The Federal Reserve Is Driving Bitcoin ETFs OutflowsAlso MicroStrategy Is Accelerating Its Bitcoin Purchases & Core Inflation Is Stubbornly High in the US
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:
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If you aren’t subscribed yet, hit the subscribe button, to receive this email every week directly in your inbox: The Federal Reserve Is Driving Bitcoin ETFs OutflowsThe next FOMC meeting is coming up at the end of the month, and that's a big deal for Bitcoin. At first sight, you might wonder why. The Federal Reserve isn't doing much these days. Barring any unexpected events, they likely won't make major moves in January. But it's not what they'll do, it's what they'll say that matters to the markets. After they signalled fewer rate cuts in 2025 and adopted a more hawkish tone, the Bitcoin ETFs saw outflows in half of all trading days after the FOMC meeting in December. As you can see on the chart, many of these outflows were substantial. Bitcoin wasn't the only asset affected by that FOMC meeting. The Fed's negative outlook did hurt the stock market, which in turn affects Bitcoin due to their correlation. We'll discuss what to expect from the upcoming FOMC meeting in our last chart. For now, it's clear that we need the Federal Reserve to send a reassuring message to the markets. This would help risk-on assets start catching a bid again, which could lead to steady inflows back into Bitcoin.
MicroStrategy Is Accelerating Its Bitcoin PurchasesOn the chart below we've mapped every Bitcoin purchase made by MicroStrategy since they started in 2020. The visualization shows:
As you can see, they've made a lot of purchases. And their early investments have generated impressive returns. Michael Saylor likely wishes they had more cash to invest in BTC during those early days. I’m half joking but that regret might be driving their current purchasing frenzy. Look at the bottom left of the chart. There's a cluster of large purchases from late last year, even with Bitcoin approaching $100,000. To match their 2020 ROI on these new positions, Bitcoin would need to reach almost $1 million per coin. Maybe one day. But in the short term, the absolute returns matter more than the ROI. With their current holdings of 450,000 BTC, even a more realistic 50% upside in this bull market would generate substantial dollar returns. Plus, they need to keep accumulating Bitcoin to justify their valuation. So keep stacking sats…
Core Inflation Is Stubbornly High in the USWe've been saying for years that bringing core inflation back to pre-COVID levels would be hardest in the final stretch. The data showed this clearly then, and it shows it clearly now. Only a recession crushing the labor market could have forced core inflation down faster. But (surprisingly to me) the Fed managed to avoid that scenario. So the Fed is stuck in a tricky situation:
This leaves the Fed with one option: wait and watch for signs that core inflation is trending down. Yes, this week's CPI data was well-received. But look at the year-over-year core inflation chart. There's little evidence of real progress. Core inflation has stayed on the same plateau for about 8 months. We'd need at least three months of clear downward movement to confirm a real trend. So celebrating now is premature. Let's hope the Fed doesn't turn more hawkish at the FOMC meeting later this month. That would create serious headwinds for Bitcoin and other risk-on assets (for more on that this).
That’s it for today. I hope you enjoyed this. We’ll be back next week with more charts. Cheers, Nick P.S. We spend the entire week, countless hours really, doing research, exploring data, surveying emerging trends, looking at charts and making infographics. Our objective? Deliver to you the most important insights in macroeconomics, Bitcoin and digital assets. Armed with those insights you can make better investment decisions. Are you a serious investor? Do you want to get the big picture to get on the big trades? Then click on the button below. Invite your friends and earn rewardsIf you enjoy Ecoinometrics, share it with your friends and earn rewards when they subscribe.
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Friday, January 17, 2025
The Federal Reserve Is Driving Bitcoin ETFs Outflows
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