Is BITX's Approval Paving the Way for Spot Bitcoin ETFs?

1. Digital Asset Market: Volatility Shares has launched a 2x Bitcoin Strategy ETF (ticker BITX), aiming to offer double the performance of the S&P CME Bitcoin Futures Daily Roll Index each day. The ETF, which started trading on June 27, does not hold Bitcoin directly but benefits from daily increases in the price of Bitcoin futures contracts. Notably, within the first 15 minutes of trading, BITX experienced trades amounting to half a million dollars, indicating strong initial interest. This comes amid excitement over BlackRock Inc.’s filing for a U.S. spot Bitcoin exchange-traded fund.

2. Macro Economics: The Panama Canal Authority (PCA) is implementing conservation efforts to save water due to severe drought conditions, including reducing daily transits in its Panamax locks. This reduction will conserve enough water to postpone water depth restrictions impacting cargo capacity on some containerships. Despite these measures, current vessels traversing the canal are already 40% lighter in load due to previous restriction requirements. The drop in cargo-carrying capacity will increase costs for shippers, affecting key sectors of the U.S. economy, including agriculture, energy, and retail. The Panama Canal is a crucial trade gateway for U.S. shippers, with 40% of all U.S. container traffic traveling through it annually. The PCA is considering further measures to address the drought and low water levels, including potential additional freshwater surcharges. The canal's management is also concerned about the impact of escalating fees and the possibility of shippers seeking alternate trade routes.

3. Forex Market: The Bank of England (BoE) is facing a challenging situation as it prepares for a key monetary policy decision amid high inflation and a tight labor market. The Consumer Price Index (CPI) for May is set to be published soon, and economists predict that the BoE will continue its tightening cycle and raise interest rates higher than previously expected. Since November 2021, the central bank has increased its base rate from 0.1% to 4.5%, and market predictions suggest it may eventually reach 5.75%. Despite declining headline CPI inflation from 10.1% in March to 8.7% in April, core CPI inflation rose from 6.2% to 6.8%. The labor market data also exceeded expectations, with unemployment falling to 3.8% and regular pay growth hitting 7.6% year-on-year. Despite the economic activity indicators being mixed, they remained in expansionary territory.

4. Equities: Online money transfer firm Wise reported a significant profit increase, with shares soaring nearly 18% due to rising interest income. The company's pre-tax profit tripled to £146.5 million ($186.5 million), and earnings per share also tripled to 11.53 pence. This growth was driven by a 34% increase in customer numbers, reaching 10 million total users by March 31, 2023, and a 37% increase in volumes to £104.5 billion. The surge in interest rates raised by the Bank of England to 5% last week has benefited Wise, as it accrues income from interest on funds in customer accounts. Despite these positive developments, the company has faced challenges, including an investigation into CEO Kristo Kaarmann over a late tax payment and a $360,000 fine by regulators in Abu Dhabi over failings in its anti-money laundering controls.

View from our desk

The Blackrock ETF news has caused a surge in BTC prices, reaching a new level and trading range-bound around $30k level. We do not expect a pullback at this stage, and we sense an overall optimistic sentiment from the institutional and retail-facing counterparty-related flow. While Gensler and the SEC are showing promising signs of softening their stance towards the industry, we will continue to watch for SEC actions as that remains the largest risk factor for downside risk.

Backed by the hawkish stance from Powell, the implied probability of another rate hike in July is around 80%. However, by balancing the risks of a recessionary environment with inflationary pressure, the Fed might be inclined to give a higher weight to recessionary concerns. With much data and information due between now and the end of July, a decision to raise the interest rate is still debatable.

Although we thought inflationary pressure would decrease, unfavorable weather and the heightened Russia-Ukraine tensions have had the opposite effect. If anything, the situation has complicated, further exacerbating the issue. On the positive side, the housing data and indicators remain positive. The supply remains tight, and builders see the opportunity. With the end of Fed raising in sight (or already achieved), we should see activity picking up continuously.

Happy Trading!

The 1Konto Team

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