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3rd February 2024 > > CBs, ETFs, & BTFP.


tl;dr

The Houthis are under pressure from another Western central bank. Spot BTC ETFs are a disappointment. A recent announcement has some potentially serious consequences in a year’s time, which will be positive for BTC.


Market Snap








Market Wrap

Bank of England economist Huw Pill has stated that “there are dangers from developments in the Middle East … that if they were to become manifest, we would need to respond to …”. He continues by hinting that interest rates rises are on the cards if the war in the Middle East accelerates.


The Bank of England adding 0.25% to the base rate. That will tell the Houthis.


However, I think Pill is channelling his inner Mark Carney on this occasion. Any serious escalation (and we saw a bit of that last night with the US response to the deaths of three of their soldiers) will lead to sustained and co-ordinated interest rate cuts throughout the Western world, once again demolishing the myth of central bank independence, and boosting hard assets. The Fed put has never been stronger.


During a meeting a few days’ ago I told an incredulous audience that quantitative easing is on its way back. An outlier of an opinion to be fair. We shall see.


Curious Cryptos’ Commentary – spot BTC ETFs

The net flows out of GBTC and into the nine new-borns is now at a positive $1.5bn. This is a terribly disappointingly small number after several weeks. It is beginning to look like that battle over the approval for spot BTC ETFs was all just a huge waste of time, energy, and money.


Curious Cryptos’ Commentary – BTFP (Bank Term Funding Program)

Not sure how I missed this, but the Fed announced in January that the BTFP will cease making new loans on March 11th 2024.


The BTFP was set up in March 2023 as a response to the almost overnight failures of Signature Bank and Silicon Valley Bank, two events which were widely predicted to deal a fatal blow to the crypto markets. In retrospect they helped fuel the then-nascent rally from the lows of the last crypto winter.


The cause of the implosion of these two banks was a simple one. Having loaded up with long-dated US debt at minimal returns – because the regulatory system is so skewed towards government debt – long dated treasuries that were held in the banking book at par had to be sold tens of points lower once QE had been halted to satisfy cash demands. Taking a 20% haircut does not sound like a “risk-free” investment to me.


The BTFP makes loans up to one year in length. One can be very confident that all its loans are one year in length. There will be a rush to utilise this facility before the window shuts, all at the maximum term.


This is not something to concern us now but put March 11th 2025 in your diaries.


If 10-year rates are still above 2%, or even 1.5%, we will likely see more bank failures in the US.

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