Ben Strack & Casey Wagner welcome you to the On the Margin Newsletter. What’s in the latest edition?
- What is the significance of Morgan Stanley’s decision to allow its advisors to pitch Bitcoin ETFs for certain clients?
- A super-PAC focused on crypto with an impressive track record announces its support for 18 House candidates.
- A look at the VIX one week into August — a month known for poor stock performance.
A new crypto ETF related milestone
In 2018, there hasn’t been a shortage of milestones for crypto ETFs. In a market week that has been marred so far by volatility, a new potential ETF-related trigger emerged.
Last month, US spot ether ETFs were launched. Firms have also filed to hold funds holding solana. Before all of that, however, US spot Bitcoin ETFs launched in January captured attention from crypto and financial folks.
Remember when BlackRock’s iShares Bitcoin Trust went on a 71 day inflow streak with IBIT? It was a ridiculously long run, and it wasn’t even a brand new ETF.
CNBC reported that Morgan Stanley’s financial advisors can now offer IBIT and the Fidelity Wise Origin Bitcoin Fund to clients. It all starts today.
Morgan Stanley declined to provide any further comment on the report.
These advisers are not soliciting clients the way they used to (and continue to) do. They only accept investments in these products if their customers actively seek them out.
Why is it important to make this change? Financial advisers are in charge of a large amount of money. Like a lot, a lot. Several dozen trillion, a lot.
The US bitcoin spot ETFs, driven by the interest of retail investors and some institutional buyers, have seen net inflows of $17.2 Billion in just seven months.
Segment analysts expected that it would be longer before big wealth managers (aka wirehouses), due to the hurdles of due diligence, get involved.
There’s now movement in that direction.
Next, a Wall Street giant begins to offer advice on this product line for wealthy clients. “giant step” CK Zheng, co-founder of ZX Squared Capital and a proponent of Bitcoin adoption.
“This educational process could be lengthy, but could be extremely impactful to truly make the digital asset class a part of a long-term investment portfolio instead of a short-term trading or speculation,” Zheng tells Blockworks. “This is the only way to systemically make bitcoin as a part of a well-diversified portfolio possible.”
Eric Balchunas, a Bloomberg Intelligence Analyst, framed Morgan Stanley’s decision in a new way on Wednesday during a webinar. This is like asking Whole Foods for your new organic dressing.
“Otherwise, you have to go out there and guerilla-style sell your stuff,” “He said” “This kind of puts it on a shelf for a bunch of people.”
CNBC pointed out that Morgan Stanley’s approximately 15,000 advisers can only recommend the ETFs if their clients have net worths over $1.5m and are willing to take on more risk. These investments will only be available for brokerage accounts that are taxable, and not retirement funds.
James Seyffart of Bloomberg Intelligence noted that some advisers may not encourage their clients to invest in BTC funds. If they do, it is likely that the clients will be “small positions” He added that the range is between 2% and 3%.
That said, industry watchers expect other wirehouses — like UBS, Bank of America Merrill Lynch, Wells Fargo, etc. — to follow suit at some point.
Edelman Financial Services’ founder Ric Edelman predicted in January that financial advisors would allocate more than 150 billion dollars into bitcoin spot ETFs over the next two-years.
US advisers tend to be the biggest buyers of ETFs more generally, 21Shares US business head Federico Brokate told Blockworks — a norm he expects to play out in the crypto segment too.
This Morgan Stanley action will likely have a limited impact on the bitcoin ETF’s near-term inflows. Over the past three days, US BTC funds saw $550m in assets leave their accounts.
The latest “face-ripping selloff” Balchunas noted that while Morgan Stanley’s eligible clients might hesitate to invest in BTC immediately, the asset class is backed by BlackRock and Fidelity.
It seems fair that big financial companies would be so meticulous in analyzing and measuring demand.
— Ben Strack
$1.9 Billion
Binance, a crypto-exchange has recorded a lot of inflows during the past 7 days. According to DeFiLlama, the vast majority occurred between Monday and Wednesday.
Binance CEO Richard Teng announced that Binance had received net flows of $1.2 Billion in just 24 hours. “marks one of the highest trading volumes on Binance year-to-date.”
A large sell-off of equities accompanied the high volume day. Bitcoin’s price was 1.6% (over the last 24 hours) lower at 2 pm ET, which puts it 16% down from its previous week high.
According to Coinbase data, Ether was also trending lower by 5% at 2pm ET. It has fallen 28% over the last seven days.
Support for crypto-friendly legislators is increasing
Fairshake, a super PAC focused on cryptography and blockchain technology, has begun its TV campaign in preparation for the November election.
The group announced Wednesday that it had begun to reserve its seats. “first tranche” of ads — worth $25 million — in support of 18 candidates vying for seats in the US House of Representatives.
Fairshake is putting its financial backing behind nine Democrats as well as nine Republicans. Fairshake noted in a release that they see a “broad bipartisan consensus” Behind crypto and the blockchain, as key components of future economies.
“We will continue to deploy our resources in support of leaders on both sides of the aisle and in both houses who are committed to getting things done and working with the industry to pass responsible regulation that drives innovation, creates jobs and sustains America’s global leadership,” Super PACs are added as an attachment to emails.
Support was given to candidates in 13 different states. This includes four California GOP representatives (David Valadao (Mike Garcia), Michelle Steel (Young Kim) and Young Kim, two New York Democrats, Tom Suozzi and Pat Ryan (Pat Ryan), and a couple of Illinois Democrats, Nikki Budzinski (and Eric Sorensen).
Stand With Crypto reports that all voted for the Financial Innovation and Technology for the 21st Century Act (FIT21). This bill was passed by the House in May with bipartisan backing.
This latest update on ad spending comes following the primary loss of Rep. Cori Bell, D-Mo. Fairshake spent approximately $1.4million to fight Bush. “the latest anti-crypto, Elizabeth Warren-endorsed lawmaker to lose their seat in Congress.”
Fairshake has also spent around $2 million to campaign against Rep. Jamaal bowman, D.Y. who lost in the June primaries of Westchester County executive George Latimer. The bulk of the super PAC’s financial support — about $10 million — went toward opposing California Democrat Katie Porter, who lost in a March primary to Rep. Adam Schiff.
It’s important to note that despite Fairshake’s expenditures on these elections, Bush and Bowman faced even more financial opposition from American Israel Public Affairs Committee.
— Ben Strack
VIX: The latest information
We wrote at the end of last month about how stocks don’t do well on average in August. Now that the first week of August is over, let’s review what’s happened.
August is usually not pretty, with the S&P 500 and Nasdaq Composite indexes in August 2023 losing 1.6% and 2.1%, respectively. The start to this month was particularly turbulent.
Midway through Wednesday’s session, the S&P 500 was down 3.4% since Aug. 1. Nasdaq Composite was down 4.5%.
VIX surged on Monday to 55. This is the highest it has been since March 2019. The volatility index has remained above 60% for the last five trading days, despite a slight decline to around 26 on Wednesday from 38.6 the day before.
But we’re still not done yet. Nicholas Colas of DataTrek Research says the VIX could reach a level above 35 before the end month. VIX rarely spikes only once a month.
Colas noted that the VIX level of 35,3 is 2 standard deviations higher than the average long-term. In previous periods of high volatility, we’ve seen the VIX rise above 35.3 quite a bit. It happened 50 times between 2020 and 2021. In the period between 2008-2010, it occurred 157 times.
The VIX has only entered the 20s a handful of times so far this year — all of which happened this month. It is important to remember that volatility can be an indicator of future events. This could mean that it will be several weeks before these figures are reflected on the stocks.
— Casey Wagner
Bulletin Board
- For the first time after the Supreme Court’s Chevron case, the SEC appeared before a federal district court this week to assert that they still had the right and authority to enforce their new requirements for climate and emission reporting.
- In a Wednesday letter, the Crypto Market Integrity Coalition demanded that President Biden and Vice-President Harris work together to establish a framework to regulate digital assets. It includes Circle and Coinbase among its 50 members.
- A new study from the NY Federal Reserve found the US government’s 2022 sanctions against crypto mixing service Tornado Cash were somewhat effective — but that cooperation was ultimately “mixed.”
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