Monday, April 15, 2024

Chinese investors and Hong Kong ETFs, crypto market circuit breakers, risk signals and more

“Things may come to those who wait, but only the things left by those who hustle.” – Abraham Lincoln ||

Hi everyone! I hope you all had a good weekend, despite Saturday’s drama in markets and in the skies. 

Today, I look at a couple of the big takeaways from the weekend, for risk and for crypto market infrastructure. I also look at just what kind of impact the Hong Kong spot crypto ETF approvals might have - short-term, it’s probably less than many hope, but the longer-term could surprise us.  

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IN THIS NEWSLETTER:

• An eerie calm

• The weekend’s big crypto takeaway

• Can Chinese investors buy Hong Kong ETFs?

• Consumer sentiment

• Crypto funding for engine building

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WHAT I’M WATCHING:

An eerie calm

We can all breathe a massive sigh of relief that the scrambled signaling on Saturday night seems to have worked. Even before the launched missiles had reached Israel, Iran – via its UN delegation – posted on X that it considered the matter “concluded”. Also, the participation of Jordan and Saudi Arabia in shooting down drones displayed a regional determination to mitigate any damage.

As I type, BTC has recovered most of its sharp drop, trading over $66,500.

(chart via TradingView)

The Brent crude benchmark, which had spiked on Friday, is back to $90/barrel.

(chart via TradingView)

Offshore trading shows the US bond market recovering, with futures pointing to a bounce in US stock market indices today.

This is indeed good, but it’s also weird. It suggests that markets are back to ignoring the building geopolitical risk, in a rash optimism that earnings will continue to grow and liquidity will boost asset prices further.

After all, we still don’t know whether Israel will hit Iran again, which would no doubt trigger yet another retaliation, perhaps a stronger one. We could also see further hits to global trade from more Houthi attacks on ships in the Red Sea, intensifying pirate activity in the Indian Ocean, an emboldened Russia making even more inroads in Ukraine, a patient China extending its naval reach well beyond its coastline, and a global communications network vulnerable to sabotage. These are real risks.

Only, the market is not ignoring them. Stock prices may feel overly confident, but signs of concern are strengthening elsewhere. Over the past month, gold is up almost 9%, outperforming stocks, bonds and even bitcoin. Demand for history’s “safe asset” has woken up.

(chart via TradingView)

This same demand is likely to benefit BTC, as gold’s digital sibling. For many, BTC is easier to manage than gold: easier to verify, arguably safer to self-custody (easier to protect from seizure), more divisible and portable. Yet crypto markets are still much smaller, more volatile, and less understood – when’s the last time you heard someone say “I just don’t get it” about gold?

The launch of BTC spot ETFs in the US has moved the needle in terms of mainstream acceptance and understanding, but there’s still a long way to go before it is broadly accepted as a gold substitute. And the volatile price swings in recent weeks don’t exactly help its reputation as a “safe asset”, short-sighted as that may be.

Still, investment is about looking forward, and global interest in a digital hedge against currency risk and financial fragmentation will continue to grow, with the double accelerants of the spread of more convenient onramps combined with a greater “safe haven” urgency.

Speaking of crypto’s volatility…