Newsflash: inflation is not under control

Also the Bitcoin ETFs flow turns net positive and MicroStrategy, the ETF with extra steps

Welcome to the Friday edition of the Ecoinometrics newsletter.

Every week we bring you the three most important charts on the topics of macroeconomics, Bitcoin and digital assets.

Today we'll cover:

1. Newsflash: inflation is not under control

2. The Bitcoin ETFs flow turns net positive

3. MicroStrategy: a Bitcoin ETF with extra steps

Each topic comes with a small explanation and one big chart. So let’s dive in.

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In case you missed it, here are the other topics we covered this week:

• Ethereum is lagging behind Bitcoin: how long is that going to last?

• Is it still worth betting on the Bitcoin miners after the ETFs launch?

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Newsflash: inflation is not under control

We have the CPI inflation numbers for January in the US. Some of those aren't good. But to you and I that's not a surprise. 

The problem is services inflation. It is in a hot regime. We have been pointing at that for months.

Further progress towards the 2% inflation target depends on services inflation transitioning into a low volatility regime. The latest data point isn't helping with that. The last six months of month-on-month core services inflation rate is averaging a twice the pre-pandemic level.

The consequence is that the Federal Reserve can decide to delay the rate cuts until the downtrend is established. If Jerome Powell says that explicitly, who knows how risk assets (which have priced in those rate cuts already) could react.

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The Bitcoin ETFs flow turns net positive

When the Bitcoin ETFs launched I thought it would take a while for them to take off. 

But I was wrong. The Grayscale Bitcoin Trust situation is stabilizing. No huge outflows for them this week. And the result is that the aggregate net inflows for all the ETFs is starting to move the price.

To give you an idea, at the current rate the ETFs are capturing 33k Bitcoins every month or 0.15% of the supply every month. Apparently that’s a lot of demand to be absorbed by the Bitcoin market. And that's driving the price up. 

Nothing to complain about really.

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MicroStrategy: a Bitcoin ETF with extra steps

If you want to get exposure to Bitcoin you can invest in one of the many spot ETFs available. Most of them will do a reasonable job at tracking the price of Bitcoin.

Or you can do the same by investing in MicroStrategy... now there is less guarantees of what you are getting when you buy MSTR shares. 

When the stock price trades at a premium relative to their Bitcoin holdings they can decide to issue more shares. You could end up diluted in the process.

Or they could raise debt to buy more Bitcoins and in that case you'd get more leverage than you'd get with a spot ETF. But if they raise on bad terms they could also have to sell a portion of their BTC holding to settle it.

So many scenarios that make MicroStrategy a Bitcoin ETF with extra steps…

But given that MSTR still often trades at a premium to its Bitcoin holdings there is definitely appetite for these extra steps.

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That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts.

Cheers,

Nick

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