The dominos continue to fall

Thoughts of the Day

Yesterday, the US Securities Exchange Commission (SEC) approved the creation of Exchange-Traded Funds for Ether (ETH), the second largest cryptocurrency by market capitalisation after Bitcoin. Yet another obstacle for cryptocurrencies from becoming an investment option for the mainstream investor has fallen. This comes less than 6 months after the approval of Bitcoin ETFs to be listed on US stock exchanges. 

Since the launch of BTC ETFs, more than $13 billion of new money has been invested into these funds. The introduction of ETH will likely lead to billions more being invested. As we have been saying for years now, it’s only a matter of time before every investor will have legitimate and easily accessible options to be invested in cryptocurrencies. 
Don’t be the last one to join the party.

Don’t be the last one to join the party.
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While this may seem like a bane for cryptocurrencies, we should separate CBDCs (Central Bank Digital Currencies – the digital form of a country’s fiat currency) from cryptocurrencies as the underlying principles for these are different.

A CBDC in essence will still function as a fiat currency. However, there are privacy concerns over a CBDC as it will make spending it a lot easier to track. As such, the US House of Representatives is banning it as a part of the CBDC Anti-Surveillance State Act.

Privacy concerns are growing nowadays as technology that can be used to track and record our activity continues to improve. Are we turning to a surveillance world similar to that of George Orwell’s 1984?

Day Ahead

US University of Michigan Consumer Data (Consumer sentiment: 67.4 expected vs 77.2 previous, 1 Year Inflation Expectations: +3.5% expected vs +3.2% prev, 5 Year Inflation Expectations: +3.1% vs +3% prev) 
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What Happened Yesterday

Market Movements as of New York Close 23 May 24
  • Japanese Inflation (headline: +2.5% YoY vs +2.7% prev, +0.2% MoM and +0.2% prev; core: +2.2% YoY as expected vs +2.6% prev). Reaction in the USDJPY was muted.
  • US PMIs for May were stronger than expected. S&P Global Composite PMI Flash: 54.4 actual (vs 51.1 expected and 51.3 prev), S&P Global Manufacturing PMI Flash: 50.9 actual (vs 50 expected and prev),  S&P Global Services PMI Flash: 54.8 actual (vs 51.3 expected and prev). A reading above 50 signifies growth in the sector and the unexpectedly stronger growth caused the US bond yields to rise as this reduces the probability of the US Federal Reserve cutting interest rates soon. 
  • The US stock market opened higher from Wednesday due to the stock futures rallying after the Nvidia earnings were released yesterday (the S&P 500 [5341.88] and Nasdaq [18907.54] opened at all time highs). It then fell lower through the New York session as the US PMIs came in stronger than expected. The S&P 500 finished -0.74% lower on the day (high: +0.66%, low: -0.94%), the Dow Jones dropped -1.53% (high: +0.06%, low: -1.53%) while the Nasdaq fell -0.44%  (high: +1.08%, low: -0.80%).
  • The crypto market traded mixed with Bitcoin falling -1.59% due to weakened risk sentiment and Ether rising +1.29% due to the SEC approval of rule changes to allow the listing of Exchange Traded Funds (ETFs) that buy and sell Ether (ETH), the second largest cryptocurrency after BTC.
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Headlines & Market Impact

BOJ’s Ueda sticks to economic recovery view, keeps alive rate hike chance

Notable Snippet: Bank of Japan Governor Kazuo Ueda said on Thursday the economy was on track for a moderate recovery, suggesting a slump in first-quarter gross domestic product (GDP) alone would not keep the central bank from raising interest rates in coming months.

But Ueda said the outlook for the U.S. economy was among key risks to growth that will likely be discussed at a meeting of finance ministers and central bank governors of the Group of Seven (G7) advanced nations.

“As for risks, the biggest focus would be whether the U.S. economy will complete that one last mile and engineer a soft landing or not,” Ueda told reporters ahead of the G7 finance leaders’ gathering this week in Stresa, Italy.

Japan’s economy shrank an annualised 2.0% in the first quarter as output disruptions at some automakers hurt production and exports. Consumption also took a hit from rising living costs, blamed in part on a weak yen that inflated import costs.

“The data hasn’t changed our view on Japan’s economy,” Ueda told reporters. Auto production is likely to recover from the second quarter and onward, he said.

Inflationary pressure from rising raw material costs is also likely to dissipate which, coupled with rising nominal wages, will underpin household income and consumption, he added.

Ueda has said the central bank intends to hike rates to levels considered neutral to the economy, as long as growth and inflation move in line with its projections.

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China’s largest chipmaker SMIC is now the No. 3 foundry in the world, Counterpoint says

Notable Snippet: State-backed SMIC, or Semiconductor Manufacturing International Co., held a market share of 6% in the first quarter— up from 5% last year, the report showed. It overtook GlobalFoundries and Taiwan’s United Microelectronics Corporation.

This places SMIC behind only Taiwan Semiconductor Manufacturing Company
and South Korea’s Samsung Foundry which held 62% and 13% of market share in the first quarter respectively.

“SMIC’s quarterly results surpassed market expectations, and the company secured the No. 3 position in foundry revenue market share in Q1 2024 for the first time, as demand recovery begins in China, including CIS, PMIC, IoT, and DDIC applications,” showed the Counterpoint Research report published Wednesday.

Chips made by SMIC are found in automobiles, smartphones, computers, IoT technologies and more.

SMIC reported first-quarter revenue was $1.75 billion, up 19.7% from a year earlier, as customers stocked up on chips. More than 80% of its revenue in the quarter were derived from customers in China, the firm said in its earnings report.

In the second quarter, the Chinese firm expects revenue to increase by 5% to 7% from the first quarter on strong demand.

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SEC approves rule change to allow creation of ether ETFs

Notable Snippet: The SEC has approved a rule change Thursday that would pave the way for ETFs that buy and hold ether, one of the world’s largest cryptocurrencies.

The decision comes less than six months after the Securities and Exchange Commission approved bitcoin ETFs. Those funds have proven to be a big success for the industry, with net inflows already surpassing $12 billion, according to FactSet.

Late May had long been pegged as a potential decision date for the ether funds since it coincided with a deadline for the SEC to decide whether the VanEck Ethereum ETF could proceed.

Specifically, the SEC’s order approves applications from various exchanges to list eight different ether funds. The order technically does not approve the funds themselves or set a date for the ETFs to begin trading.

The approval of the ether ETFs is a sign that the SEC’s stance toward crypto may be softening after a series of legal fights. The agency lost a lawsuit against Grayscale in 2023 that spurred the approval for the bitcoin products.

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Stock Indices

Phan Vee Leung
CIO & Founder, TrackRecord