Something important is brewing for crypto on the economic front

From Houthis attacking ships in the Suez Canal, to SEC muscle flex, and the change in FED speak –  here’s how non-crypto events impact crypto.

Let's dive in.

Topics to cover

• Bitcoin ETF's applicants bend to the SEC.
• Suez Canal issue.
• FED speak.

Disclaimer: Not financial or investment advice. You are responsible for any capital-related decisions you make, and only you are accountable for the results.

Bitcoin ETF applicants bend the knee to the SEC

We've seen in the last week that a handful of Bitcoin ETF applicants have amended their ETF applications to "cash creates" (cash redemptions rather than in-kind redemptions). Cash creates means when an investor sells their position, they get paid out in cash rather than "in-kind" (in Bitcoin). 

Cash creates are less tax efficient than in-kind redemptions and may be the SEC’s way of making the ETFs less desirable for investors. 

Either way, applicants are amending their applications to cash creates; otherwise, they risk being approved later rather than sooner. 

Essentially, the SEC is saying use “cash creates, or you wait for longer”. 

This is one way the SEC can have some power over the applicants, as the applicants all want to be first out the gate. 

Suez Canal

Initially, yesterday, it didn’t look as if the Houtis attacking ships in the canal would be a huge issue – it seemed like something that would be resolved relatively quickly.

However, it's now potentially a greater issue than we first thought. It's still possible that this is resolved quickly. However if there isn't an imminent solution, then this will be inflationary for the first few months of next year. The longer this goes unresolved, the greater the inflationary pressures going into the first few months of next year. 

If ships have to go a longer route, it will lead to a pure increase in costs, in terms of fuel, staff, time, everywhere essentially. The markets are priced for inflation to continue coming down in the new year; a move up in inflation again would likely scare the markets. 

Regarding crypto going up, inflation rearing up again would be one of the worst outcomes for risk assets. We will continue tracking this. 

FED Speak

Honestly, where do we even start? 

Last week, FED Chair J Powell was significantly more dovish than what the market was expecting. 

Why was this? 

Are the FED seeing a weakening that the markets just aren't seeing? 

Or, has the FED got the political tap on the shoulder, as the Democrats need a soft landing to likely have any chance of winning the election next November? 

Yesterday, we saw San Francisco FED President Mary Daly come out with considerably more dovish comments. She indicated that rates need to stay restrictive next year but not at the cost of a loss of jobs. This is a serious change in tone, having been one of the more hawkish members, who was less concerned about the job market and more concerned about bringing inflation back down. 

Alongside this, we have seen other FED members, such as Williams, come out last Friday (two days after Powell spoke) where he said, ‘the FED isn’t really talking about rate cuts now’. 

The above is very tricky to make sense of. Powell may be back to thinking inflation is transitory, and has come down nicely so far. It's also possible he is getting pressured politically to lower rates, or maybe the FED sees weakening somewhere the markets aren't currently seeing - unlikely. 

The markets are usually better predictors than the FED. Either way, the result is that risk assets have got the green light, at least for the coming four weeks or so. 

Now to the big question:” What do all these mean for crypto?

Cryptonary's take

As mentioned above, last Wednesday, Powell gave the green light for risk assets to go higher. 

And, if inflation continues to trend lower and the RRP continues to help liquidity stay net positive, then risk assets and crypto can continue to trend higher. 

Alongside this, it looks as if the SEC is potentially going to approve the Bitcoin ETFs very soon - maybe before Christmas. 

This should also help aid prices in going higher. The FED speak and the Suez Canal issue we will continue to monitor as these can provide more issues ahead.