Market run-through

The markets, understandably, have remained fundamentally “headline driven” as they await further developments from the Middle East with a bias towards risk off. This sentiment has continued to benefit the dollar against its peers, whilst gold, oil, and Bitcoin have also had their fans. The dollar, of course, is being helped by the continuing strength of the US economy, as shown, but GDP is coming in at 4.9%, beating expectations. However, the Fed’s favoured inflation indicator, the PCE Deflator, came in pretty much as forecast. With data still this strong, it is understandable that US 10-year bonds continue to yield around 5% and with the high level of upcoming issuance, it’s hard to see them retreating too far from these levels.

Last week also saw the European Central Bank Council meet, which, as expected, contained no surprises, and with the economy looking like it’s continuing to slow, it seems like they are done with rate hikes. Indeed, the derivative markets are looking for a cut in ECB rates in the first half of next year. On Wednesday, we have the first meeting of the Federal Reserve since the conflict started in the Middle East. With the US economy still galloping ahead, the question is will the Fed feel the need to move up in interest rates to head off any resurgence in inflation?  Despite Chairman Powell talking tough, it is unlikely, and the market expects him to leave the heavy lifting to the bond market , which could come under more selling pressure after the Quarterly Refunding Announcement. Elsewhere, the Bank of England meets the day after the Fed, and the outcome is likely to be the same with no move on Base Rate, but we will be keeping an eye on the split of votes on the MPC, and any signs of a close vote on a hike could benefit the pound. If that wasn’t enough to keep traders occupied the BoJ and Norges Bank meet and last but never least we have Non Farm Payroll on Friday!

Richard Matthews, Head of FX and Payment Partnerships

Behind the desk

The latest Bitcoin price rally appears to be driven by the anticipation that BlackRock is on the cusp of finally having its Bitcoin ETF application approved by the U.S. Securities and Exchange Commission but why is this having such an impact on the price of the underlying asset?

For many, the process of purchasing and holding Bitcoin remains an intimidating and opaque process. Unless you’re willing to trust an exchange to securely hold your private keys, which many are now less willing to do given the SBF and FTX saga, holding Bitcoin places the burden of security squarely on individuals. As the saying goes, not your keys, not your crypto. Whilst there have been advancements in technology to abstract away some of the complexities associated with holding your own crypto, for the average retail investor, it’s still far too complicated when compared to a traditional investment purchase. The lack of regulatory clarity also still remains a major factor in preventing mass exposure to Bitcoin.

An Exchange Traded Fund (ETF) is an investment vehicle that is publicly traded, like a stock, but tracks the performance of an underlying asset or index. It enables investors to get exposure to the value of its underlying asset. ETFs trade on a traditional stock exchange, and their value should rise when the asset increases in price, and fall when it decreases.

A Bitcoin ETF would create a simple, legally compliant way to trade the price of Bitcoin, accessible on markets that investors are already familiar with. It would track the price of Bitcoin, allowing investors to get exposure without having to deal with the technical complexities. Some analysts believe that such a fund could lead to an influx of capital into the Bitcoin market.

A Bitcoin ETF might not be the silver bullet some are expecting it to become. Investors should consider management fees, the accuracy of the ETF if it includes other holdings, and a lack of true ownership rights. It’s also worth a reminder that although a Bitcoin ETF approved by the SEC would be the first of its kind in the US, Bitcoin ETFs have already been approved and are live in Canada and Europe but don’t appear to have had a significant impact on moving markets with large investor interest.

Pritpal Shokar, Senior Product Manager

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