As the value goes up, heads start to swivel and skeptics begin to soften. Starting a new currency is easy, anyone can do it. The trick is getting people to accept it because it is their use that gives the “money” value.
Adam B. Levine, CEO of Tokenly
Thursday, the last day of July, seemed to get lost between Jay Powell’s comments about the prospects for lower interest rates at the conclusion of the Federal Reserve’s meeting on Wednesday and the market tumult on Friday, a result of the news of the slowdown in the rate of growth of the U.S. labor market. The commentary relating to the month’s stock market seemed at first blush a bit less rosy than the numbers relating to its performance would seem to warrant. The S&P 500 returned 2.24%. Information Technology stocks were +5.2%. The S&P Composite 1500, consolidating the returns of large, mid-cap and small cap stocks, was 2.18%. Offsetting those numbers though seemed to be others suggesting that this particular up move in the market might be getting a bit “long in the tooth.” Five of the S&P 500’s eleven sectors were actually down for the month. Utility stocks were the second-best sector returning just under 5% suggesting that capital may be increasingly drawn to preservation rather than return and foreign developed markets barely broke even though still having more than doubled “the 500’s” return year to date.
Since their inception cybercurrencies have been believed by a significant portion of the investing public to be an asset class not quite worthy of being taken seriously. July suggested quite clearly though that regardless of the opinion of some investors it is an asset in which the current administration and congress are VERY interested. In fact, the week of July 14th was anointed “Crypto Week” during which congress advanced three bills relating to cybercurrencies including most notably The GENIUS (Guiding and Establishing National Innovation for US Stablecoins) Act. The effect of the legislation is to wrap the Crypto Universe in a veneer of institutional legitimacy and to plant it in the middle of the financial system as well as the financial markets of this nation. With this very recently emerging existence of a new state of reality it may be incumbent upon investors to elevate the level of their understanding of it.
Bitcoin was birthed in November 2008, an outgrowth of the degree of distrust in the “legacy” financial system resulting from the Global Financial Crisis. Part of its appeal was that it was fully transparent trading on an electronic ledger (block chain). With its number of units doubling every four years (referred to as its “halving) and with its size “capped” at 21 million, a level it has now nearly reached, it was viewed by its advocates as offering a superior means of wealth preservation. Since its inception it has demonstrated an almost unparallelled ability to create wealth as well as its loss increasing twenty-fold from March 2020 to November 2021, declining 75% through the end of 2022 and since then increasing seven-fold. Bitcoin represents approximately half of the $2.4 trillion crypto markets and is a tenth of the $14.7 trillion gold market, 2% of the US equity market and 5% of publicly held US treasury debt. Bitcoin, while originally created as an alternative currency, now primarily acts as a store of value much like gold.
As Bitcoin’s role as a transactional currency has declined that role has been assumed by stable coins, a “token” (digital representation) often as $1.00 based on the same block chain technology supporting Bitcoin and also providing its holders a means of utilizing its value to purchased goods and services in the “real” economy. US Treasury Secretary Scott Bessent was quoted on June 12th as predicting the stable coin market could exceed $2 trillion by 2028. In the past several years, concerned about a possible lack of demand for longer term US treasury debt, the treasury has shifted an increasing share of its issuance to treasury bills with maturities of one year or less. It is likely not a coincidence that the GENIUS Act is supporting the growth of the stable coin market through its being brought under the US securities regulatory system. If the stable coin market provides an increasingly larger market for the purchase of US treasury bills, and if higher Bitcoin prices contribute to an increase in the size of the stable coin market, then perhaps investors may wish to consider the degree of interest of our government in higher Bitcoin prices.
Client portfolios averaged a rate of return of 0.52% for the month and are at 9.35% for the year. Equities returned 1.46%, fixed income -.20% and structured securities led by gold and variable rate securities 3.26%.
Mark H. Tekamp