Bitcoin Spot ETFs’ Demand Might Be Lower Than Expected 📉

🐺 Hi pack-mates,

This is Howling Markets, the entertaining podcast host that discusses all kinds of complex financial news in a simple and fun way!

Today we will be covering:

• What Is a Spot ETF? 🪙

• Wrong Forecasts or Dangerous Rally? 2024-end Targets Have Already Been Surpassed! 📈

• Bitcoin Spot ETF’s Demand Might be Lower Than Expected 📉

• Equity and Debt Markets Daily Update ⚖️

• And more!

Market Watch 👀

What is a Spot ETF?

In our second newsletter ever, we discussed what is an ETF in relation to the highly discussed Bitcoin’s ETFs. However, to be a little more specific, Bitcoin’s ETFs will be a particular type of ETFs called Spot ETFs. So, what is a spot ETF and how does it compare with other types of ETFs?

A spot ETF is a type of Exchange Traded Fund that directly holds the underlying, so its performance is directly linked to the performance of the asset that it tracks. For example, a spot Bitcoin ETF will hold a certain number of Bitcoins and each ETF share will proportionally represents a share of these Bitcoins.

The main alternative to a spot ETF is a futures ETF, which instead does not hold the underlying, but rather invests in future contracts on the asset. A futures contract is a financial derivative based on an agreement to buy or sell an asset at a predetermined price and date in the future.

Purchasing a spot ETF, rather than a futures, brings many benefits to the investors:

• Price movements in the ETF will closely match the ones of the underlying.

• Future contracts have an expiration date and must be “rolled over”, which is a technical term to indicate the renewal of the contract to push the expiration date further. Because of this, Futures ETFs usually have higher fees and a more complex liquidity management process as opposed to Spot ETFs

• Futures’ prices are influenced by expiration dates, complexity of the financial derivative, expectations and much more. Because of this, they tend to be much more volatile and riskier.

Wrong Forecasts or Dangerous Rally?

2024-End Targets Have Already Been Surpassed!

During the early weeks of October, most investment banks were asked to produce their forecasts for the end of 2024. During this period, most analysists and institutional investors started to price-in 3 rate cuts and their forecasts turned dovish for the first time in a while.

Bond yields were extremely elevated and the 10 year US government bond (ticker: US10Y) peaked on the 20^th of October, breaching 5% during the trading session. As a result, on average, institutional investors expected interest rates to fall to around 4% by the end of the next year.

Such a move would have reflected the 3 rate cuts priced in by the market, the constant decrease in inflation, the easing of financial conditions and much more. However, no financial analyst would have expected such an announcement from the Federal Reserve.

After this extremely dovish FOMC meeting, the markets skyrocketed pricing in another 3 rate cuts in 2024 and, consequently, bond yields dropped like a rock.

Currently, the interest rate on the US10Y is trading below 3.9%, forcing many institutions to review their forecasts in view of an “easier-than-expected” financial condition.

However, many others have remained faithful to their predictions, calling the bluff on this rapid drop in yields. For example, Luca Paolini, chief strategist at Pictet Asset Management, affirmed that he saw limited room for sustained declines in yields without a significant slowdown in the labor market.

Likewise, Deutche Bank started to reduce their exposure to US10Y expecting that the yield had already peaked in the short term.

Today’s Howling Question

Throughout the beginning of 2024 cryptos will be a hot topic due to the discussions about Bitcoin’s spot ETFs and the potential development of Ethereum’s.

Do you know how well is Ethereum performing since the beginning of the year?

a)  +10%

b)  +25%

c) +50%

d)  +75%

e) +90%

Try to answer the question by yourself, and then check the correct answer after the last interesting news!

Bitcoin Spot ETFs’ Demand Might Be Lower Than Expected

The rumors around Bitcoin’s spot ETFs and the meetings between the SEC and the proponents of these new investment pools have been pushing the price of Bitcoin through the roof!

Since the beginning of the year, Bitcoin is up more than 160% sustained by the expected surge in demand that will arise from the launch of these new spot ETFs. But what if the demand that has been priced-in is much higher than the actual demand?

This is the main scenario the Singapore-based crypto trading company QCP capital is expecting for the beginning of 2024, once the Bitcoin ETFs will be launched.

More specifically, they expect a retracement from the $45K-$48.5K level to the $36K level before the uptrend resumes once again. They believe that this pullback will be mainly caused due to a lack of demand for the Bitcoin’s spot ETFs while there will be growing speculative interest in the potential Ether Spot ETFs that might be discussed in 2024.

Considering that Bitcoin is currently trading at around $43,500; do you believe that it is still a good deal to enter the market right now, or it would be better to wait for the pullback?

Equity and Debt Markets Update ⚖️

And now, our daily markets update!

Well, it is safe to say that the stock market wasn’t happy about its last performance on Wednesday. Today, the stock market rallied by 1.03%, apparently resuming its rally to its all-time high which is just sitting around 50 points higher.

On the other hand, also the government bond yields surged by a similar amount, with the US10Y closing 1.01% higher.

Usually yields and prices move in opposite directions, do you believe that this will be the case as well? If so, which of the two markets will be right?

Answer

The correct answer is e) +90%.

Despite the fact that Ethereum is still over 50% lower than its all-time high set at the end of 2021, it has managed to greatly recover from its 2022 downfall.

Up to this point, ETH has registered an increase of more than $1000 per token, or almost 90%, since the beginning of the year.

Howl-Worthy Memes 😂

🐺 See you next time!

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