WEEKLY, Jan 6, 2024

more education needed, 2024 narrative shifts, landscape photography

Jan 06, 2024

Hi everyone! You’re reading the free weekly edition of Crypto is Macro Now, where I update and/or re-share a couple of things I wrote in more detail about during the week. If you’re a premium subscriber, you’ve probably already read them, so feel free to scroll all the way down for some non-crypto links.

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In this newsletter:

The opportunities hidden in the Bitwise survey

My 2024 predictions: 8 upcoming narrative shifts

Landscape photography awards

Some of the topics discussed this week:

Some changes to the newsletter
The BTC ETF bump
The crypto market drop
Happy 15th Birthday, Bitcoin!
More crypto education is urgently needed
Bitcoin miners and the options market
What I don’t understand about Bitcoin Depositary Receipts
ETFs and market liquidity
Transitory expectations vs transitory inflation
The world’s second “legacy” tokenized security exchange has launched
Fed minutes just might sober up the market
Yet more signs that rate cuts are a way off yet
US government debt and the unstoppable, runaway train
US manufacturing weakness with climbing inflation

The opportunities hidden in the Bitwise survey

Bitwise (one of the early crypto-focused asset managers, and one of the financial firms with a BTC spot ETF proposal before the SEC) has just published its annual investment advisor survey, conducted jointly with VettaFi. This report usually reveals some interesting trends and opportunities, and this one has some especially intriguing observations, given where we are in the industry: emerging from an excruciating bear market, with institutional acceptance about to leap to a new level.

Some of the key takeaways:

Only 11% have allocated crypto to client accounts.
Almost all of these plan to maintain or increase crypto allocations in 2024.
Of those who haven’t allocated to crypto, around 70% do not plan to do so. Only 8% say they definitely or probably will. Most of these will do so through crypto equity ETFs, the spot ETF or multi-asset crypto funds.
Less than 40% of surveyed advisors think a BTC spot ETF will start to trade in 2024.
A third of participants hold crypto in their personal portfolio – this percentage was higher (~40%) for independent advisors and financial planners, lower (~20%) for institutional investors.
Around 60% of respondents report having clients that have invested in crypto outside of the investment advisor relationship.
Almost 90% of surveyed advisors got at least one crypto-related question from clients last year.
70% of those surveyed prefer BTC to ETH, up from ~50% a year ago.
Within client portfolios with crypto allocations, almost half have more than 3% allocated to crypto, more than double the percentage a year ago. This is quite astonishing – crypto seems to be moving from being a diversifier to being a key position.

The most intriguing part for me is the section on why investors don’t allocate more to crypto assets – this highlights overall progress, while focusing our attention on what still needs to improve.

The main barriers to further crypto allocation are:

1) The lack of regulatory clarity: 64% of surveyed advisors see this as the main obstacle to greater crypto adoption.

There’s not much we can do about this in the US other than encourage representatives to learn more and to push back at the wilful misunderstandings on the part of many of the older politicians using crypto-bashing to score conservative points.

Progress is being made, with two meaningful proposals making their way out of the House Financial Services Committee in a bipartisan manner last year, the first time this has happened. The bills in question are the FIT Act (which outlines a comprehensive regulatory framework for the issuance and trading of digital assets at the SEC and the CFTC), and the Clarity for Payment Stablecoins Act (which establishes issuer and reserve requirements for dollar-pegged payment tokens).

But further progress this year will be hindered by the looming election and by loud and irrational resistance from the current Administration.

2) Volatility: 47% of advisors see this as a barrier.

This is understandable – an investment advisor that suggests an investment in an asset that then loses 80% of its value would probably end up with fewer clients. It’s also probably wise, since many are investing for their pension, without a lot of excess capital, and that should not be played with.

The main surprise here is that just over half don’t see the volatility as a barrier.

3) An absence of clear valuation methods: 42% of investment advisors apparently don’t want to allocate to assets that don’t fit into established models.

This isn’t worrying, as I imagine that this is largely risk aversion at work – advisors need to be able to justify allocation decisions, with target prices as well as feel-good narratives part of the sales pitch. Recommending that clients allocate to a hedge against global turmoil, currency debasement or widespread financial collapse, just in case, might create some unease.

4) A lack of easily accessible investment vehicles such as ETFs: 42% of those surveyed cited this as a barrier. Fortunately, there just may be a solution to that coming up soon.

5) Reputational risk: in one of the most encouraging data points of the whole survey, only 7% of advisors cited reputational risk as a reason to not allocate to crypto. This is down from 10% in 2022.

Now we come to the “opportunities” part:

6) A whopping 24% say they don’t understand crypto assets.

7) 21% say they don’t want to allocate to assets that are associated with criminal activity, up from 18% in 2022 (thanks, Senator Warren).

8) 14% think cryptocurrencies are a scam, close to 2022’s level.

These numbers are no doubt surprising to most crypto insiders, given how much information is out there. They may also feel depressing, as in, seriously? Still???

However, they serve as a reminder of how much disinformation is also out there, and how much education is still needed. We still collectively have a lot of work ahead of us, and we can move the needle.

My 2024 predictions: 8 upcoming narrative shifts

About a month ago, I decided to not prepare a list of 2024 predictions because, well, everyone’s doing 2024 predictions and I thought it would be pointless and boring. But several people have asked me, and I love making lists anyway, so here we are. It turns out it is a fun exercise, who knew.

This list is limited to the area I focus on: the intersection of the crypto and macro landscapes. I also limited it to eight points, although I don’t remember why – I have plenty more opinions on plenty of other things, but brevity is better. The list doesn’t include price targets, expectations of SBF’s prison sentence, or which layer-1 will win in smart contract activity. It does focus on development, adoption and narratives, which drive the bigger picture impact that got many of us interested in the first place.

Blockchain will become less “the thing” and more the thing that gets us to “the thing”: This trend arguably got going in 2023 and will intensify in 2024 – we’ll hear less about blockchain teams, blockchain events, blockchain experts, and more about blockchain applications in trading, gaming, payments, shipping…
Central banks will hold bitcoin: We will see at least one central bank start to hold bitcoin as part of their reserves. This will almost certainly be confined to developing and emerging economies that want to reduce the influence of the US dollar while maintaining access to the currency (bitcoin can be sold for USD 24/7/365, unlike any other reserve asset). Any developed nation wanting to do this would have eye-wateringly high regulatory hurdles to overcome.
More Bitcoin tech evolution: This started in 2023, with the emergence of Ordinals, BRC20s, new marketplaces, new wallet structures, etc. In 2024, the progress will accelerate, with developers flocking back to Bitcoin to work on the above and also to push forward Bitcoin’s role in gaming, Bitcoin-based stablecoins, smart contracts on Bitcoin… In 2024, investors will be reminded that Bitcoin is also a “tech play”.
More bank stablecoins: Several large global banks will follow in SocGen’s footsteps and issue tradeable stablecoins. These banks will not be based in the US, since there is unlikely to be much progress in stablecoin legislation in what is left of this Administration. I’m watching Japan, which has an advanced tokenized security ecosystem – some synergies there.
BRICS+ token: The BRICS group (an alliance between Brazil, Russia, India, China, South Africa and, as of January 2024, six other countries including Iran and Saudi Arabia) will start laying the groundwork for an inter-group blockchain-based trading token. The goal will be to reduce dependence on the US dollar and the SWIFT messaging system, while boosting financial flows within the group. Actual launch will be years away since getting agreement on mechanisms and token conversion rates will be complicated at best, but I expect we’ll see progress in agreeing on the need for one.
NFTs come back: (Although I don’t think they ever went away.) In 2024, we will see NFTs evolve beyond collections, with accelerating interest in brand collaborations, loyalty tools, financial contracts and gaming elements.
ETH spot ETFs: This one is easy – there are already several proposals for ETH spot ETFs in front of the SEC, from the likes of BlackRock, Invesco and others. There’s no strong reason to deny them, if listed BTC spot ETFs are functioning smoothly (and there’s no obvious reason why they wouldn’t). These funds would probably not be allowed to include staking which could mute demand.
More CME-listed crypto derivatives: The CME launches futures on crypto assets beyond BTC and ETH – SOL, ADA and XRP are strong candidates. Last year, the CME took the first step on this journey by launching benchmark indices for 11 secondary crypto assets, including those just mentioned as well as UNI, LINK, XLM and five others. These were supplemented last January by CME benchmarks for Axie, Chiliz and Decentraland tokens.

HAVE A GREAT WEEKEND!

Regular readers will know that I am a sucker for gorgeous photography, and so will not be surprised that I am gushing over the entries for the latest International Landscape Photographer of the Year Competition. This world we live in is fiercely breathtaking, peacefully uplifting, edgily unsettling and always surprising. Below are three of my favourites, but you can see the whole collection here.

(photo by Peter Meyer)

(photo by Michael Greco)

(photo by Yutaro Hayashi)