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In This Issue:
The ETF Terror Dome
Bitcoin Thoughts And Analysis
Legacy Markets
The Power of Financial Advisors
Standard Chartered Predicts Massive Inflows
VanEck Made A Bold Move
Bitcoin Pump Then Dump | 95% Chance Of ETF Approval Then 40% Correction | Macro Monday
The ETF Terror Dome
When I started crafting this newsletter, my initial intention was to incorporate a brief news segment addressing the ongoing discourse surrounding ETF fees. Delving into technical discussions about ETF structures isn't my forte, but fortunately, the information shared by experts is accessible and genuinely captivating. I'm unsure who coined the term ‘ETF Terror Dome’ — I believe it might have been Eric Blachunas.
Below is the image that has piqued everyone's interest.
The consensus around the fees amongst the experts is that they are VERY low vs. other ETFs and similar products, hence the name ‘ETF Terror Dome.’ What I have gathered is that the issuers are undercutting each other’s prices in a battle for AUM. Except for Grayscale, they are playing a different game. We have never seen a situation where 11-14 issuers launch at once and are forced to compete. This is a unicorn.
Grayscale emerges as the dark horse among ETF issuers with a 1.5% fee, significantly higher than the rest of the lot. Its situation differs significantly, boasting $27.2 billion in AUM in GBTC, poised for conversion into an ETF. They aren't playing by the same rules as everyone else; in fact, they might be ahead of the curve with a few tricks up their sleeves.
James Seyffart proposed the following, “They could drop this fee still technically because the documents aren't ‘complete’ yet. But idk why they wouldn't have done this already. Or I think they may be using that $BTC ticker to launch a MUCH cheaper sibling (this is a move that many ETF issuers have used in the past). AKA they are taking my advice:”
Grayscale's AUM might see a dip when the ETFs launch unless they pull a rabbit out of their hat. Nonetheless, the company is going to rake in significant profits. With a strong foothold in the crypto market, it seems unlikely that Grayscale would willingly cede its lead. Furthermore, the prospect of focusing on the ETH ETF after the launch of the Bitcoin ETF adds an interesting dimension to their strategy as well.
*Ahem... Ahem… Pardon This Interruption* *Breaking News Has Just Broke*
Gary Gensler has briefly emerged from Elizabeth Warren’s BDSM basement chamber to share this important message…
Weird interruption, right? Looks to me like someone is salty the ETFs are nearing, and taking his last shots. I am quite sure that, once these are approved, Gary will continue his policy of scorched earth against the rest of the industry.
One thing that stood out to me during the many discussions I have been sifting through was Caitlin Long’s Tweet about the risks of low fees and financialization.
Then this Tweet…
And finally, this one…
One of the things I have learned in crypto is that when Caitlin Long speaks, you listen. Those are the rules, I don’t make them.
Caitlin's key point is that the ETF serves as a double-edged sword in the realm of financialization. While initially tied to the fee debate, it takes on a life of its own when lending enters the picture. The big players are likely to dive into lending to boost their earnings, adding another layer of complexity to the landscape.
“But wait a minute—am I implying financialization is bad? The term ‘financialization’ has two different connotations, one positive and the other negative. In the positive sense, an asset class is ‘financialized’ when it becomes investable by large institutional investors, which means it has become liquid and has sufficient history for institutional investors to invest.”
“That brings us to the second—and negative—definition of financialization, which I’ll refer to as ‘leverage-based financialization.’ This is the process of creating something out of nothing.”
“So far, only the good type of financialization is happening in cryptocurrency markets. Leverage-based financialization is not happening—yet.”
“But liquidity arising from leverage-based financialization—which creates claims to cryptocurrencies out of thin air—is the opposite side of the double-edged sword. Cryptocurrency speculators will encourage this because it can drive short-term gains, but long-term HODLers will resist it simply by keeping their coins away from the financial system.”
I’ll conclude this point with a response from Eric regarding the low fees since that’s the focus today.
What I want to emphasize at this point is that the 'ETF Terror Dome' exists because the applicants want to win, which means they must anticipate a prize worthy of their efforts. If the filers are going to fight tooth and nail to win over every dollar from their competitors, it must be worth their time. At these fee levels, they will need INSANE amounts of AUM to remain viable. They know this, and must be anticipating significant inflows.
Sure, the ETF isn’t perfect, and there will be disadvantages down the road, but that’s the price of Wall Street—the capital inflow will be a net positive.
More exciting than the fee wars will be the marketing wars, and we've only gotten a brief taste of this. Is it too soon to bring back Super Bowl advertising? Perhaps BlackRock breaks the seal and goes all out with an epic crypto commercial? Just a fun idea.
I’ll end this intro with one final thought; we could be 24 hours away from a Bitcoin ETF being approved and 48 hours from it going live. Christmas might just come two months in a row.
Bitcoin Thoughts And Analysis
Bitcoin made a new yearly high on anticipation of an ETF approval. The weekly candle looks great so far, although it is only Tuesday. At this point, just look at the key levels that I have shared repeatedly and use them as likely resistance and support.
Looking good here.
Legacy Markets
Stocks and bonds faced a downturn ahead of an anticipated US inflation report and amid a surge in government and corporate debt issuance. US stock futures fell, along with Europe's Stoxx 600 index, despite a brief uplift from tech sector gains. A significant drop occurred in the shares and bonds of Grifols SA, a Spanish blood plasma company, after a critical report from short seller Gotham City Research LLC.
The market's initial optimism was overshadowed by concerns about inflation and volatility in bonds, compounded by a heavy influx of new debt. BlackRock Inc. highlighted the potential risks associated with increased government spending, especially in an election year. UK long-dated government bonds, known as Gilts, experienced losses following a large debt sale.
Despite the challenges, including a strong US labor market and an abundance of new debt, strategists like Evelyne Gomez-Liechti from Mizuho International do not expect US 10-year yields to surpass recent peaks before the inflation data release. This perspective aligns with Bill Gross's view, who regards the 10-year yield above 4% as overvalued.
On the tech front, a rally was led by Nvidia Corp.'s surge after announcing new AI products, helping the Nasdaq 100 to its largest jump since November and keeping the S&P 500 near record levels. Japan's Nikkei 225 index also reached heights not seen since March 1990.
Bitcoin saw a decline after a recent surge past $47,000, fueled by speculation over the US approving its first exchange-traded funds for the cryptocurrency. Meanwhile, oil prices recovered slightly from a significant drop, despite concerns about a weaker physical market and price cuts by Saudi Arabia.
Key events this week:
China aggregate financing, money supply, new yuan loans, Tuesday
Eurozone unemployment, Tuesday
Germany industrial production, Tuesday
US trade, Tuesday
US wholesale inventories, Wednesday
The World Economic Forum’s global risks report is released, Wednesday
New York Fed President John Williams speaks, Wednesday
US CPI, initial jobless claims, Thursday
China CPI, PPI, trade, Friday
UK industrial production, Friday
US PPI, Friday
Some of the biggest US banks report fourth-quarter results, Friday
Minneapolis Fed President Neel Kashkari speaks, Friday
ECB chief economist Philip Lane speaks, Friday
Some of the main moves in markets:
Stocks
S&P 500 futures fell 0.3% as of 5:59 a.m. New York time
Nasdaq 100 futures fell 0.4%
Futures on the Dow Jones Industrial Average fell 0.3%
The Stoxx Europe 600 fell 0.2%
The MSCI World index was little changed
Currencies
The Bloomberg Dollar Spot Index rose 0.1%
The euro fell 0.1% to $1.0935
The British pound fell 0.2% to $1.2724
The Japanese yen rose 0.1% to 144.06 per dollar
Cryptocurrencies
Bitcoin fell 1.4% to $46,460.91
Ether fell 1.9% to $2,293.77
Bonds
The yield on 10-year Treasuries advanced one basis point to 4.04%
Germany’s 10-year yield advanced five basis points to 2.19%
Britain’s 10-year yield advanced five basis points to 3.82%
Commodities
West Texas Intermediate crude rose 1.9% to $72.08 a barrel
Spot gold rose 0.4% to $2,035.39 an ounce
The Power of Financial Advisors
This thread is absolutely fantastic. While I won't share the entire content due to its length, I cannot emphasize enough how compelling of a read it is. Bruce Fenton, an accomplished entrepreneur, founder, and crypto OG, highlights in this thread the significant influence of ETFs and their ability to mobilize armies of financial advisors in a way I have yet to be seen discussed.
“There are over 620,000 SEC/ FINRA licensed investment professionals (I’m one of them!) in the US, thousands of broker dealers and there are over 15,000 Registered Investment Advisors (RIAs). How much money do these groups manage? Almost all of it. Trillions of dollars.”
“Things will change radically for several reasons:
financial advisors follow the money and follow the trends
advisors are smart about money / motivated to learn
they need to keep up with what customers & the public is talking about
there is pent up professional desire by advisors who like Bitcoin or are bit-curious but who can’t justify the time to focus on it due to focus on products they are allowed to offer & make a living from
they like to make money and do well for clients
they believe in well balanced /blended portfolios & the best advisors adjust for risk / hedge. Based on its performance & correlation with markets over the last decade, Bitcoin belongs in many more portfolios
speaking of which, thousands of financial planning & asset allocation software products will add the Bitcoin ETFs so advisors can do analysis & add it to hypothetical and real portfolios”
In essence, Bruce contends that investment advisors will inevitably need to acquaint themselves with Bitcoin, passionately advocate for its merits, and ultimately, many will develop a genuine liking for it in the process.
Standard Chartered Predicts Massive Inflows
Standard Chartered presents several intriguing points. Firstly, it's important to note their bullish stance, specifically targeting $100,000 by the end of the year. Secondly, Standard Chartered is drawing parallels between Bitcoin's ETF and gold's ETF, arguing that Bitcoin's ETF market will mature faster than golds did, resulting in stronger gains in a shorter window. Thirdly, this theory aligns well with their broader prediction of $200,000 for BTC by the end of 2025. Bitcoin is the perfect candidate to mature faster than broadly anticipated because it is decentralized, natively digital and nascent. I wouldn’t be surprised in the least to see Bitcoin shockingly outperform soon.
VanEck Made A Bold Pledge
Read this statement from VanEck:
“We’re not Bitcoin tourists at VanEck. We’re in it for the long haul. That’s why we made an initial $10k donation and signed a pledge to donate 5% of our Bitcoin ETF profits (if approved) to support Bitcoin Core devs @bitcoinbrink for at least 10 years. Your tireless dedication to decentralization and innovation is the cornerstone of the Bitcoin ecosystem, and we're here to support it—more details to come.”
While not entirely unprecedented in other industries, a move like this is relatively uncommon. VanEck’s pledge serves as a reminder that Bitcoin and the ETF madness transcends mere numbers on a screen; decisions like these underscore the broader importance this asset holds.
Bitcoin Pump Then Dump | 95% Chance Of ETF Approval Then 40% Correction | Macro Monday
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The views and opinions expressed here are solely my own and should in no way be interpreted as financial advice. Every investment and trading move involves risk. You should conduct your own research when making a decision. I am not a financial advisor. Nothing contained in this e-mail constitutes or shall be construed as an offering of financial instruments or as investment advice or recommendations of an investment strategy or whether or not to "Buy," "Sell," or "Hold" an investment.