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Topics this week
- Huge SEC failure
- Bitcoin ETF Multi
- German economic modernization
- Taiwan elections and China's response
The SEC failed at 2FA
Bitcoin is a great teacher. Many of us have learned a lot from studying and following Bitcoin over the years, not just about money but about life. Once again, Bitcoin provides us with a teachable moment in the SEC's X/Twitter account hack. First, even if you are a supporter of tightly regulated markets, this event should open your eyes to the fact that regulators themselves have turned to systemic risk. They pose a risk to the investors they are supposed to protect. The SEC is even locked in a battle in the Supreme Court over its internal quasi-judicial system.
Second, this scandal happened because the SEC did not use two-factor authentication, months after it warned everyone against using two-factor authentication. This shocking inefficiency may wake up many and popularize the use of two-factor authentication – something that is long overdue.
The total damage from the SEC's failure was $30 billion wiped from market capitalization with $90 million worth of open positions liquidated. Of course, the SEC has not apologized for its failure and will likely face legal consequences. Consider that this Bitcoin-inspired scandal may not only lead to us getting approval for ETFs, but also getting the SEC off the hook.
Bitcoin market capitalization is multi-stream
Estimates of inflows in the first days of trading for the Bitcoin ETF are expected to be massive. Issuers have publicly stated that they are investing $312.9 million so far. These are commitments by private players to create shares immediately to provide liquidity. This does not include other funds from regular trading.
The fee structures presented this week by issuers contain provisions for introductory periods based on the flow of assets under management. For example, ARK offers a management fee of 0.0% for the first six months or up to $1 billion in assets under management. Invesco offers 0.0% interest for 6 months or $5 billion in assets under management. This means that they expect those time periods and assets under management to be a workable expectation. If we add up all these discounts on special fees, we arrive at $13 billion of projected AUM growth in the first 6-12 months from just 5 issuers. This does not mean that inflows exactly as previously purchased Bitcoin will appreciate being added to assets under management.
Source: @JSeyff
Seed funds are small potatoes compared to the total $25 trillion in assets under management for issuers. If 1% is put into Bitcoin ETFs in the first 12 months, that's $250 billion.
Back in 2021, close to ATH, Bank of America released a study stating that Bitcoin has a 118x multiplier when flowing to market cap appreciation. So, for every $1 million of new purchases, your market value will increase by $118 million. This multiplier depends on many different factors, such as flow speed, the number of Bitcoins available on exchanges, and the block reward. Bank of America gave its estimate when there were 2.7 million bitcoins on exchanges, today there are only 1.8 million – or 607,000 when considering only the major US exchanges Coinbase, Gemini and Kraken. In other words, the multiplier could be greater than 118x this time.
The largest ETF launch in history saw $2 billion in inflows. The Bitcoin ETF event promises to be even bigger because it is a collection of 11 exchange-traded funds and is a new asset class. So $2 billion is a conservative amount, but we'll use it for our purposes here. $2 billion in 118 means a market rise of $236 billion on the first day. The market cap at the time of writing is $900 billion, meaning the first day's movement could be roughly 25%, taking us to $58,000.
German manufacturing declined
People think this can't happen, that's why it happens. Some Germans are beginning to understand the impact of deglobalization on their economic model, and the impact that communist climate policies may have on heavy industry. Major companies such as BASF, Linde and Volkswagen have plans to exit Germany. Energy-intensive industrial production was the most affected. 2024 will be a year of massive recession around the world.
Source: Financial Times
The latest November figure showed the sixth straight month of industrial production, the worst stretch since the Great Financial Crisis.
Source: Bloomberg
Source: @SoberLook
Taiwan's elections and China's economic disaster
One of the most important elections this year will be held on Saturday in Taiwan. As it stands, it is a three-way race for president, with the most anti-China Democratic Progressive Party, Lai Ching-te, the front-runner. He is a friend of the United States and will be a thorn in the side of the Chinese Communist Party. It is certain that China has invested heavily in stopping him and spreading propaganda inside Taiwan. Despite this, the anti-China candidate remains the favourite.
Source: NHK
Source: Fulcrum Asset Management
This election has global consequences, as you can imagine. In an article published by Bloomberg yesterday, they highlighted the possibility that Lai's election could directly lead to conflict with China and potentially cost the global economy $10 trillion.
This is also happening with the collapse of the Chinese economy. The blue-chip CSI 300 index recently hit 5-year lows, in stark contrast to US stock markets rallying near ATHs.
Source: Yahoo Finance
Last but not least, the FDI numbers for 2023 are out and they are a complete disaster. Money is fleeing China at the fastest pace in modern history. All of this means that elections in Taiwan and economic pressures in China could push the world toward conflict over Taiwan.
Source: @Geo_papic
