Monat: September 2023

• The Federal Reserve has increased its benchmark rate from 0.25% to 5.25% over the past year.
• BitMEX co-founder believed that bondholders might seek more lucrative “risk assets,” such as Bitcoin.
• Bitcoin’s four-year cycles might be linked to central banks’ low-rate policies.

Challenging the conventional wisdom regarding the relationship between Bitcoin and interest rates, BitMEX co-founder and a well-known macro-analyst Arthur Hayes recently authored a blog post in which he argues that traditional economic logic would crumble under the immense debt burden of the US government.

Hayes said that “central banks and governments are grappling with the use of outdated economic theories to address the unique challenges of today.”

Hayes’ assertions come as the Federal Reserve increased its benchmark rate from 0.25% to 5.25% over the past year in an effort to curb inflation and maintain a 2% target. Although the Fed has succeeded in this endeavour, Hayes voiced concerns that inflation might persistently exceed expectations, given the substantial nominal GDP growth of 9.4% in Q3, contrasted with the 5% yield on 2-year US Treasury bonds.

GDP growth remains astonishingly high

In his analysis, Hayes highlighted that according to data from the Atlanta Fed’s GDPNow forecast, nominal GDP growth remained “astonishingly high.” Conventional economic theory would suggest that as the Fed raised rates, a credit-sensitive economy should falter. Indeed, this was evident in financial asset markets, including stocks and Bitcoin, which experienced a downturn in 2022, eroding government capital gains tax receipts.

However, this decline in tax revenue led to increased government deficits, which needed to be funded by issuing more bonds to repay existing debt. In the context of a high-interest-rate environment, this translated to higher interest payments to wealthy bondholders.

Hayes succinctly summarized this chain of events: “To summarize: as rates rise, the government pays more interest to the wealthy, the wealthy spend more on services, and GDP continues to grow.”

As long as the economy outpaces the government’s debt obligations, Hayes believed that bondholders might seek more lucrative “risk assets,” such as Bitcoin.

Efforts to combat inflation favour high-risk assets like Bitcoin

Hayes contended that the Federal Reserve’s efforts to combat inflation would ultimately favour “finite supply risk assets” like Bitcoin. In a recent blog post, Hayes argued that the Fed’s strategy was siphoning money from one part of the economy while injecting it into another. As long as the Fed’s approach to taming inflation remained uncertain, assets like Bitcoin were likely to experience long-term growth.

In a previous essay, Hayes had posited that Bitcoin would thrive in response to a tightening Fed, whose actions might inadvertently increase the money supply. He asserted, “If the Fed believes that it must raise interest rates and reduce its balance sheet to quell inflation, it’s essentially self-sabotaging.”

Generally, analysts perceive lower interest rates as beneficial for Bitcoin and other risk assets, as they create an environment where investors have room to speculate for potentially higher returns. In June, Coinbase analysts issued a report suggesting that Bitcoin’s four-year cycles might be linked to central banks’ low-rate policies.

Hayes acknowledged the positive influence of low rates on Bitcoin’s price, characterizing the asset’s relationship with central bank policy as a “positive convex relationship.” He concluded, “At the extremes, things become non-linear and sometimes binary. The US and the global economy are currently operating in such an extreme environment.”

The post BitMEX co-founder says BTC price may rise if monetary policies tighten appeared first on CoinJournal.

• Franklin Templeton joins other asset management firms like Grayscale that have applied to offer crypto ETFs.
• The SEC was mandated by the court to evaluate Grayscale’s application to convert its Bitcoin futures ETF into a spot ETF.
• Franklin Templeton will collaborate with CF Benchmarks to ensure accurate valuation.

Franklin Templeton, a prominent asset management firm with $1.5 trillion in assets under management, has submitted an application to the United States Securities and Exchange Commission (SEC) seeking approval for the launch of a Bitcoin exchange-traded fund (ETF) that would track the price of Bitcoin in real-time.

This move by Franklin Templeton follows a series of notable developments in the cryptocurrency ETF space. In late August, the SEC opted to delay its decisions regarding spot ETF applications from several other companies, including WisdomTree, Valkyrie, Fidelity, VanEck, Bitwise, and Invesco. Furthermore, a significant court ruling on August 29th mandated that the SEC must evaluate Grayscale’s application to convert its Bitcoin futures ETF into a spot ETF.

Franklin Templeton’s ETF application

In their application, Franklin Templeton outlines the structure of the proposed fund. It would function as a trust, with Coinbase serving as the custodian for Bitcoin holdings. Bank of New York Mellon would take on the roles of cash custodian and administrator. Fund shares are intended to be traded on the Cboe BZX Exchange, a major securities exchange in the United States. The SEC has set its next deadline for making a decision on this application for October 16th.

In recognition of the regulatory uncertainties surrounding the digital asset market in the United States, Franklin Templeton explicitly acknowledges the risks in its application. They highlight the potential adverse impacts of legislative or regulatory developments, which could significantly affect the value of Bitcoin and the shares of the proposed ETF. Such impacts could include bans, restrictions, or imposing stringent conditions on various aspects of the cryptocurrency ecosystem, including trading, mining, digital wallets, custody services, and the overall operation of the Bitcoin network.

CF Benchmarks and Franklin Templeton partnership

To ensure accurate valuations, Franklin Templeton plans to collaborate with CF Benchmarks, a digital asset index provider regulated in the United Kingdom. CF Benchmarks would provide daily valuations based on data from reputable cryptocurrency exchanges, including Coinbase, Bitstamp, iBit, Kraken, Gemini, and LMAX Digital. These valuations would be updated at 5-minute intervals to reflect the real-time nature of the cryptocurrency market.

At the time of writing, the price of Bitcoin was trading at $25,952.26, underlining the dynamic and ever-changing nature of the digital asset market that Franklin Templeton seeks to tap into with its proposed Bitcoin ETF.

The post Asset manager Franklin Templeton applies to launch a spot Bitcoin ETF appeared first on CoinJournal.