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Today’s Stories:
Crypto Funds See $767M Six-Week Inflow, Best Since 2021 Bull Market: CoinShares
CoinShares Digital Asset Fund Flows Weekly
Hong Kong Now Considering Spot Crypto ETFs for Retail Investors: Bloomberg
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This episode was hosted by Noelle Acheson. “Markets Daily” is executive produced by Jared Schwartz and produced and edited by Eleanor Pahl. All original music by Doc Blust and Colin Mealey.
Audio Transcript: This transcript has not been edited and may contain errors.
It’s Tuesday, November 7th, 2023 and this is Markets Daily from CoinDesk. My name is Noelle Acheson, CoinDesk collaborator and author of the Crypto is Macro Now newsletter on Substack. On today’s show we’re talking about crypto fund inflows, a development in Asia, the U.S. lending outlook and more. So you don’t miss an episode, be sure to follow the podcast on your platform of choice, and turn on notifications. And just a reminder, CoinDesk is a news source and does not provide investment advice. Now, a markets roundup.
After last week’s excitement, most markets are more muted so far this week, and this applies to crypto as well. According to CoinDesk Indices, at 9 a.m. Eastern time today, bitcoin was trading down three quarters of a percent over the past 24 hours, at 34,794 dollars. Ether was down 1.8%, trading at 1,874 dollars. Elsewhere, XRP, NEAR and Stellar’s XLM token are down 6%.
Arbitrum and Maker are down 4%. It’s not all red, though. Solana and Toncoin are up roughly 5%, Chainlink is up 2.5%, and Cronos is up 10%.
In macro indicators today, I want to talk about a banking report with a cute name that sheds a sharp light on the U.S. economic outlook. The Senior Loan Officer Opinions Survey, known as the SLOOS, is a quarterly survey conducted by the U.S. Federal Reserve of up to 80 large domestic banks and 24 branches of international banks. It asks bank representatives how they feel about lending practices, the state of loan demand, recent and potential policy changes, and other topics of current interest. It’s significant in that it is the most on-the-ground way to get a glimpse of just how much banks are willing to lend, and what kind of demand they’re seeing. If lending dries up, consumers spend less, while businesses can’t grow and may have to close. Whereas if banks start lending more, then we can probably expect more economic growth ahead.
Over the past few quarters, the percentage of banks that have been tightening their lending conditions was increasing. Tightening lending conditions basically means making it harder for businesses and individuals to get loans, and the data suggested that it was getting harder and harder. The latest report shows a turn, however. Just over 30% of banks are still tightening lending conditions, which sounds like a lot, but it’s down from almost 50% in the previous quarter.
Demand for business loans fell in Q3 but the net percentage of banks reporting this dropped from the previous quarter, so it sounds like the pace of the drop is slowing down. Consumer lending tells a different story – the proportion of banks reporting weaker demand for credit card loans, auto loans and other consumer products increased from the second quarter. In other words, the drop in demand for consumer loans is accelerating. This is hardly surprising, given the increase in interest rates. Yet again, the SLOOS report does not paint a great picture of what’s ahead for the U.S. economy. Lending is a key component of economic growth, and banks are largely stepping back from all but the safest borrowers.
The slight turn in the data on business lending, however, with fewer banks tightening loan conditions to corporates, gives a glimmer of hope that there could be some pickup in activity by the time the next report comes out. It’s a stretch, but it’s possible.
In stocks, the leading U.S. indices were largely flat yesterday as treasury yields stopped falling. After opening at just under 4.6% yesterday, the U.S. 10-year yields is now hovering at just above that level. Futures are pointing to a slightly soft opening.
In Europe yesterday, the main indices were also flat to slightly down, and so far today, this uncertain trend is continuing.
Asia saw more definitive moves, but not of the good kind. Japan’s Nikkei index dropped 1.3% today, while Hong Kong’s Hang Seng index fell by 1.7%. China’s Shanghai Composite was largely flat.
In commodities, oil climbed yesterday but has more than given up those gains today, with the brent crude benchmark falling 1.7% to trade at 84 dollars and 40 cents a barrel. Traders seem to be focusing more on the weakening outlook for demand in the face of a global economic slowdown than on the possibility of supply disruptions due to an escalation of the conflict in the Middle East.
Gold is also pulling back some today, trading down more than half a percent, at 1,966 dollars per ounce.
Stay with us – after the break we’re going to talk about an interesting development in Asia, and investment flows into crypto funds.
Welcome back! In this section, we’re going to talk about spot ETFs not in the U.S., but first …
Crypto asset manager CoinShares has published their weekly summary of flows of funds into listed crypto vehicles. Last week saw the sixth consecutive week of inflows, and here’s a surprising statistic: the total inflows over the past six weeks are more than in all of 2022. Yet again, most went into bitcoin, which accounted for over 85% of all inflows.
But here’s an interesting twist. You may recall when I spoke about fund flows last week, the second most popular asset was Solana, with ether suffering outflows. Well, that seems to have changed. This past week, ether was the second most popular asset, with its largest inflows since August 2022. Obviously, one week does not make a trend, but maybe we’re seeing the beginning of a turn in sentiment for ether?
Next, I want to address a potential big step for global crypto markets that has triggered some puzzling reactions in the crypto community. Hong Kong is contemplating allowing spot crypto ETFs for retail investors. According to the head of the region’s securities regulator, this is still at the proposal stage and no decisions have been taken. But they are at least thinking about it, which could end up being a very big deal.
One set of reactions I’ve seen on X, formerly known as Twitter, focuses on how China stepping up to fill a void left by Gary Gensler’s opposition to spot crypto ETFs. This is puzzling because there are already many crypto spot ETFs listed in non-U.S. markets, so there isn’t really a void. And anyway, it looks like the U.S. is about to list its first bitcoin spot ETFs, and is much further ahead in the process than Hong Kong.
Going further, I don’t think the Hong Kong securities authorities see the U.S. market as either a threat or an opportunity, since they serve very different investor bases. And Gary Gensler does not seem to be particularly worried about what other jurisdictions are doing. If he were, he’d be more focused on Canada, which has had spot crypto ETFs for years, and which is much easier for U.S.-based investors to access.
Another set of reactions I’ve heard is that this news is a nothingburger. Hong Kong is a relatively small market, very separate from China which is a really big market. Hong Kong’s market in terms of population is small compared to the mainland, with just over 7 million people vs China’s 1.4 billion. Its stock market is not that much smaller, however, with a market capitalization of around 50% of China’s.
And here’s the key reason why this announcement from Hong Kong’s securities regulator is significant: Chinese investors have access to the Hong Kong stock market through agreements between the Hong Kong stock exchange and China’s Shanghai and Shenzhen stock exchanges which allows investors in either to access the other.
So, crypto spot ETFs in Hong Kong could end up being a very big deal, especially given China’s history with bitcoin. In the early days of ecosystem growth, most bitcoin miners were based in China, as was most crypto speculation. Also, even after China’s ban on crypto trading in 2021, many Chinese have used crypto assets as a way to hedge against currency depreciation.
For this reason, we may see that there are limits placed on how much Chinese investors can invest in Hong Kong-listed spot crypto ETFs. But the market in China is so large that even limited flows could be significant. Combine that with the potential flows into crypto assets from the likely U.S. listing of spot crypto ETFs, and the narratives supporting the market get even more interesting.
