fees skyrockets when demand for blockspace exploded.

Whilst there is no appetite to change the Ethereum layer 1 because that would compromise decentralisation or security, layer 2 protocols are helping the Ethereum network scale already as demonstrated by the chart below.

EIP-4844 (Ethereum Improvement Proposal) will introduce a new form of blockspace known as 'blobspace' which is temporary and therefore allows for cheaper fees from layer 2 scaling solutions.

EIP-4844 is expected to cut transaction costs by 10-100x with a further upgrade expected in the future with a further 16x increase in blobspace available.

This will likely see layer 2 scaling solutions have sub $0.01 transactions after EIP-4844 and fractions of a cent after the full danksharding upgrade - potentially allow them to compete more effectively with the alternative layer 1's that popped up in the last cycle.

Another interesting development is the use of alternative data availability providers. Ethereum has a high cost to store data on the network, so other options such as Celestia are offering data availability as a service as part of the modular blockchain thesis. By using Celestia for data availability layer 2 scaling solutions can further make fees 100x cheaper.

Combining these 3 upgrades we could see layer 2 transaction fees on Ethereum drop from ~$0.15 to $0.000003 (based on EIP-4844 50x reduction, full danksharding 10x and celestia 100x)

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Notable News Events

• Around $1B in assets belonging to investment firm 3 arrows capital has been frozen (Bloomberg)
• Around $3B of Bitcoin and Bitcoin forks has been moved to federal control from the expired silk road (Court filing)
• China's central bank digital currency (CBDC) made it's first cross border transaction (Coin Telegraph)​
• 11 Authors take OpenAI and Microsoft to court, claiming the tech giants used their work to help train the latest artificial intelligence models (Reuters)
• VR headsets and AR glasses sales fell by ~40% in 2023 even as companies like Meta pour billions into development (CNBC)
• US GDP data commented on in last weeks issue has been revised down from 5.2 to 4.9% (BEA)

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Latest from the YouTube Channel

As we approach the end of 2023, I have taken a look back at some of the major news events that shaped the last year with a short video - Enjoy! (Watch here)

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You might also be interested in

If you've watched my YouTube channel from the early days, you'll know that I left my job as a Civil engineer in the UK and decided to strike it out alone as self employed. My immediate problem was getting money in the door to survive and allow me to make investments. This video explains how I was able to generate extra cash (tax-free) to keep my head above water until I was more established - I would HIGHLY recommend you try matched betting if you haven't before. Watch the video below

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Have a great Christmas break!

Chaz

P.S - Want to work with me? Reach out by replying to this email, lets chat