Dear friends
Major stock indexes recovered early October after the U.S. Senate agreed to extend the debt ceiling by a “meager” $480 billion to prevent the U.S. government from immediately running out of money. However, this merely means that the risk of a political showdown has been postponed to resurface again before Christmas.
Due to supply chain disruptions, rising energy prices and labor shortages, several global central banks expect inflation to persistently rise and interest rates to normalize between 2022 and 2023. In October, the inflation in the Eurozone and the U.S. reached a multi-year high of over 4%. As a result, the U.S. Federal Reserve is now expected to reduce its bond-buying program by about $15 billion per month from its current level of about $120 billion per month, with a view to ending it by around mid-2022. It will be interesting to see how strongly the stock markets react to this or whether this is already priced into current levels.
Meanwhile, U.S. banks opened the third quarter earnings season reporting double-digit profit growth, largely due to a boom in mergers and acquisitions and higher equity trading volume.
Despite disappointing results from Apple and Amazon, the earnings season provided an unprecedented number of positive surprises. These solid corporate earnings sent stocks to new record highs, and exchange-traded funds saw their largest inflows since March.
Then, in late October, Facebook surprised investors by announcing that it would rebrand its company to reflect its expansion into the “metaverse” (and, presumably, to deflect from recent public criticism). Starting Dec. 1, Facebook will change its name to Meta and its stock symbol from FB to MVRS.
Shortly after the announcement, shares of Meta Materials (MMAT), an unrelated Canadian company, briefly rose over 30% in after-hours trading. Apparently, some overactive cowboys thought the company was already the new Facebook after the renaming…
All in all, it was an interesting month with all asset classes ending in the green: S&P 500 +6.9%, MSCI World Index +5.9%, 20-year bonds +2.5% and gold +1.5%.
Our strategies all had a nice run as well with Universal +3.2%, Progressive +11.2% and CryptoMax +16.7%.
But there were also significant developments on the crypto front, with the US Securities and Exchange Commission (SEC) approving the first crypto ETF. ProShares’ Bitcoin Strategy ETF (BITO) grew to $1B AUM in just two days, setting the record for the fastest growth of an ETF to $1B in history. Interestingly, for legal reasons, this new ETF doesn’t even hold real bitcoins, like its much older Swiss competitor 21Shares Bitcoin ETP (ABTC), but invests exclusively in bitcoin futures. Regulators prefer futures-based ETFs because they have no control over crypto trading venues. While this may well make legal sense, it remains unclear whether a fund without collateral is in the best interest of investors.
Our strategies will continue to rely on “Swiss Quality” crypto ETPs from 21Shares AG in Zug, which are 100% collateralized and also reached an impressive total AUM of $2B in October.
Following China’s recent crypto crackdown, the U.S. has now become the largest bitcoin mining region, contributing more than 35% of global computing resources.
Unlike China, Federal Reserve Chairman Jerome Powell stated that the US has no plans to ban cryptocurrencies. The same was heard from the Russian Finance Minister, and President Putin himself stressed that crypto technology “is legitimate and can be used in settlements.”
Blockchain data analysis shows that large institutional investors have become a driving force in the crypto economy. Asset managers, family offices and other institutional players have invested billions in crypto investment products offered by Grayscale, 21Shares and others. Institutional investors in Europe now own a record €72.3 billion worth of cryptocurrencies, apparently buying bitcoin rather than gold as a hedge against inflation, according to JPMorgan.
Nearly half of crypto transactions take place via decentralized financial protocols (DeFi). Volumes on decentralized exchanges (DEXs) rose amid China’s crypto ban and distrust of governments worldwide. Total value locked in DeFi grew over 900% in 12 months, surpassing $200 billion for the first time.
And, of course, also good to know: Walmart begins rolling out 8,000 Bitcoin ATMs in its stores and El Salvador starts mining Bitcoin with volcanic energy….
Stay happy, healthy and wealthy!
Omar