The macro event of the day
Is actually micro I’d say
The markets are waiting
For all the debating
‘Bout Bitcoin to end in OK
 
The irony here is too great
As TradFi, the Bitcoin bros, hate
But they’re still a buyer
If number goes higher
‘Cause really, it’s all ‘bout the rate

It is a very slow day in the markets as evidenced by the fact that the biggest story is whether or not the SEC is going to approve a cash Bitcoin ETF.  Today is the deadline for the first application to be approved, or not, and the working belief is that if they are going to approve one, they will approve all 13 that have applied in order to prevent any concerns over favoritism to a particular manager.  Yesterday afternoon, there was a tweet from the SEC that indicated approvals had been made, but then within 10 minutes, the SEC denied that was the case and explained their X (Twitter) account had been hacked.

One of the interesting things of late in this space is that there has been a 20% rally in Bitcoin since the beginning of December, seemingly in anticipation of this event.  This price action has many believing we are looking at a ‘buy the rumor, sell the news’ type story with expectations that a short-term sell-off is coming after the announcement.  However, last night, after the erroneous Tweet, Bitcoin rallied more than 2% before turning back around on the retraction.

With that in mind, the more ironic issue, at least to me, is that there is so much excitement in the Bitcoin community for a traditional finance product like an ETF.  Institutionalizing Bitcoin and creating all the same structure and regulation as any other trading vehicle seems at odds with the entire concept of a new digital transaction medium that does not require a centralized system and is free to one and all.  Arguably, what it highlights is that the entire appeal of Bitcoin is that it is a highly speculative and volatile trading vehicle and is appreciated solely because its number can go up really fast!

In the end, just as the odds of a BRICS currency coming along and usurping the dollar’s throne as top currency in the world (at least when it comes to utilization) are close to zero, the same holds true here.  Bitcoin is never going to replace any fiat currency in the role of money.  Just as with every other asset, its value is entirely dependent on what someone will pay for it.  While an ETF will widen the population that is involved in the space, and perhaps ensure that the government never makes any effort to cut it off from the banking world, it will not change the world in any way, shape or form.

Away from this, the market is turning its focus toward tomorrow’s CPI report in the US as the next critical piece of information for the macro story.  Recent data elsewhere in the world has continued to show a cooling rate of inflation, with Australia’s overnight print at 4.3% a tick lower than expected while Norway’s 5.5% Core rate was also a tick lower than expected.  This follows yesterday’s Tokyo CPI which came in soft and is continuing the theme that the Fed, and central banks around the world, have successfully put the inflation genie back into the bottle.  Personally, I think it is premature to make that claim as I have seen very limited evidence that prices for rent are falling and based on the wage data we saw last week in the NFP report, wage rises, at 4.1%, remain well above the rate necessary to see a stable 2% inflation outcome.  But that is the narrative and it is being pushed hard by Yellen and the mainstream media.

As to today, yesterday’s directionless session in the US led to a mixed performance in Asia where the Nikkei continued its recent rally, up another 2% and back to levels last seen in February 1990 as the Japanese bubble was deflating.  However, Chinese shares remain under pressure with the Hang Seng (-0.6%) continuing its recent slide and mainland shares faring no better.  In Europe, the screens are a pale red, with losses on the order of -0.2% or so across the board and US futures are essentially unchanged at this hour (7:15).

In the bond market, 10-year Treasury yields have edged down 2bps this morning and are trading right on 4.00%.  European sovereign yields are little changed on the day.  After a bond sell-off (yield rally) for the past several weeks, it seems that a bit of dovish commentary from some ECB members, notably de Guindos and Centeno has calmed things down a bit.  And you will not be surprised that JGB yields have slipped another 1bp lower this morning as inflation concerns subside everywhere.

Oil prices are little changed today, holding onto yesterday’s gains but not really responding to a new wave of missile and drone attacks by the Houthis in the Red Sea against some tankers.  Too, gold prices are only edging a bit higher, 0.25%, and essentially have remained in a very narrow range for the past six weeks.  As to the base metals, copper has rallied nicely this morning, up 1% but aluminum is unchanged on the session.

Finally, the dollar is under modest pressure this morning against most currencies, but the yen is the exception, falling -0.4% with the dollar back above 145.00.  I believe you cannot separate the Nikkei rally from the yen decline and the ongoing interest rate story in Japan.  With softer inflation readings leading traders and investors to reduce the likelihood of any monetary policy change by the BOJ, those are exactly the moves that would be expected.  In the meantime, the market is staring to price in a slightly higher probability of a March rate cut by the Fed, up to 67.6% despite no indication from any Fed speaker that is on the table.  However, while this is the narrative, I expect the dollar will have a little trouble going forward against both G10 and EMG currencies.

There is no noteworthy economic data today, but we do hear from NY Fed President Williams at 3:15 this afternoon.  Yesterday’s comments by Michael Barr were interesting in that he was adamant that the BTFP (the lending facility put into place in the wake of last year’s Silicon Valley Bank collapse) was going to be wound down when its term of 1 year comes up in March.  Personally, I am skeptical that will be the case, but at the very least, we can expect it to make a quick appearance as soon as there is any other banking trouble.

And that’s really it for today.  Until tomorrow’s CPI, there is very little about which to get excited.  I don’t believe the Bitcoin story, while mildly interesting, is going to have any impact on other markets for any length of time.  So, we shall be biding our time for another twenty-four hours at least.

Good luck

Adf