SEC's ETF Dilemma Meets Treasury's Rate Fiasco: What It Means for Bitcoin and Bonds
SEC's ETF Dilemma Meets Treasury's Rate Fiasco: What It Means for Bitcoin and Bonds
Digital Asset Market: As the cryptocurrency Bitcoin reaches its 15-year milestone, top market-making firms such as Jane Street, Virtu Financial, Jump Trading, and Hudson River Trading are engaged in discussions with BlackRock regarding the potential inclusion of a Bitcoin exchange-traded fund (ETF) in their market-making role. Despite the low likelihood of this occurring, the Securities and Exchange Commission (SEC) may make a heartless decision to reject spot Bitcoin ETFs. This possibility has been raised by both Bloomberg ETF analysts and a commentator, who also warn of potential lawsuits resulting from such a decision. The SEC, under the leadership of Gary Gensler, has a track record of rejecting or delaying spot Bitcoin ETF applications, citing concerns over investor protection. As of now, the only products related to Bitcoin and Ether that have been approved by the SEC are futures products.
Macro Economics: The Bank of Japan (BOJ) has tweaked its monetary policy by allowing more flexibility for benchmark yields to rise above 1%, which is seen as a move away from its previous dovish stance. The U.S. dollar-Japanese yen (USD/JPY) pair has reacted to the news, bouncing back to 150 from 149.20. This is viewed as a potential signal to traders to be cautious of liquidity-sensitive risk assets, such as cryptocurrencies. However, it is not as hawkish as previously rumored, according to analysts. The International Monetary Fund (IMF) has also urged the BOJ to prepare for eventual tightening or rate hikes.
On the other side of the ocean, many are criticizing Treasury Secretary Janet Yellen for her failure to issue more long-term government bonds before the Fed started raising rates, calling it the biggest blunder in the history of the Treasury. Well, wouldn’t that be insider trading?
Equities: The stock market is experiencing a quiet day today after a tough month marked by surging Treasury yields. The S&P 500 is unchanged, while Caterpillar and JetBlue both saw their shares plummet after disappointing earnings. This month marks the first three-month losing streak for major indexes since March 2020. The rise in yields is attributed to factors including concern over the Federal Reserve keeping interest rates high. The Fed will release its next decision tomorrow, though it's expected to keep rates the same. November is historically a strong month for markets, but investors are hoping for a peak in bond yields and a slowdown in the labor market to support a year-end rally.
The Fed and the Banks: Investors are keenly awaiting the US Treasury's upcoming debt refunding announcement, which is expected to reveal changes to the size and duration mix of future debt auctions, including potential increases in 2-, 3-, 5-, and 10-year notes as well as Treasury bill issuance. This closely watched announcement comes amid market volatility driven by concerns over oversupply, tight monetary policy from the Federal Reserve, and geopolitical uncertainties. The dynamic between the Treasury and the Fed will be especially scrutinized this week, as the Fed's interest rate decision follows the Treasury's announcement. While some experts have criticized the Treasury for not issuing enough longer-term debt, adjustments are anticipated, and investors will be carefully analyzing the auction sizes and duration mix for their market impact.
Geopolitical: The war between Russia and Ukraine is approaching its third winter and shows no signs of ending. Western aid has helped Ukraine continue fighting, but not enough to regain control of all its territory and now with Israel being the focus, Ukraine has taken a back seat in global politics. There is debate about a possible compromise to end or freeze the war, but this is premature for several reasons. Neither side is ready for serious negotiations and violence in Russian-occupied territories will not stop under Moscow's control. Seeking a settlement would reward Russia's attack and its goal of revising the European security order. The Kremlin's understanding of security is incompatible with Western views and unlikely to change.
View from our desk
In the past week, Bitcoin has demonstrated remarkable resilience, maintaining a stable price around the $34,000 mark. This stability has led to a pattern where profit-takers are selling off around the $35,000 level, while opportunistic investors are buying in during each dip. This trend is likely to persist in the coming week unless there is a significant update regarding the approval of Bitcoin ETFs, which could serve as a catalyst for breaking this holding pattern.
The U.S. Treasuries market is currently the focal point of significant financial attention. With the 30-year rate hovering just above 5% and the 10-year rate slightly below that, the Federal Reserve is expected to adopt a dovish stance to support the U.S. Treasury. While there's a consensus that the Treasury should have transitioned more debt into longer-term obligations, that's now a moot point. The current situation necessitates a cautious approach from the Federal Reserve to prevent longer-term rates from climbing further.
Given the upcoming Treasury auctions, we anticipate that the Federal Reserve will employ dovish rhetoric to alleviate market pressure. This strategy will likely defer the real issues to future years, as has often been the case. In summary, while Bitcoin's stability is noteworthy, it's the broader financial landscape, particularly the behavior of the U.S. Treasuries market and the Federal Reserve's policy decisions, that will likely influence the cryptocurrency's trajectory in the near term.
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The 1Konto Team
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