Market View
Macro continues to remain in the driver’s seat for crypto markets absent any major new idiosyncratic factors, particularly after a slightly softer-than-expected July US CPI print of 2.9% YoY (headline) – the lowest level in three years. This calmed market concerns and reinforced expectations of impending Fed rate cuts at the September 17-18 FOMC. However, inflation remains precariously balanced against stronger US economic activity data including:
- retail sales (1% MoM gain vs Bloomberg median forecast of 0.4% in July)
- and initial jobless claims (227k for the week of August 10 vs survey forecast of 235k.)
In our view, concerns that demand could upend the current disinflationary trend are overrated, albeit this combination of indicators may convince the Federal Reserve to deliver 25bps rather than 50bps at its next meeting. Still, we believe the data is ultimately good news for risk sentiment, as it should help dispel fears about a potential US recession, which is more important than the total size of Fed cuts this year. After the Bank of Japan’s Shinichi Uchida announced a more cautious approach to hikes, we expect the next major event that will test the pulse of markets to be the Jackson Hole Economic Symposium from August 22-24.
Meanwhile, updated 2Q24 13-F filings for US spot bitcoin ETFs were released on August 14, capturing the state of institutional ownership on June 30. (The previous 1Q24 March 31 snapshot was released on May 15.) Notable new holders include Goldman Sachs at $412M and Morgan Stanley at $188M, both of whom are likely to be holding shares on behalf of clients as part of their private banking and wealth management arms. The ETF complex saw net inflows of $2.4B during this period, although the total AUM of spot bitcoin ETFs dropped from $59.3B to $51.8B (due to BTC dropping from $70,700 to $60,300). We think that the continued ETF inflows during bitcoin’s underperformance may be a promising indicator of sustained interest in crypto from the new pools of capital that the ETFs give access to.
A growing portion of these flows appear to be driven by institutions, whose ownership of shares rose from 21.4% to 24.0%. (Only firms managing more than $100M are required to file 13-Fs, which we consider institutions.) Furthermore, the proportion of institutional holders categorized as “investment advisors” increased from 29.8% to 36.6% (from 6% to 9% of total shares). Note that the percentage of hedge fund holdings among institutions fell from 37.7% to 30.5% (from 8% to 7% of total shares), but we suspect many of these players may be buying ETFs to trade the basis with open interest in CME bitcoin futures having increased by 15% to 18.2k contracts ($2.75B) over 2Q24.
In our view, it’s likely that we will see the proportion of investment advisor holdings continue to increase as more brokerage houses complete their due diligence on these funds. For example, wirehouses like Morgan Stanley have reportedly only given their registered investment advisors (RIAs) clearance to pitch two bitcoin ETFs to clients starting on August 7. That is, Morgan Stanley’s holdings from this filing (dated June 30) have so far been acquired on an unsolicited basis. Other large investment advisories like Merrill Lynch, UBS and Wells Fargo continue to offer the funds only on a reverse-inquiry basis. That said, we may not immediately see large inflows emerge in the short-term, as soliciting clients may be harder to do during the summer, when more people are on vacation, liquidity tends to be thinner and the price action might be choppy.
