Thank you for joining me for another edition of the Magnelibra Markets Podcast, I’m your host Mike Agne and today’s episode #16 is entitled “Bitcoin ETFs Approved by SEC & CPI a bit Hotter”
But first a quick regulatory disclaimer:
DISCLAIMER: The following podcast is for educational purposes only. This is not a solicitation to buy or sell commodity futures or options. The risk of trading securities, futures and options can be substantial and is not for everyone. Such investments may not be appropriate for all listeners.
Ok so after a very long awaited battle, the SEC finally caved, and it shouldn’t be a big surprise, because once Blackrock threw their hat in the arena, we all knew the inevitable was just a short distance away. So what did the SEC actually approve?
They approved to start trading in public markets the ETFs (exchange traded fund) from the following entities:
ETFs are pooled investments and unlike the current ETFs that exist in regards to Bitcoin which utilize futures contracts to underline their fund, the newly approved 11 are “spot” Bitcoin ETFs meaning they are not utilizing futures markets but rather are directly purchasing Bitcoin itself from a marketplace exchange or supplier like Coinbase.
So we are slowly going through the prospectuses of all of these to see the real details and we currently have looked at the Bitwise ETP Trust and its 225 pages or so and we can already see some deficiencies and concerns. For instance there is a chance that Coinbase could supply credit instead of Bitcoin which, has its own inherent counterparty risk problems and speaking of that, the layers of risk from issuer, to custodian further increase both the fee structures and the overall counterparty risk.
All of which is anathema to core Bitcoin ideology.
The other item we saw and it hasn’t been much of a concern with Bitcoin, but any forks (not really a Bitcoin concern but still a risk) will not be owned by the ETF nor its purchasers. A fork is a deviation or a new branch in the network and its more akin to cryptocurrency not Bitcoin, but still a concern here. BTW we do not consider Bitcoin a cryptocurrency, its a technology.
So there is a lot to go over to reveal the real risks here but all in all it is a good development to build trust in the Bitcoin name and network for the masses. This overall is a great enhancement and this mainstream approval will lead to further adoption. The ETF doesn’t mean the retail buyer owns them directly, rather they are buying shares that represent ownership, this is starkly different from buying Bitcoin directly on your own.
The old HODL mantra is “Not your keys, not your Bitcoin.”
This couldn’t be further from the truth and what it means is that if you do not own your bitcoin on a cold storage device, then you run the risk of counterparty failure and Bitcoin was designed for personal private use not to be stored on an exchange but rather put on a device to use when necessary to send Bitcoin to another party directly.
So all in all we like the development but there is a lot to digest here, as traders we know this will lead to games being played on the opens and closes by high frequency traders and algorithmic hedge funds. The fact that Bitcoin trades 24 hrs a day but the ETFs will only be open for US trading hours only, leaves a massive arbitrage opportunity most likely to exploit. Furthermore there will be a clear winner and loser mentality for this competitive group and it will be interesting to see it all wash out. We will have more on this subject in the coming weeks as we read through the data of each one of these.
The Bitcoin chart has hit our 0.618% retrace again and this level should see consistent resistance till we get a close above it, which the bulls will need to drive it to the next level:
All in all and in the long run, we do believe these ETFs will prove sub par compared to direct purchases and we always believe the ultimate goal from the global central banks will be to subvert the Bitcoin network somehow, now if its in dilution via Wall Street ETFs then this may be the case, but we believe a hack in the future of let’s say Coinbase itself, could be a real killer and it is now a risk that should be on everyone’s radar but most likely is not!
Magnelibra is currently working on a commodity trading pool model to incorporate long only Bitcoin accumulation in its strategy, but this unlike an ETF will be a direct purchase held both on exchange and in cold storage. The key for us is to make sure our investors or accounts have access to the actual Bitcoin addresses to audit the holdings. This is key and will be a secondary focus of our overall long/short global macro strategy but we feel that having access to an alternative long/short strategy as well as having and holding Bitcoin and Gold even as core longer term accumulations will greatly enhance our investors long term return objectives and provide direct exposure to Bitcoin that ETFs cannot provide. Initially we are working on getting LPs in place and once this is done, Magnelibra will be operating as a National Futures Association regulated commodity pool operator or CPO. We are currently a CTA (commodity trading advisor) Once this goes through we will then open the pool up to outside investors, so we should have this in place by the end of Q1 2024. We will keep you all informed as to this exciting development.
In related news to the SECs decision and one which we honestly believe was quite strange, Commissioner Hester M. Peirce put out a statement and admitting to errors in judgement to “squandering opportunities,” almost a full admission of guilt. Awfully strange, but on the accountability side, maybe the right thing to do from a fiduciary standpoint is to admit guilt and ask for forgiveness, this is what this statement clearly represented. Anyway give the link a click, you will be amazed at the content, truly! Here is the link to the statement, Commissioner Peirce remarks on Bitcoin Spot ETF Decision
Alright on to the data this morning, The CPI report came out a bit hotter than expected as the headline in December came in at +0.3% expected +0.2%. YoY headline CPI now +3.4% higher than the 3.2% expected, but hey we are still holding onto some pricing pressures which is expected. This is backward looking data and coming off the holiday season, we are now in the tighter purse strings era so will see how January CPI comes in. For now the Core CPI YoY is 3.93% and below 4% again, first time since May of 2021 so that is a good thing, however the FOMC watches super core CPI which rose 0.4% MoM and YoY +4.09%, however we know the trend in shelter and rent inflation continues to fall. We suspect this will continue on especially if the FOMC does cut rates as we should start to see increases in the supply of homes for sale adding pricing pressure to this sector:
The SP500 futures had a decent nice 35 tick range high to low off this number, falling from 4837 down to 4802. The 4800 area as of this podcast has been broken and now 4775 area and a quick look at the daily shows good support here at the 4775, 21p Vwma:
A close below this on the daily puts the top in and will threaten to target the 4627 red line we have on the chart.
As far as the Nasdaq futures, well a closing daily bar like this, does not bode well given the loftiness of this bad boy. The failure at 16800 once again will prove problematic for the bulls here and a close today or tomorrow below 16555 as you know will put a short term top in place and open up the move to the 61.8% area of 16089:
Ok that’s it for the technical’s let’s look at the settles and trackers from yesterday:
The Nikkei was the day’s biggest winner and Nat Gas saw some profit taking there. Equities were up across the board, bonds slightly lower, FX weaker as to was energy and metals except for copper.
Moving to our Futures Model Tracker basically unchanged on the day with no changes:
The MEGA8s continues to shine with Nvidia and the package saw a new all time market cap high up at $12.95 Trillion:
Nvidia has gained $629Bn in market cap since May 10th 2023 and continues to push higher! Meta, Google and Microsoft also reaching new market cap highs in this time frame:
Alright that does it for now, thank you to all of our current subscribers for supporting our work and if you cannot afford to subscribe, we understand so if you could please just leave a like or share our work with some of your colleagues and friends, we would greatly appreciate it. Till next time…Cheers
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