After years of dragging its feet and losing an important Court case, the SEC finally approved 11 Bitcoin ETFs. Along the way, it managed to accidentally pre-announce the approvals three different ways, then withdrew all of them. Finally, the head of the SEC made it clear he disagreed with the decision of his own agency to approve the ETFs. Bitcoin traded sideways and then down surprising some and delighting others. Inflation got both better and worse depending on who you ask. Hertz is selling tens of thousands of EVs. And Michigan football wins by putting the team first.
This week, we’ll address the following topics:
- 11 Bitcoin ETFs Approved. To the moon?
- The SEC drags its feet, complains about its own decision, then has multiple leaks. Will the agency make changes?
- CPI is higher than expected and accelerating. Will the Fed keep hiking?
- PPI is lower than expected and falling. Will the Fed cut rates now?
- Hertz ($HTZ) is selling one-third of its EV fleet including Teslas ($TSLA). Have we hit peak EV?
- Michigan Football wins the national championship. Is brotherhood and teamwork the new model for college sports?
Ready for a new week of digital asset and inflation-related headlines? Let’s dive in:
1) SEC Approves 11 Bitcoin ETFs:
In a decision that was several years and lawsuits in the making, the SEC approved 11 Bitcoin ETFs. Among them were exchange traded funds sponsored by asset management titans like Blackrock and Fidelity, and the ETF conversion of the Grayscale Bitcoin Trust ($GBTC). Much of the heavy lifting was done by Grayscale which engaged in years of discussions and litigation to get this result. While Bitcoin enthusiasts have been able to use crypto exchanges and self-custody to buy and store digital assets for years, the decision opens up Bitcoin ownership for institutional managers and those who want/need everything to be held in a traditional brokerage account.
This is the order approving $GBTC and other Bitcoin ETFs.
DKI Takeaway: There’s been a long-running debate about whether the SEC approval was priced into Bitcoin and $GBTC. The Bitcoin bulls are celebrating massive first day volume indicating huge retail and institutional interest in Bitcoin. The Bitcoin bears are celebrating flattish prices on Thursday and modest declines (by Bitcoin standards) on Friday. It’s early in the race for institutional acceptance of the apex cryptocurrency, and as of now, everyone is a winner. Enjoy!
2) SEC Delays then Complains About Its Own Decision:
Despite the effective track record of both a Bitcoin futures trading vehicle and the Grayscale Bitcoin Trust, the SEC did not want to approve these new ETFs. In its filing, the SEC made clear it was only proceeding because it lost a Court case, and even then, two of five people on the Commission still voted to deny the applications. Gary Gensler, the Chairman of the SEC, chose to indicate they “did not approve or endorse Bitcoin”. There are a couple of problems with that approach.
Photo from Getty Images. Caption from Yahoo Finance.
DKI Takeaway: The SEC had its X (Twitter) account “hacked”, and a post indicating ETF approval a day early had to be withdrawn. Then, there were widespread rumors that ETF issuers had heard from the SEC they were to receive approval Wednesday after the market close. These rumors were paired with comments that they had come from Gensler so were not certain to be fulfilled. Then, the SEC posted the approvals early on their own website, and had to withdraw them once publicized. The SEC doesn’t look great here. Most importantly, it’s not clear Mr. Gensler understands the asset his Commission just approved. The whole point of Bitcoin is its permissionless. The SEC just allowed traditional asset managers a vehicle to get their clients exposure to Bitcoin. Bitcoin itself is beyond the regulatory powers of any government or bureaucrat. You do not need permission to buy and own Bitcoin.
3) CPI is Higher than Expected and Rising:
The December consumer price index (CPI) was 3.4% which was above expectations for 3.2%. It’s also higher than last month. The Core CPI, which excludes food and energy, was up 3.8%. That’s almost double the 2% target. It has been very difficult for the Fed to reduce core inflation largely due to continued high housing and other services prices.
That tick up at the end of the blue line is concerning. The red line remains elevated.
DKI Takeaway: Prepare for higher energy prices partly due to geopolitical strife. Conflict in the Middle East and low water levels in the Panama Canal are also raising shipping rates which could lead to more goods inflation. Housing prices remain high through both higher and lower mortgage rates. I continue to believe food inflation is understated (unless you want to tell me your grocery bill is up only 2% vs last year). While all of this makes the inevitable Fed pivot to lower rates more likely to happen a bit later, I agree with current consensus that we’re at the “terminal rate” meaning there won’t be any more rate hikes in the near future.
4) PPI is Lower than Expected and Falling:
The December producer price index (PPI) came in 1% higher than a year ago and was down .1% vs last month. This was below expectations of an increase of .1%. The Core PPI, which excludes food, energy, and trade, was up 2.5% for the year and up .2% vs last month. This was consistent with expectations.
The PPI was actually down vs last month. The annual Core number is still a little high.
DKI Takeaway: This data matches a current trend. The upstream indexes like the PPI and the producer price index are showing slower price gains and a lack of demand as companies which think a recession is coming prepare for expected future weak demand. The downstream indexes like the CPI and consumer spending numbers indicate that Americans continue to spend like they won’t have to pay the future bills. The lower PPI makes it easier for the Fed to cut rates earlier. With the higher CPI and lower PPI, I agree with consensus that the Fed won’t change the fed funds rate at the next meeting.
5) Hertz ($HTZ) is Selling Teslas ($TSLA) and Other EVs:
Hertz has been buying electric vehicles (EVs) in anticipation of high customer demand for the big new thing in transportation/consumer electronics. This week, the big car rental company announced it’s selling one-third of its EVs, or 20,000 cars and buying traditional internal combustion engine vehicles instead. It cited weaker than expected demand and higher operating costs.
Don’t worry – it’s not really this bad. Photo from autocarindia.com.
DKI Takeaway: There have been widespread reports in recent months that consumers were not happy with rented EVs. The biggest issue is people on vacation often drive long distances and have no idea where they can charge the car, or how long that will take. Planning is almost impossible for long trips in unfamiliar territory. The EVs also drive differently from internal combustion cars and learning on new roads while trying to follow the GPS is a lot of some people. Higher operating costs make it all more difficult for the renal companies. Until now, there was no way to know if these complaints were anecdotal or evidence of a problem. When $HTZ sells 20,000 cars, it’s clear there’s a problem.
6) Michigan Beats Everybody:
The 144th team in Michigan Football history went 15-0 and won the national championship. This team destroyed the weaker teams on its schedule, had convincing multi-score wins over highly ranked Penn State, Iowa, and Washington, and hung on against traditional powerhouses, Ohio State and Alabama. As college football seasons get longer and force more late-season conference championship and playoff games, teams have to play more games against high-level competition. There are only a handful of 15-0 teams in college history. 2023 Michigan joins them.
DKI Takeaway: This Michigan team reversed a recent trend. The transfer portal has effectively brought unrestricted free agency to a sport where players used to stay with one team for 4-5 years. Name and image licensing has put a price tag on athletes who, in some cases, make as much as NFL players. Some money comes from being a great player, but more comes from a big social media presence. That incentivizes players to draw as much individual attention to themselves as possible. Despite those trends, Team 144 bought into a team-first mentality, celebrated the achievements of their teammates, and constantly directed attention to teammates who received less attention as well as their coaching staff. This season was a triumph of brotherhood and the elevation of team goals. It was beautiful to watch.
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