Centerfin Collective Weekly

Weekly Update January 12, 2024

Bitcoin ETF finally approved, Mixed inflation data, Conflict in the Middle East escalates

Bitcoin ETFs finally get approved

Over a decade after filing the first Bitcoin ETF application, the SEC approved 11 ETFs to offer investors exposure to Bitcoin. Notwithstanding drama that has come to be expected in the world of cryptocurrency, on Wednesday, the SEC approved 11 ETFs focused on providing easy-to-access exposure to Bitcoin. As we have written, this was widely expected, at least over the past few weeks.

  • This is a very important step in the world of cryptocurrency
  • We liken it to the GLD (gold) ETF launched in 2004, which gave investors an easy way to access exposure to the gold market
  • The significant difference is that the supply of Bitcoin is fixed at 21 million, whereas the supply of gold or any other natural resource can be further expanded
  • Given more than 50% of Bitcoin is held by long-term owners (HODLRs), this new incremental demand can have a significant impact on price
  • While the initial price reaction has been negative, it is not an indication of long-term implications
  • Ironically, some firms, notably Vanguard, refused to allow trading of the new ETFs on their platforms while at the same time allowing unnecessary and speculative 3x levered inverse ETFs and 0DTE options

Inflation data mixed

All eyes are on inflation, given the Federal Reserve declared “mission accomplished” in December. The Consumer Price Index (CPI) came in a bit hotter than expected at 0.3% month over month and 3.4% over the last 12 months. Core CPI, which excludes food and energy, was up 3.9% year over year. The following day, we saw the Producer Price Index (PPI), which unexpectedly fell 0.1% for December and increased  1% year over year. Core PPI, excluding food and energy, rose 0.2% for December and 2.5% year over year.

  • Monitoring inflation data will be a key theme of the early part of 2024
  • The Federal Reserve all but declared its mission accomplished as it pertains to inflation in mid-December and pivoted to lowering rates
  • The markets are fully expecting multiple rate cuts this year
  • If inflation does not come down as expected, this may not prove correct
  • So far, the data has continued in the right direction, including US consumer expectations for inflation decreasing

Conflict in Middle East escalates

Houthi rebels continued their attacks on ships passing through the Red Sea this week, forcing more carriers to re-route their vessels around the Cape of Africa. In response, the US and the UK launched military strikes against the rebels in Yemen. This is an escalation in the conflict, resulting in a vow of revenge from the Houthi.

  • As we have written about in the past, geopolitical tensions are the biggest risk to markets today
  • The conflict in the Middle East is a powder keg which could easily lead us into a global war
  • Continued escalation does not alleviate those fears
  • Ironically, Saudi Arabia has called for restraint from the US and UK

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