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Newsletter #22 – Cypto becomes political, ETH ETF approved?

by | May 23, 2024

📢 May Signals

23 days until the Bitcoin halving

🗓️ Key dates to watch

  • 28 May – London Stock Exchange will start market for Bitcoin and Ether ETNs
  • 30 May – GDP Growth 2nd estimate 
  • 31 May – Core PCE and Personal Spending 
  • 4/7 June – JOLTS / Non-Farm payrolls & unemployment (does the weakness continue?)
  • 12 June – CPI / Inflation data (0.2% MoM estimate, a hit or an under would be very welcome)

⚒️Fundamentals

 

Get in touch to discuss how digital assets fit in your portfolio:

 

 

🗓️ Market update

Bitcoin is rebounding after 2 months of downwards chop ending on May 1st at around US$57k, coinciding with an inverse move in US yields (trending up for 2 months reversing on the May 1st). Confirming macro is back in control after ETF flows drove the market in Q1. The fed made a mini pivot on the 1st of May, effectively taking rate hike off the table and suggesting weakening jobs data could lead to cuts, low and behold jobs data came in a touch weak 2 days later.  Unemployment weakening further, in an election year, would almost certainly see a response of cuts from the Fed, buoying crypto markets further for the next leg up.

GBTC saw its first days of inflows on the 3rd of May, $63m in, after $17b of outflows this was a welcome change. The supply of $17b hitting the market has kept a lid on BTC price for the past 90 days but it looks like it is reaching equilibrium, with several days on inflows now.  ETF demand is picking up for what looks like a third wave of buying, however this wave could be very different, if GBTC is no longer easing the supply situation then we could see a demand price shock very soon. 

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13 F filings dropped during the month, this is a mandated filing to the SEC for public funds that have at least $100m in assets.  There was a record number of filings for bitcoin ETFs, 414 filing for iBit alone, new ETFs are typically lucky to get 1 or 2 of these filings for reference. Hedge funds are in! 13 of the top 25 have taken a position in BTC, but even more interesting was the Wisconsin Retirement fund, a top 10 public pension fund, buying $130m of BTC ETFs.  We believe game theory will force all pension funds to follow, but did not expect this to start for 6-12 months, the due diligence and compliance process in these organisations is laborious, to see a first mover in Q1 is very exciting.

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The SEC threw a curve ball on Ethereum ETFs this week, market odds of denial where in the vicinity of 90% this flipped as they asked applicants to update their fillings by 10am the following morning, approval is now expected tomorrow morning.   

The U.S. Senate passed its first stand alone crypto bill, a resolution seeking to overturn an accounting rule decreed by the Securities and Exchange Commission (SEC) that sought to block banks from providing crypto custody service.  In a rare bipartisan effort the senate voted 60 to 38 in favour of repealing the SEC’s Staff Accounting Bulletin (SAB) No. 121. The Biden executive branch has threatened to veto the vote, but is hopefully fearful of an own goal as polls are confirming crypto will be a key election issue in 2024, 20% of voters in swing states now view it as exactly that. 

And in late news FIT21 Financial Innovation and Technology for the the 21st Century Act passed the house with strong bipartisan support 71 Democrats breaking with what was the administrations anti crypto stance only a week ago, hard to tell if it exists at all now. FIT21 makes a lot sense, protecting retail investors from another FTX style event and handing primacy of regulation to the CFTC which has been much more constructive on digital assets than the SEC.  All of this in the space of a few days! I’m certainly satisfied this is an election issue.

AI (Artificial Intelligence), DePIN (Decentralised Physical Infrastructure Networks) and RWA (Real World Assets), not just acronym soup but also the best preforming sectors in crypto so far this year, and the sectors ex Bitcoin and smart contract platforms we are most exposed to.  We expect this trend of sector  outperformance to continue through 2024.  RNDR for example is a DePIN protocol enabling AI, is a core holding for the fund and is up 144% YTD.

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We believe liquidity is coming and a path to regulatory clarity is well under way. This bull market is just about to kick off, in our humble opinion.  

▶️ Broken Money A 30 minute animation

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In this 30-minute explainer video, Lyn Alden takes a step back through history and looks into the intricacies of money and banking, offering an answer to an overlooked but extremely important question: What is money?

This video takes core ideas from Lyn’s recent book “Broken Money: Why Our Financial System is Failing Us and How We Can Make it Better” and distils them into an easy to consume format.

Click HERE to watch / listen!

The Merkle Tree Capital “Why?”

We know accessing the digital asset sector is challenging, presenting a new set of risks that most investors are not familiar with, and there is a lot of sub-standard information flying around. That is why we created an actively managed unit trust aiming to hold the best digital assets that will form the basis of the ecosystem over the next 5-10 years.

Investors can now access this new asset class without concerns around self-custody or dealing with unknown counterparties, simplify their tax reporting, avoid single asset risk, maximise yield, and access institutional risk management and portfolio construction.   

SMART – actively managed, enhance risk adjusted returns, sophisticated portfolio construction, staking yield, simple exposure – no passwords or digital wallets

SECURE – institutional custody, staking in cold storage, insurance, counterparty due diligence 

CRYPTO – Blockchain eliminates intermediaries, lowers costs and improves efficiency by bringing transparency and security.