Hello, Volatility
After 2023 ended with 9 consecutive weeks of gains, is it perhaps time for a little volatility in 2024?
What’s up, heretics? We made it to 2024. With the Fed soon pivoting on rates, a Bitcoin EFT likely just days away, and possibly one of the most exhausting US election cycles in any of our lifetimes straight ahead, the macro setup we have in front of us is nothing if not interesting. In this first post of the year, we’ll dive into a little bit of data, a lot of charts, and some potential catalysts to consider.
Quick Thoughts
Bitcoin $BTC-USD is off to a marvelous start already this year and just surged past $45k this morning.
Apple AAPL 0.00%↑ was just downgraded by Barclays and the Nasdaq is currently down nearly 2% as of early intraday trading
Last night the US 1 Month was reading an enormous 13% spike in the yield of the T-bill (bad if real)
The spike in rates was limited to the 1 month and has since readjusted down to 5.4%. It’s being largely waved away as a glitch. But the cynic may suggest it’s an indication of something breaking under the hood. Weird things can happen overnight. Who knows?
Charts On Watch
There are a handful of charts that I think should be on people’s radar right now. First, the VIX:
The VIX, which attempts to measure market volatility, ended 2023 near multi-year lows. When it spikes, the equity market usually sells off. So far today it’s up 13%….
Dollar Index
For a while the narrative in financial markets could best be summed up like this: inflation high, dollar down, everything else up. That has sort of worked like a charm. Now we see if the dollar has any fight in it. Remember, deflation hurts entities with large amounts of dollar-denominated debt. It is completely against the interests of the federal government to have deflation and we’re in an election year. Get your popcorn ready.
Gold
Inflation hedge? Financial system hedge? Real money? Gold is beautiful both as a physical element and as a saving instrument. It sniffs out systemic issues and is lent out via paper derivatives as though delivery is impossible. Buying Gold is believing in the laws of nature over the laws of man. A nation that touts its own superiority as a land that celebrates “rule of law” may soon FAFO.
Bitcoin
I’ll share some additional thoughts on BTC in a moment. But the biggest thing to watch is the next move from the SEC. We could get a spot ETF approval announcement any day. More on that in a moment. The question today is, what is driving BTC’s price? Is it speculation ahead of an ETF approval or is the top crypto coin simply rallying as a system hedge in the same way that Gold may be rallying? We’ll find out soon enough.
US Yields
Yields have gone down in a straight line since October and even fell back below 200 day moving averages essentially across the board on longer duration debt. The 10 year briefly traded above 4% this morning and has been “punched” back down like Gold and Bitcoin. Shorter term, it’s getting very interesting:
The 3 month T-bill is sitting right on its 200 day MA this morning. Two years ago when the 3 month was hugging the moving average like this it was a major inflection point.
Catalysts
For Bitcoin, the biggest catalyst over the next few days is spot ETF approvals. There has been a large amount of activity with applicants and filing adjustments. BlackRock’s BLK 0.00%↑ application is what seemingly sealed the deal that we’d get a spot ETF, but I think the most interesting name to watch is Grayscale $GBTC. It is widely viewed that we’ll get an approval by January 10th if not several days sooner.
However, Grayscale’s latest amendment is still missing some key language late in the game - according to Eric Balchunas, we still don’t have clarity on fees or the fund’s Authorized Participant (AP). For instance, BlackRock’s AP is JP Morgan JPM 0.00%↑ … yes, the same JP Morgan that employs Jamie Dimon as it’s CEO. Yes, the same Jamie Dimon who told Elizabeth Warren the government should shut down crypto.
But I’m getting off track. The point is, it’s peculiar to me that Grayscale doesn’t have these important details already disclosed and I suspect there may be some “Grayscale fatigue” from large holders. Case in point, Cathie Wood:
The chart above is the last update we have from Cathie’s Ark, but according to several sources, Wood has sold out of her entire GBTC position despite believing the SEC will approve a spot ETF. Why?
Anyone’s guess. But I’ll propose two theories:
at about 8% as of last market close, the discount rate in GBTC shares has closed to a level that makes the arbitrage far less exciting for traders
the ETF might be a “buy the rumor, sell the news” event for Bitcoin
I see each of these theories as totally justifiable reasons to sell. If “buy the rumor, sell the news” is the larger factor, we may see something similar in the broader financial markets as well.
At one point last week, there was an 18% chance of a rate cut this month according to the CME FedWatch tool. That probability is now down to 13%. This is not a large move, but I think it does give some insight into where the market sentiment was as 2023 ended with a 9 consecutive week rally. The market started to price in rate cuts in January and we may not even get one in March. Odds are we will, but it’s not a sure thing.
Regardless, I’ll reiterate what I’ve been saying for several weeks at this point. The market is probably priced for perfection and there’s quite a bit of risk that should be considered. Just because today is January 2nd, it doesn’t mean all of the same problems from late December have magically gone away.
Hey, we’re about 90 minutes into 2024 trading and HSEP is looking pretty good at flat! Full heretics, I’ll be dropping another note either late tonight or early tomorrow morning with some crypto-specific insights.
If you’re the first out of the door, that’s not called panicking. - John Tuld
Disclaimer: I’m not an investment advisor. I’m an internet rando with a brokerage account and a Substack.
Happy New Year Mike. Wishing you all the happiness and success this year.