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Welcome to the On the Margin newsletter, brought to you by Ben Strack and Casey Wagner. Here’s what’s in today’s edition:
- What it means for Morgan Stanley to allow advisors to pitch a Bitcoin ETF to certain clients.
- A well-established cryptocurrency-focused super PAC has announced its support for 18 House candidates.
- Let’s take a look at the VIX over the first week of August, a month known for its sluggish stock prices.
This year has been full of milestone events for cryptocurrency ETFs, and a new potential ETF-related catalyst emerged this week amid market volatility.
Last month, a spot Ethereum ETF was listed on the US market and a company also filed for a fund that would hold Solana, but before that, a spot Bitcoin ETF was launched in the US in January, garnering attention from both the cryptocurrency and finance industries.
Remember when BlackRock’s iShares Bitcoin Trust (IBIT) recorded 71 consecutive days of inflows, which was an unprecedented record for a new ETF?
Currently, Morgan Stanley financial advisors can offer IBIT and the FidelityWise Origin Bitcoin Fund (FBTC) to certain clients, CNBC previously reported. ReportedIt starts today.
A Morgan Stanley spokesperson confirmed the CNBC report but declined to comment further.
This solicitation differs from previous solicitations these advisers made (and which rival advisers still make) in that they would only allow clients to invest in such products if they actively sought them out.
So why is this change a big deal? Well, financial advisors manage a lot of money. A lot of money. Tens of trillions of dollars.
Driven by retail investor interest (and some institutional buying), the U.S. spot bitcoin ETF recorded net inflows of $17.2 billion in roughly seven months of trading.
Industry insiders had expected it would take longer for large asset managers (wirehouses) to enter the market, given the hurdles of due diligence.
But now there is movement in that direction.
Having major Wall Street firms start advising their high-net-worth clients on these products marks the next “big step” in bitcoin adoption, said CK Chen, co-founder of ZX Squared Capital.
“This education process may be long, but it could have a huge impact on making the digital asset class part of a long-term investment portfolio, rather than short-term trading and speculation,” Zheng told Blockworks. “This is the only way to systematically realize Bitcoin as part of a diversified portfolio.”
Bloomberg Intelligence analyst Eric Balchunas explained Morgan Stanley’s move in a different light during a webinar on Wednesday: “It’s like asking Whole Foods to carry a new organic salad dressing,” he said.
“Otherwise, you have to go out and sell your products guerilla-style,” he says, “which puts your products on the shelves where a lot of people can see them.”
As CNBC noted, Morgan Stanley’s roughly 15,000 advisors can only pitch bitcoin ETFs to clients with net worths of more than $1.5 million and a relatively high risk tolerance. These investments are intended for taxable brokerage accounts, not retirement accounts.
Bloomberg Intelligence’s James Seifert noted that not all advisors will recommend their clients invest in BTC funds, adding that if they do, it’s likely to be a “small position” in the 2% to 3% range.
Still, industry observers expect other financial firms, including UBS, Bank of America Merrill Lynch and Wells Fargo, to eventually follow suit.
Edelman Financial Services founder Rick Edelman said in January that he expects financial advisors to allocate more than $150 billion to physical Bitcoin ETFs over the next two years.
Federico Brocate, head of U.S. operations at 21Shares, told Blockworks that U.S. advisors tend to be the largest buyers of ETFs in general, and he expects to see a similar trend in the crypto space.
The short-term impact of Morgan Stanley’s move on Bitcoin ETF inflows is difficult to gauge, as the U.S. BTC fund has seen around $550 million in assets flow out of the fund over the past three trading days.
Balchunas said that while the recent “face-ripping sell-off” may make qualified Morgan Stanley clients hesitant to invest in BTC right away, it’s hard to bet against the BlackRock and Fidelity-backed asset class in the long term.
Given the careful attention big financial companies pay to assessing and capturing demand, this seems a fair enough take.
— Ben Strzok
$1.9 billion
Cryptocurrency exchange Binance recorded inflows over the past seven days, with the majority of the inflows occurring in the 24-hour period from Monday to Tuesday, according to data from DeFiLlama.
Binance CEO Richard Teng said the $1.2 billion net inflow in 24 hours was “one of the highest volumes we’ve seen on Binance so far this year.”
The heavy trading day came as the cryptocurrency market continued to experience heightened volatility due to a massive sell-off in stocks. Bitcoin was down 1.6% (over 24 hours) as of 2 p.m. ET on Wednesday, making the largest crypto asset 16% lower than it was a week ago.
Ether was similarly down 5% as of 2 p.m. ET, and is down 28% over the past seven days. data From Coinbase.
More support for pro-crypto lawmakers
Cryptocurrency-focused super PAC Fairshake is adjusting its TV ad slots for November.
The group announced Wednesday that it had begun taking reservations for its “first wave” of ads — worth $25 million — in support of 18 candidates vying for seats in the U.S. House of Representatives.
FairShake is financially backed by nine Democrats and nine Republicans, and said in a statement that it believes there is “broad bipartisan agreement” that cryptocurrency and blockchain are a critical part of the future economy.
“We will continue to commit resources to supporting leaders in both parties and both houses of Congress who are committed to getting things done, working with industry to pass responsible regulations that drive innovation, create jobs, and maintain America’s global leadership,” the super PAC added in an email.
The support covers candidates in 13 states, including four Republican senators in California (David Valadao, Mike Garcia, Michelle Steele and Young Kim), two Democrats in New York (Pat Ryan and Tom Suozzi) and two Democrats in Illinois (Nikki Budzinski and Eric Sorensen).
Everyone voted for Financial Innovation and Technology for the 21st Century (FIT21) Activities, According to Support cryptocurrencies. The House of Representatives passed the bill with bipartisan support in May.
The latest ad spending update comes after Rep. Cori Bush (D-Missouri) lost Tuesday’s primary to Wesley Bell. FairShake has spent roughly $1.4 million running against Bush, whom the group calls “the latest anti-crypto and Elizabeth Warren-endorsed member of Congress to lose his seat.”
Fairshake also poured about $2 million into the campaign against Rep. Jamaal Bowman, a New York Democrat who lost to Westchester County Mayor George Latimer in the June primary. The bulk of the super PAC’s contributions, about $10 million, were directed to the campaign against Rep. Katie Porter, a California Democrat who lost to Rep. Adam Schiff in the March primary.
It is worth noting that despite Fairshake’s funding of these elections, Bush and Bowman faced even stiffer financial opposition from the American Israel Public Affairs Committee (AIPAC).
— Ben Strzok
VIX Update
At the end of July, I wrote that the stock market had not been doing so well in August. Now that we are seven days into the month, it’s time to take a look back.
August hasn’t typically been a great month, with the S&P 500 and Nasdaq Composite down 1.6% and 2.1%, respectively, in August 2023. But the start of this month has been particularly turbulent.
As of mid-trading Wednesday, the S&P 500 had fallen 3.4% since Aug. 1. The Nasdaq Composite Index had fallen 4.5%.
The VIX surged to 55 on Monday, its highest since March 2020. It eased to about 26 on Wednesday after hitting 38.6 on Tuesday, but the volatility index is still up over 60% over the past five trading days.
But the crisis isn’t over yet. DataTrek Research co-founder Nicholas Colas says the VIX is headed for levels above 35 by the end of the month. It’s rare for the VIX to spike just once a month.
Colas said a VIX of 35.3 would be worth watching because it’s two standard deviations above its long-term average. The VIX has exceeded 35.3 in past periods of volatility. a lotFrom 2020 to 2021, there were 50 occurrences. From 2008 to 2010, there were 157 occurrences.
The VIX has only been in the 20s a few times this year, all of which have happened this month. Remember, volatility tends to be a leading indicator, so it may take a few weeks for these numbers to be reflected in stock prices, but stocks appear to be continuing their cautious recovery.
— Casey Wagner
Bulletin Board
- The SEC filed its first federal court arguments this week since the Supreme Court’s Chevron decision. The decision asserted that the agency still has the authority to enforce new climate and emissions reporting requirements.
- The Crypto Market Integrity Coalition, which is made up of 50 member organizations including Circle and Coinbase, sent a letter to President Biden and Vice President Harris on Wednesday calling for greater collaboration from the Administration and Congress to develop a regulatory framework for digital assets.
- new study A report from the Federal Reserve Bank of New York concluded that sanctions imposed by the U.S. government against cryptocurrency mixing service Tornado Cash in 2022 were somewhat effective, but cooperation was ultimately “mixed.”
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