Federal Reserve's Soft Landing: A New Dawn for Bitcoin and Real Estate Investors?
Federal Reserve's Soft Landing: A New Dawn for Bitcoin and Real Estate Investors?
Digital Asset Market: Bitcoin has surged to $44,000, its highest level since April 2022, as optimism grows around the likelihood of a spot bitcoin exchange-traded fund being approved in the U.S. This has been the main driving force behind bitcoin's climb, which started in the summer. Investors are expecting a green light for a bitcoin ETF early in 2024 after potential ETF issuers met with the SEC and received feedback on their applications. The recent settlement between Binance and the DOJ has also been seen as a positive development for the crypto industry. The upcoming Bitcoin halving in spring 2024 is also contributing to investor optimism.
BlackRock and Bitwise, two major companies in the crypto industry, have filed updated applications with the SEC for a spot bitcoin ETF. The changes made in the filings include clarifications on topics like the Trust's structure, potential regulatory impacts, and disclosure of risks. 11 other applicants are expected to follow suit with their own amendments. The SEC is set to make a decision on the approval of the ETF between January 5th and 10th, which analysts predict has a 90% chance of happening.
Macro Economics: The US economy is showing signs of a "soft landing," with low inflation and a steady labor market. While job openings have decreased, employers are still offering good jobs and businesses are not experiencing significant layoffs. This is a positive development for the Federal Reserve, which is aiming to control inflation. The labor market is also improving, with workers holding onto their jobs and fewer people quitting. Economists view this as a favorable environment for most workers and believe that the economy is on track for a smooth landing, avoiding both a recession and runaway inflation. However, workers may have lost some leverage as job opportunities are not as attractive as they were earlier in the year. Overall, the outlook for the economy is positive and the chances of a soft landing are high.
Equities: Wall Street analysts have a tradition of making optimistic predictions for the stock market each year, but these predictions often prove to be wrong. Currently, there are early indications that the S&P 500 index is expected to see a modest increase by the end of 2024, but this depends on factors such as no recession and a reversal of the Fed's monetary tightening. However, there are concerns that this scenario may not play out, as it relies on certain economic conditions that may or may not occur. Ultimately, regardless of the outcome, there is a high likelihood of weaker returns in the coming year compared to previous years due to current high valuations.
The Fed and US Treasury: Despite a slowing labor market, businesses in the US services industry are reporting continued growth, with employers struggling to fill positions and facing increased competition in attracting and retaining employees. The Federal Reserve is expected to keep interest rates on hold, and a future recession is unlikely despite a cooling economic growth in the fourth quarter.
30-year mortgage rates dropped to their lowest level since August, at 7.44%. Other loan averages also declined, but some remained flat while refinance averages showed increases. It's important to regularly compare rates from different lenders. Freddie Mac's weekly mortgage data showed a historic high average of 7.79% on October 26, but has since fallen for the fifth consecutive week. Rates on 15-year and jumbo 30-year loans also fell to their lowest levels since August, with October seeing some of the highest rates in 20 years.
Geopolitical: Russia's Deputy Prime Minister has said that OPEC+ is ready to implement additional measures and deepen oil production cuts in the first quarter of 2024 in order to mitigate market volatility and speculation. This follows last week's announcement of 2.2 million bpd of cuts for the first quarter of 2024, including Saudi Arabia's voluntary cut and Russia's deepening export cuts. However, these decisions have been met with skepticism from analysts who question the effectiveness of the cuts. Saudi energy minister Prince Abdulaziz bin Salman defended the deal, saying it could be extended beyond March 2024 if necessary.
View from our desk
The cryptocurrency market is abuzz with anticipation as updates from BlackRock and Bitwise on their ETF applications suggest that an approval for a Bitcoin exchange-traded fund (ETF) may be imminent. While it's possible that this milestone might not be reached this year, January 2024 looks increasingly likely as the target date. The potential impact of such an approval on the market is substantial, with predictions about the new highs Bitcoin could reach being a topic of much speculation. For now, there doesn't seem to be any significant pullback on the horizon, indicating a bullish outlook for Bitcoin in the near term.
On the economic front, the shift in market sentiment from expecting further rate hikes to anticipating rate cuts is particularly noteworthy. A key indicator in this scenario is the 10-Year Treasury yield, which currently stands at 4.176% and is on a downward trend. This decline from the October high of 5% is significant, especially considering the pent-up demand in the housing market. The housing sector is expected to be a major driver of economic growth in the coming years. The Federal Reserve's successful navigation to a soft landing, as evidenced by the current economic indicators, suggests that the worst of the economic challenges may be behind us.
The combination of these developments in the cryptocurrency and traditional financial markets paints a picture of cautious optimism. The potential approval of a Bitcoin ETF by early next year could catalyze significant growth in the digital currency market. Meanwhile, the Federal Reserve's management of the economy, particularly in terms of interest rates and the yield curve, will continue to play a crucial role in shaping the financial landscape. As the 10-Year Treasury yield indicates a softening in monetary policy, the housing market's resurgence could herald a new phase of economic expansion.
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