WealthBee Macro Monthly Report: Market Continues to Perform, BitcoinSpot ETF "Ready to Fly"

The market in December was “surprisingly good”, whether it was the stock market or the Crypto Community, it was a cheerful money-making effect. The market is more optimistic about the Fed’s interest rate cuts, the US economy has cooled significantly, South Korea’s export indicators allude to the global economic recovery, the stock markets of the United States, India, Japan, France, and Germany have hit record highs, Bitcoin prices have exceeded $44,000, virtual asset ETFs in the United States and Hong Kong have been “on the bow”, and everything seems to be developing in a brighter direction.

In the early morning of December 14, Beijing time, according to the minutes of the Federal Reserve’s latest Federal Open Market Committee (FOMC) monetary policy meeting, the Federal Reserve decided to slow down the pace of interest rate hikes in December and maintain the federal funds Intrerest Rate target range between 5.25% and 5.50%. As soon as the news came out, the market cheered, and the three major U.S. stock indexes all rose sharply.

In fact, judging from the new economic data released in the United States in December, it is very necessary to pause interest rate hikes. The United States released a number of important economic data on December 21, including GDP growth of 4.9% in the third quarter (5.2% expected) and the Philadelphia Fed manufacturing index of -10.5 (expected -3.0), both of which fell short of expectations. From the perspective of the two major household sector inflation indicators in November, CPI and PCE increased by 3.1% year-on-year, and core CPI increased by 4.0% year-on-year, both in line with market expectations, and the core PCE price index rise 3.2% year-on-year, the smallest increase since April 2021 and lower than the estimated 3.3%. GDP and manufacturing have been affected to a lesser than expected amount, and inflation data are in line with or slightly lower than expected, so there is no need to continue raising interest rates in any way.

The December data once again consolidated the clear card attribute of pausing interest rate hikes, and how much interest rates to cut and when to cut interest rates have become the most concerned things in the market at present. From the current dot plot, Intrerest Rate in 2024 is expected to be around 4.6% on average, which is still a significant decline from the current 5.25% to 5.5%.

As for when to cut interest rates, according to CME FedWatch, the probability of a rate cut below 5.25% in March 2024 reaches 75.6%, the probability of the Intrerest rate returning to “below 5” in May is 73.6%, and there is a 66.2% probability that the Intrerest Rate will reach around 4.5% in the first half of the year. Therefore, the market is still relatively optimistic, believing that a significant interest rate cut can be achieved in the first half of the year.

In fact, looking at the world, the economies of many countries are showing signs of improvement: the Japanese economy is recovering the “lost 30 years”, whether it is inflation or hourly wages, they are out of the previous “unchanged for 10,000 years” dilemma; and South Korea, as the “canary” of the global economy, has reversed the trend of declining exports as early as October, and the latest export data in the first 20 days of December has increased by 13% year-on-year, and the growth trend is becoming more and more violent, reflecting the recovery trend of the global market.

On December 13, U.S. time, U.S. stocks rose sharply, with the Dow Jones Industrial Average hitting a record high. This month, U.S. stocks continued the mad bull trend in November and continued to squeeze short. It is worth noting that after the U.S. GDP for the third quarter was released on the 21st, although it was less than expected, U.S. stocks still rose on the same day. Obviously, the core factor affecting U.S. stocks at present is not economic fundamentals, but the expectation of interest rate cuts. The slight weakness of the economy has greatly contributed to the expectation of interest rate cuts, which in turn has boosted the expectations of US stock investors for enhanced liquidity in the future.

Liquidity is a direct factor in the rise of any market. According to the Bank of America survey, expectations of a rate cut in December drove a large inflow of funds into the U.S. stock market, and the proportion of cash allocation fell to a two-year low. The optimistic expectations of global investors have brought extremely abundant liquidity to US stocks, which is why US stocks continue to soar.

In addition to U.S. stocks, the Indian stock market can be described as a rising star in the market in recent days. India’s Mumbai Sensex 30 Index broke through 70,000 points on December 11 and has now stood at 70,000 and exceeded 71,000, becoming the world’s seventh largest stock market.

In recent days, India has become a leading position for global investors to invest in emerging markets. India’s economic growth has led the world’s major economies this year, and its strong economic fundamentals provide investors with confidence. In addition, the Nikkei 225 has hit a record high in November, and Germany’s DAX and France’s CAC 40 have also hit record highs this month.

However, despite the current high market sentiment, it is not advisable to be overly optimistic. At present, the dollar index continues to weaken due to the impact of interest rate cut expectations. When the dollar weakens from a strong currency, the attractiveness of dollar assets will also decline, and we should pay attention to the dynamic game between the strength of the dollar and liquidity.

In early December, Bitcoin soared again, successfully breaking through $44,000; MicroStrategy bought more than 14,000 Bitcoins this month, increasing the total holdings of Bitcoin to more than $8 billion. The highest price of Ethereum also broke through $2,400. The two currencies then entered a sideways trade, with Bitcoin trading sideways between 40,000 USD and 44,000 USD, and Ethereum trading sideways between 2,100 USD and 2,400 USD.

Although the market has risen first and then sideways, investors’ confidence in the future market has not diminished. Judging from the negative BTC premium of the grayscale fund, the negative premium shrank to less than 10% in late November and continues to shrink, currently between -6% and -5%.

Although 90% of Bitcoin is currently profitable, investors are still confident due to the continuous stimulation of favourable information.

Spot ETF news is even more frequent. On the 21st of this month, Grayscale, BlackRock, Valkyrie, ARK Invest/21Shares, Franklin, and Fidelity all met with the SEC to discuss BitcoinSpot ETFs.

At present, the issuers of various BitcoinSpot ETFs have held more than 30 meetings with the US Securities and Exchange Commission (SEC), and the previous discussions focused on the issue of Bitcoin custody, but now the focus has shifted to the method of generating and redeeming ETF shares. The SEC requires ETF applicants to update their AP information by December 31 and change the redemption method in the application to “cash redemption” because only the issuer will process Bitcoin, avoiding the situation where unregistered brokerage subsidiaries handle Bitcoin.

Although institutions generally want to use in-kind redemption, they have chosen to compromise in the face of SEC requirements. At present, Pando Asset, BlackRock, Valkyrie, Grayscale, Galaxy and other institutions have almost all revised the document to “cash only”, and it seems that the giants have “can’t wait” to issue ETFs, as long as they can be issued, they can agree to any conditions.

At a time when institutional giants are choosing to compromise, the market is also very optimistic about the approval date of the first batch of ETFs: Bloomberg ETF analyst Eric Balchunas also mentioned that AP protocol + cash creation = approval. In other words, these two steps should be the final steps before approval, so there is a lot of speculation that the first batch of applicants will be approved around January 10. But no matter what, things have come to this point, the arrow is on the bow, it has to be issued, and it only takes a “kick in the door” to be approved, it is only a matter of time.

Favourable information from the United States coincided with good news in Hong Kong: on December 22, the Hong Kong Securities and Futures Commission issued the Joint Circular on Virtual Asset-related Activities of Intermediaries and the Circular on SFC-authorized Funds Investing in Virtual Assets, and said that it was “ready to accept applications for authorization of virtual asset Spot ETFs”.

The two circulars issued this time explain in detail the requirements of the Hong Kong government for virtual asset spot ETFs. From issuer qualifications to underlying asset requirements, from trading, application and redemption, custody to investment strategies, the circular contains detailed regulations, which fully demonstrates that the Hong Kong government is fully prepared for the arrival of virtual asset ETFs. “Everything is ready, only the east wind is owed”, the regulatory attitude has been clear, and the rest is mainly some technical details.

It is worth noting that, unlike the United States, which only allows “cash redemptions”, Hong Kong allows both cash and in-kind, which gives Hong Kong’s virtual asset ETFs an advantage over those in the United States.

The market continues to play out the good times of November. The world has experienced the impact of the pandemic, and now it is on the track of recovery, and it is surprising that there is such a money-making effect. However, there is no market in the world that only rises and falls, whether there will be an economic recession in the process of the United States interest rate cut next year, and whether the dollar will continue to weaken, is also worth paying attention to and thinking; crypto market sentiment is still high, the spot ETFs in the United States and Hong Kong have been “everything is ready only to owe the east wind”, and the era of large-scale institutional entry into virtual assets is quietly coming.