Podcast Summary
Potential Bitcoin ETF approval and returning risk appetite: The potential approval of a Bitcoin ETF and returning risk appetite have contributed to Bitcoin's surge as the highest performing asset class in 2023.
The surge in Bitcoin's value over the past year can be attributed to both micro and macro factors. The potential approval of the first Bitcoin ETF by the SEC on January 10, 2023, could significantly impact the market as it provides a safer and more traditional avenue for investors to invest in Bitcoin. Additionally, the macro factor of risk appetite returning to markets after a downturn in late 2022 has led to a significant increase in Bitcoin's value, making it the highest performing asset class in 2023 so far. Bitcoin's beta, which measures its volatility in relation to the market, has outperformed the Nasdaq, reflecting its riskier nature. The approval of a Bitcoin ETF could potentially attract more institutional investors, further driving up its value.
Anticipated Bitcoin ETF approval and its impact on the market: ETF approval could bring billions in investment, but may impact Bitcoin's volatility, with Solana's SOL up 800% this year as a standout performer in the crypto market
The anticipated approval of Bitcoin ETFs in the US is causing significant optimism in the crypto market, with the potential to add billions of dollars in investment. However, concerns have been raised about the impact of ETFs on Bitcoin's volatility, which has been a key driver for the asset's high returns in the past. The market has seen a significant rally this year, and some believe a pullback or correction is expected. The approval process for ETFs has been influenced by court decisions, such as those in favor of Coinbase and Grayscale Bitcoin Trust. The launch of ETFs could signal Bitcoin's transition from a teenager asset to an adult one, with lower volatility and potentially fewer returns. Solana, a faster and cheaper blockchain, has been a standout performer in the crypto market this year, with its native token, SOL, up 800%. Overall, the crypto market is undergoing significant changes, and the impact of ETFs on Bitcoin's volatility and the broader market dynamics is a key area to watch.
A Fork in the Crypto Road: Bitcoin vs. Speculative Assets: Bitcoin, as a form of digital gold, offers global accessibility through stablecoins, allowing individuals access to dollars and potential tokenization of assets like US treasuries
The crypto market is experiencing a fork in the road, with Bitcoin representing the mainstream, lower volatility side, while more speculative and volatile assets like meme coins and NFTs find a home on other blockchains like Avalanche. The ease of creating new coins contributes to the market's wild nature. Michael Cohen's perspective on Bitcoin as a form of digital gold refers to its global accessibility, especially as more people gain access to digital currencies through stablecoins, which currently have an AUM of around 125 billion dollars. The technology behind stablecoins allows individuals in countries with weakening currencies to access the dollar, and the potential for tokenization could extend to assets like US treasuries in the future.
Understanding the impact of individual components on index performance: Examining specific companies in an index provides a more accurate understanding of its overall performance. Unexpected challenges like inflation, rate hikes, job cuts, and geopolitical tensions can impact markets, but staying informed and adaptable is crucial.
Learning from the past year in the markets is the importance of understanding composition. As Bloomberg's director of research, Tim Craighead, pointed out, the performance of different markets can be drastically different based on the specific companies that make up the index. For example, the Swiss Market Index (SMI) was lackluster in 2023 due to the poor performance of just a few stocks: Roche, Novartis, Nestle, and Richemont. However, if those stocks were removed, the SMI would have performed similarly to the US market. This highlights the significance of examining the individual components of an index to gain a more accurate understanding of its overall performance. Additionally, the year was filled with unexpected challenges, such as inflation, rate hikes, job cuts, and geopolitical tensions. Yet, despite these obstacles, investors were surprised by a significant downward shift in inflation rates in the UK, which dropped to 3.9% in the final weeks of the year. This underscores the importance of staying informed and adaptable in the face of market volatility.
European Stock Performance: Composition Matters: European stocks, particularly the Euro Stoxx 50, have varied performance due to composition. The UK and Switzerland have dragged down the overall index, while the US has seen a larger tech-driven rally. China's impact on European companies and potential central bank pivots are major factors.
The performance of European stocks, specifically the Euro Stoxx 50, varies greatly depending on composition. While the Eurozone index is up 19%, the UK and Switzerland have dragged down the overall index with significant declines. The US, on the other hand, has seen a larger tech-driven rally due to longer-term growth prospects and sensitivity to interest rate changes. Another major factor is China, which accounts for a significant portion of revenue for European companies and poses a tough comparison for the first half of 2023. The UK, with its heavy banking, oil, and mining sectors, remains cheap but faces challenges due to margin risks and potential central bank pivots. The FTSE 100 has outperformed both the Euro Stoxx 50 and S&P 500 over the past two years due to its defensive nature and relative stability during market downturns. The central bank pivots, which have been priced in more aggressively in the US, will impact the UK as well, particularly its financial sector. Ultimately, European markets may face a challenging first half but could see potential for recovery in the second half of 2023 and beyond.
European markets to have positive backdrop until 2024, but potential for market extension: European markets to have positive backdrop until 2024, but potential for market extension due to concerns over earnings revisions and potential market overvaluation, while Macau's casino industry recovers from pandemic but remains positive due to major holidays and World's largest gambling center status.
The European markets, including the FTSE, are expected to have a positive backdrop from now until the end of 2024 due to central banks potentially pivoting towards less accommodative monetary policies. However, there is concern that markets may be extended after a significant discounting of a pivot in the past 6 weeks. Additionally, Q1 could be dicey due to potential negative earnings revisions, especially at elevated market levels. The second half of the year, however, is expected to be interesting. In Macau, the casino industry is recovering from the pandemic, but the overall Chinese economy remains sluggish. Despite this, many analysts have a positive outlook for Macau's gaming business as it is the world's largest gambling center by revenue. The major casinos typically see high activity during the Lunar New Year festivities and the Golden Week holiday in October. With the Christmas holiday and New Year's just around the corner, it will be interesting to see how Macau's gaming industry fares during this period.
Macau casinos shift focus to mass, leisure travel and family-friendly amenities: Macau casinos are experiencing a demographic shift towards mass travelers, focusing on affordability and family-friendly amenities, driven by increased hotel capacity and government initiatives. This trend is expected to lead to higher profit margins and surpassing pre-pandemic revenue levels.
Macau's casinos are experiencing a shift in demographics and revenue sources, with a growing focus on mass, leisure travel and family-friendly amenities. This trend is being driven by the increase in hotel capacity, affordability, and the decline in long-haul travel due to the consumption downgrade in China. The government is also encouraging tourism from other countries as a response to the crackdown on high roller business and credit gambling. This transformation is expected to lead to higher profit margins and optimism for surpassing pre-pandemic revenue levels, particularly in the mass gaming sector.
Macau's gaming industry adapts to new regulations and changing consumer habits: Macau's gaming industry is evolving with stricter regulations against crime and human trafficking, a shift towards in-person gambling, and an emphasis on non-gaming amenities to attract and retain visitors.
Macau's gaming industry is undergoing significant changes due to various factors. Transparency and security are becoming top priorities for the government, leading to stricter regulations against organized crimes and human trafficking. Young people's gaming habits are also evolving, with a shift towards in-person gambling and a ban on phone usage at casinos. The industry is also adapting to new financial technologies, but strict regulations prevent the use of phones for gambling or money transfers at casinos. Despite the government's preference for non-gaming businesses, casino operators recognize the importance of attracting more visitors and keeping them longer by investing in non-gaming amenities such as hotels, retail shops, and concerts. The industry's focus on in-person gambling and non-gaming amenities is expected to drive growth and attract a wider audience.
Congress passes fewest laws in decades, allowing industries to avoid new regulations: The 118th Congress passed the fewest laws in decades, enabling industries like banking, tech, and railroads to maintain their business models and avoid potential regulatory changes
The 118th Congress passed the fewest laws in decades, leading to significant wins for industries like banking, tech, and railroads, as they were able to prevent new regulations from being implemented. Despite numerous votes and debates, key legislation, such as crypto reforms, did not come to fruition. This inaction on Capitol Hill allowed these industries to maintain their current business models and avoid potential regulatory changes. The turmoil in Congress provided an opportunity for these industries to thrive in the absence of new regulations.
Slow legislative progress in first year of 23rd Congress: Fewer bills passed in 2023 compared to previous years, key issues left unresolved, but hope for legislative activity in 2024
The first year of a congress, such as 2023, typically sees fewer legislative actions than usual. This year was particularly slow, with only 22 bills passed as of December 19th, compared to the seventies or eighties in previous years. Key issues, such as aid for Ukraine and new regulations on China, were not resolved, leaving some industry leaders and international allies disappointed. However, legislation does not expire at the end of a year, but rather at the end of a congress. So, there is a chance for these bills to be reintroduced and passed in 2024. Despite the slow legislative progress in 2023, there is hope for a flurry of activity in the next year, especially as some pieces of legislation may be attached to other bills, such as spending bills or the annual defense authorization bill. Stay tuned for updates on these developments.
