Bitcoin Isn't ETH, Hot Employment Costs Kill Rate Cuts in 2024
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the cliff-notes:
- Hong Kong ETF launch inflow data signals traders value BTC over ETH
- Employment costs came in way too hot, rate cut odds destroyed
- The market is currently trading like Powell is about to crush everything
Afternoon everyone, happy Tuesday.
Yesterday, there was a simultaneous launch of BTC and ETH spot ETFs in Hong Kong. Inflows and volume did not hold a candle to US activity in the bitcoin ETFs, but were very strong for the Hong Kong stock market. Total volume for the spot bitcoin ETFs was $9.4 million, and $2.9 million for the spot ETH ETFs—this is almost exactly the same 30% ETH/BTC ratio that their market caps share. In other words: the volume for ETH relative to BTC was the same as the size of ETH relative to BTC:
There is one caveat that tells me the market, shown with these ETF investors, is not treating these assets the same way. The biggest asset manager involved yesterday, ChinaAMC, saw $121 million in assets come into its spot BTC ETF, but only $20 million into its ETH ETF. That is only 17% of bitcoin's size, which is half of its market cap dominance and its volume dominance. Judging solely by flows, ETF investors are valuing Ethereum at 50% of how it is valued in spot markets when compared to bitcoin.
Instead of viewing Ethereum as adjacent to bitcoin, this 50% haircut in valuation by AUM tells me that investors are starting to distinguish the two from one another. Not just two assets in the same family, but two different families of assets entirely.
The same dynamic can be viewed in the ETH/BTC cross, my favorite way of gauging bitcoin dominance relative to all the other stuff. It looks like the EKG of a hospital patient on their deathbed. The heartbeats are growing weaker and their frequency is falling. See how ETH/BTC has risen in every other bull market, as the smaller-sized and higher beta ETH outperforms the larger-sized BTC. This time, despite being in a secular bull market since last fall, BTC is outperforming ETH. Correlation shifts like these are extremely noteworthy. Investors are beginning to value these assets differently, and in my view, more accurately:
Shifting gears to macro, the Fed's dovish pivot in December 2023 is proving even more disastrous as the weeks go by. The Employment Cost Index, a popular measure in the US that aggregates direct costs like wages and indirect costs like taxes, rose 1.2% from last quarter—a full 20 basis points above the market estimate. This adds fuel to the inflation fire, and gives the Fed more cause to leave rates where they are instead of cutting them like the market has expected:
This is a huge beat, and one that drove investors across markets to sell everything today. Risk like stocks and bitcoin got sold for fear that the Fed will hold rates higher for even longer, and US Treasuries got sold on the expectation that yields will climb even higher as economic activity stays strong and the Fed holds.
2s (the 2-year US Treasury yield) reflect the market's Fed policy rate expectations, and they are now at their highest level since last November:
The Fed meeting is tomorrow and markets are currently trading like Powell is about to crush everything. Stocks are set for their worst month of the year, and this is the 2nd-worst April for the S&P 500 in 20 years. I'll have my eye on hawkish language in tomorrow's press conference and changes to the language to reflect stricter financial conditions in tomorrow's FOMC statement. Higher for longer will weigh seriously on risk, eventually. Whether what we're experiencing right now is a correction or cycle shift may hinge on what the Fed says and forecasts tomorrow.
Final thought: we've got a boatload of new features in the Theya app this week! Check out our X page @TheyaBitcoin to see all we've added to build Theya into the industry standard for simple bitcoin self-custody.
Take it easy,
Joe Consorti
Theya is the world's simplest Bitcoin self-custody solution. With our modular multi-sig vaults, you decide how to hold your keys.
Whether you want all your keys offline, shared custody with trusted contacts, or robust mobile vaults across multiple iPhones, it's Your Keys, Your Bitcoin.
Download Theya on the App Store.