Centerfin Collective Weekly

Weekly Update June 16 2023

UK inflation and rates rise, Bitcoin hits $31k, China tension continues

Blackrock votes for Bitcoin

Blackrock filed the iShares Bitcoin Trust today to offer investors an exchange-traded product providing access to spot Bitcoin. The largest asset manager in the world is finally embracing crypto for the first time, and Bitcoin is their obvious first asset choice

  • There is a lot of debate about whether this Blackrock product is an ETF or a Trust that is more similar to Grayscale
  • It seems Blackrock is taking some baby steps toward getting a full-fledged ETF product listed
  • What we think is notable however is that Blackrock is entering the crypto space
  • They are also using Coinbase as their custodian for Bitcoin, despite the SEC action last week
  • We have always maintained that Bitcoin makes sense as a small allocation for a diversified portfolio, this is a healthy development in our opinion

Most anticipated skip in history

The Federal Reserve had their June meeting this week, and as was very clearly projected and widely expected, they chose NOT to raise interest rates for the first time in 12 months. Given the Fed has hiked rates 500 bps in 12 months, this next 25 bps (0.25%) is not that significant, however, “the skip” is. Jay Powell maintained that further interest rate hikes are warranted, but they thought it prudent to wait and see how the prior hikes filtered through the economy

  • Since the Fed started hiking in early 2022, their meetings have become a huge focus for markets
  • Having hiked interest rates by 5.00% in 12 months, they decided to pause before deciding whether or not they need to hike more
  • Our view has been that much of what the Fed has intended to do has been accomplished
  • As inflation continues to trend down but below the Fed’s target, it's unlikely that more rate hikes will help
  • What is likely needed is fiscal discipline, i.e., the Federal Govt to slash spending, which is unlikely to happen given the political cycle
  • We still think the full effects of the current interest rate regime is yet to be reflected in valuations of assets

Rumors of China stimulus

There have been rumors of China announcing a new round of stimulus since last year. This week we received the latest bout of rumors which helped propel commodities higher.

  • As far as we know, China is not suffering from the same inflationary environment as the Western world
  • This is partially due to China's demographic issues (aging population)
  • This allows them the opportunity to provide stimulus to the economy as most other governments are retreating
  • We have been hearing rumors of this for a while
  • If true, this is generally bullish for commodities and related industries

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