Macro Overview
The MSCI world equity Index rallied 6.09% in June to its highest level since early 2022 and expectations of rate cuts by year-end were removed in the implied rate curve. The inevitable recession has again shown no signs of appearing as employment reports remain strong even as inflation inches toward policymakers’ targets. The persistent rally and smaller daily price ranges shifted implied volatility in the S&P 500 to a three-year low. Equity market risk indicators are reaffirming the soft-landing narrative which can no longer be viewed as improbable. The below chart shows the performance of the MSCI World Equity Index versus the VIX.
US implied interest rate markets still have 75bps cuts projected by mid-2024 and 200bps of cuts by mid-2025. The FED policymakers have been consistent in countering the market view stating no cuts should be expected until the end of 2025. Alternative indicators that show a much lower inflation rate will need to be verified in government data to bring the probability of cuts closer to matching implied rates. An immaculate disinflation outcome with a robust economy and inflation at policy targets would also mean cuts might stay on the Fed’s timeline of late 2025.
The northern hemisphere summer has historically been a lower volume and realised volatility period. Data releases have trended this year to be near forecasts taking away the gap moves in rates and equities that were a feature of the 2022 markets environment around CPI and employment reports. Aftershocks of the US regional banking crisis or a CRE collapse still loom over markets and the July earnings reporting season will again be monitored as catalysts to upend the risk on rally. However, the upward trend can continue as positive momentum triggers more technical buying adding fuel to the summer rally.
Digital Asset Overview
As has been the case for the majority of 2023, Bitcoin continued to lead the digital asset market higher throughout June, finishing the first half of 2023 up 88% vs Bloomberg Galaxy Crypto Index up 55%. Bitcoin’s clear position as a digital commodity outside of the SEC’s purview and enforcement actions has solidified its position as a safe-haven asset both within the digital asset ecosystem and at times the broader global banking system (as we saw in the first half of the year with US regional bank closures and CS forced merger).
The total crypto market cap pushed lower during the first half of June after the SEC sued both Binance and Coinbase exchanges in the US for operating unregistered securities exchanges. The news disproportionally impacted Alt-tokens given the SEC also named various tokens as securities in its actions against exchanges. This point will be litigated in these cases and will add additional regulatory uncertainty to most tokens outside of BTC and ETH.
Following downward pressure in the first half of the month, Bitcoin surged after BlackRock filed for a spot Bitcoin ETF, pushing the blue-chip asset from intra-month lows of $24.8K to highs of $31.4K. Other asset managers including Fidelity and VanEck re-filed their Bitcoin ETFs following the BlackRock news, lifting sentiment, and renewing the “institutional adoption” narrative. Notably, BlackRock CEO Larry Fink publicly endorsed Bitcoin in an interview with Fox News, saying “Instead of investing in gold as a hedge against inflation, a hedge against the onerous problems of any one country, or the devaluation of your currency whatever country you’re in – let’s be clear, bitcoin is an international asset, it’s not based on any one currency and so it can represent an asset that people can play as an alternative.”
ARK and 21Shares ETF filings are ahead of BlackRock in the US spot Bitcoin ETF queue, both of which are set to be decided on by the SEC in mid-August. The discount to NAV of Grayscale’s GBTC shares lessened on the ETF announcements, with buyers speculating an impending spot ETF approval will allow the longstanding trust to convert to an ETF.
Amidst the ETF and SEC headlines, EDX Markets, backed by a consortium of major financial institutions, launched its compliant digital asset marketplace. EDX funders include Charles Schwab, Citadel, Fidelity, and major VC funds Paradigm and Sequoia. EDX offers a non-custodial marketplace and currently supports BTC, ETH and Bitcoin forks LTC and BCH, bringing best practices from traditional finance to the digital ecosystem.
As well as positive institutional news flow, Bitcoins market structure remains positive. On-chain analysis provides insight into the behaviour of different investor cohorts, which, alongside macro and price analysis, has historically provided a holistic picture of market health and in turn, can be useful in gauging medium to long-term price action. A key element of the current asset distribution is the continued accumulation by long-term holders (LTHs) and the all-time high level of bitcoin that hasn’t moved over both a 1 and 2-year timeframe. LTHs are defined as wallets that have maintained possession of coins for over 155 days, after which, history shows coins are increasingly unlikely to be spent (i.e., HODLer behaviour).
Source: Glassnode
Source: Glassnode
The Investment team’s main takeaways from the events in June are the following:
Institutional interest remains strong, despite regulatory hurdles in the US.
Blue chip “trad-fi” build-out of their digital asset services and product offerings affirms the demand narrative.
Access points for investors across the spectrum of retail to institutions continue to improve.
Institutional adoption will likely be a key feature of the next digital asset cycle and drive further demand and acceptance.
Cohort analysis shows healthy metrics, especially when comparing to previous lead-ups to halving events.
As we’ve discussed in previous updates, the case for an allocation to digital assets continues to strengthen. With central banks likely near the end of their hiking cycle, new access points, renewed institutional interest, as well as a favourable market structure, the prospect for growing adoption and in turn, rising asset prices, particularly in the lead-up to and following next year’s Bitcoin halving, remains strong.
One final chart we have found interesting is Bitcoins price performance following each halving cycle’s all-time highs.
Source: Glassnode
If you’d like to speak with our team about any of the above market views or to discuss our Funds further, please reach out via investor.relations@trovio.io.
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