| THE WORLD AS WE SAW IT IN NOVEMBER 2024 |
| The World of Cryptocurrencies |
October lived up to the Uptober meme, chiefly driven by bitcoin, which now sports a market dominance of 56.4%. Total crypto market capitalization grew by $130 billion to $2.54 trillion. The second largest cryptocurrency Ethereum (ETH), however, continued its relative downtrend, but in view of up to six planned upgrades to the core system resolving scalability and efficiency issues, many commentators see ETH’s current underperformance as an excellent time to accumulate coins.
In a new report by Matthew Siegel, Head of Digital Assets at VanEck, Bitcoin and ETH are praised as “digital gold” and ETH as “digital oil”. The report draws comparisons between Bitcoin and gold, but also says that the crypto king has additional advantages. “Bitcoin retains the scarcity similar to gold through mathematical consensus, while solving its problem of being difficult to divide, difficult to identify authenticity and inconvenient to carry. Its monetary attributes are gradually weakening while its asset attributes are constantly strengthening.”
The report calls Ethereum a “digital oil” and praises several features of the leading smart contract platform’s ecosystem: “Ethereum introduces Turing-completeness with its exclusive programming language (Solidity) and virtual machine (EVM), allowing developers to write and arrange a variety of complex smart contracts and applications … Its flexibility has been widely recognized in the fields of decentralized finance (DeFi) and non-fungible tokens (NFT) and is gradually extending to the physical infrastructure network (DePin)… Looking ahead, Ethereum developers will continue to work on finding the Pareto optimum between sustainability, security and efficiency.”
In October, exchange-traded bitcoin spot funds (ETFs) recorded record inflows totaling over $3 billion. BlackRock’s iShares Bitcoin Trust ETF (IBIT) is the fastest growing ETF in history and has over $30 billion in assets under management (AUM). According to Eric Balchunas, senior ETF analyst at Bloomberg Intelligence, IBIT reached this milestone in just 293 days, setting a new record. This pace exceeds the growth rates of the JPMorgan Equity Premium Income ETF (JEPI) and the major gold ETFs, which reached the $30 billion mark in 1,272 and 1,790 days, respectively.
The largest known national holders of bitcoin are: United States: approx. 203,239 BTC, China: 190,000 BTC, United Kingdom: 61,245 BTC, Ukraine: 46,351 BTC, Bhutan: 12,456 BTC, and El Salvador: 5,865 BTC. At the current BTC price, the officially known holdings of the six largest HODL countries amount to USD 37 billion, which is only around 23% more than IBIT’s AUM.
Matthew Ferranti of the Bitcoin Policy Institute authored the paper “The Case for Bitcoin as a Reserve Asset“, in which he argues that central banks should adopt bitcoin as a reserve asset to hedge against rising inflation, geopolitical risks, capital control risks, sovereign defaults, bank failures and international sanctions. The economist also emphasized Bitcoin’s lack of counterparty risk as an effective hedge against sovereign defaults — including the risk of financial sanctions — which Ferranti described as a form of “selective default” affecting countries such as Venezuela and Russia. Ferranti clarified that Bitcoin and gold allocations may not be the right solution for every central bank, but the nascent digital asset has the same store of value and hedging properties as gold — particularly against rapid currency devaluation. We expect many more countries to adopt bitcoin as part of their currency reserves.
As one of many examples, Florida CFO Jimmy Patronis suggested that the funds that support retired state employees should dabble in cryptocurrencies. In a letter to the executive director of Florida’s State Board of Administration (SBA), Patronis argued that his state should join others that have already made such investments. “Bitcoin is often called ‘digital gold,’ and it could help diversify the state’s portfolio and provide a secure hedge against the volatility of other major asset classes.” It would be unwise to overlook cryptocurrencies as an asset class as they “offer “potential benefits we cannot afford to overlook”.
Crypto prices and their extreme volatility were driven in part by FUD (fear, uncertainty, doubt) created by the SEC and in particular its chair, Gary Gensler (GG). Now the wind seems to be changing, with SEC Commissioner Mark Uyeda saying that the agency’s crypto policies and approach “over the last several years have been just really a disaster for the whole industry.” When asked what the SEC could or should do differently, Uyeda mentioned the “need to lay out some clear guidance and interpretations on what exactly falls within and falls outside of the securities laws.”
Republican congressman Tom Emmer went so far to publicly say about GG: “We could not have had a more historically destructive, or lawless, Chairman of the SEC”. It seems that GG’s time is up, especially if Trump wins the election, as during the Bitcoin 2024 conference in July, Trump said he would fire GG, which drew rapturous applause from the audience. No wonder. After all, according to the Blockchain Association, GG cost the crypto industry $426 million in litigation fees. And that is not including all the capital and brain drain from the US crypto scene to more welcoming jurisdictions.
According to Politico, Robinhood’s Chief Legal Officer, Dan Gallagher, is a contender for the chairmanship of the SEC. Be that as it may, it cannot get much worse and any change at the helm of the SEC will be greeted with enthusiasm by the crypto community.
A group backed by more than two dozen investors — including Citadel Securities and BlackRock — is planning to set up its own stock exchange in Texas to compete with the New York Stock Exchange and Nasdaq. The Texas Stock Exchange bears the initials TXSE and is pronounced “Texxie”. It has also adopted the nickname “Y’all Street,” will be based in Dallas and, after raising $135 million is expected to officially launch in late 2025 while trading is expected to commence in early 2026. The TXSE is designed to be more “CEO-friendly” reducing compliance costs. Most importantly, however, BlackRock and Co. plan to make it easier to trade tokenized Real-World Assets (RWAs) such as tokenized real estate, commodities, stocks, government bonds and art, as well as a host of others. After all, Larry Fink, CEO of BlackRock, sees tokenization as a technological revolution that will totally transform the traditional financial (TradFi) markets. Together with his buddies, he is just creating his own blockchain-based playing field. Let the games begin …
Tokenization is an international wave, or rather a tsunami. London-based pension giant Legal & General, with AUM of 1.4 trillion dollars, is planning to enter the tokenization space. The tokenization story has accelerated after BlackRock burst onto the scene with its BUIDL fund on the Ethereum blockchain. Others are available from Franklin Templeton, State Street and Abrdn. “We are evaluating ways to make Legal & General Investment Management Liquidity funds available in a tokenized format,” said Ed Wicks, Global Head of Trading at Legal & General Investment Management. “Digitization of the funds industry is key to improving efficiency, reducing cost and making a broad range of investment solutions available to a wider range of investors. We look forward to continued progress in this space.”
As Carlos Domingo, CEO of Securitze, recently noted, US Treasury bonds have long been the bedrock of the traditional financial system, serving as collateral for a variety of transactions, from repurchase agreements (repo) to derivatives trading. With an estimated $7.5 trillion in foreign holdings and over $4 trillion in daily repo transactions, these secure and liquid assets play a critical role in maintaining market stability and facilitating liquidity. Recently, tokenized Treasuries have evolved significantly from previous versions, which were typically non-transferable or had inadequate liquidation processes that were incompatible with new products. The total value of on-chain tokenized Treasuries has reached an all-time high of $2.24 billion. In contrast, stablecoins (aka tokenized dollars) are already worth over $177 billion, suggesting that tokenized Treasuries are just scratching the surface and are poised for rapid growth. And that’s just the government bond market. It’s not hard to see why Larry Fink is so committed to tokenized RWAs.
Staying with stablecoins. The total transaction volume involving stablecoins has reached approximately $20.1 trillion for the year with 3.5 billion transactions recorded. To put this into better perspective, Visa settled about $12.3 trillion in 2024. Stablecoins are increasingly being used to build robust payment systems on top of cryptocurrencies, facilitating remittance payments and simplifying cross-border trade transactions. The integration of stablecoins into existing payment rails is just one example of how cryptocurrencies are increasingly being used in the real economy.
Right down this alley comes an interesting takeover by fintech company Stripe, which has completed the acquisition of stablecoin platform Bridge for $1.1 billion. Bridge offers software tools that help businesses accept payments in stablecoins. It had previously raised $40 million in a Series A round, valuing it at $200 million. The $1.1 billion acquisition therefore represents a big jump from the company’s previous valuation and shows the growing importance of stablecoins for TradFi. Broker Bernstein noted in a statement that the Bridge transaction is the largest crypto acquisition by a major payments company to date. Companies like Bridge “play an important role by developing API software for businesses to integrate stablecoin payments into their regular payment experience,” the authors wrote. Stablecoins offer disruptive challenges to the TradFi banking system: “payments at scale without the involvement of a bank“. It’s so overdue …
Jeremy Allaire, CEO of Circle (USDC), says he can envision stablecoins reaching a 5-10% share of the $100 trillion global money supply in the next decade as the technology spreads like previous internet-based innovations such as video streaming and online shopping. This would be equivalent to 28-56 times the current market capitalization of stablecoins. And that might be on the low end in our view. And here is Jeff Bezos: “I think frugality drives innovation, just like other constraints do. One of the only ways to get out of a tight box is to invent your way out.” Tokenization certainly qualifies as a disruptive innovation.
And finally, the National Bank of Bahrain has announced the launch of its first Bitcoin investment fund targeting institutional investors in the Middle East Gulf Cooperation Council, which consists of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, i.e. highly liquid wells of oil money. Developed in partnership with digital investment firm ARP Digital, the fund offers investors the opportunity to participate in bitcoin gains capped at a predetermined threshold, with 100% loss protection. Abdullah Kanoo, Co-CEO of ARP Digital, said: “This structured investment opens new doors for investors looking for a calculated approach to digital assets”. They may have just created the first Shariah-compliant investment vehicle for Bitcoin. It’s definitely worth keeping an eye on.
| The World of Commodities |
The price of gold has risen more than the S&P500 this year. Both assets have rallied impressively. On a total return basis, gold is up 33.6%, while the S&P500 is up 19.6%. This is despite the frenzy surrounding artificial intelligence, which has fueled the imagination of equity investors. Several major banks expect the gold price to continue its rally into next year, as large inflows into exchange-traded funds (ETFs) are expected again and central banks around the world, including the US Federal Reserve (Fed), could make further interest rate cuts. Even after a strong 2024, the fundamental price drivers for gold still appear to have upside potential, from strong demand to slow supply growth to a new global liquidity cycle, according to Wells Fargo analysts. JPMorgan also remains very bullish: “Gold’s place as a central beneficiary of the global debasement trade is a common theme supporting bullish outlooks across the industry.“
Gold is rising despite the recovery of the US dollar. Historically, the gold price has moved in the opposite direction to the US dollar, so it is quite strange that both are rising simultaneously. In addition, long-term bond yields are currently rising again and the gold price is still strong. In the past, gold has benefited from negative real interest rates. This is currently not the case and the gold price continues to rise. So what is going on here? This unusual development can be attributed to a confluence of four factors:
1.) Geopolitical tensions,
2.) Central bank buying (all central banks currently hold 3 trillion dollars worth of gold – 35,000 tons or 12.1% of the world’s total gold reserves),
3.) concerns about the return of inflation, and finally
4.) the expectation of further interest rate cuts.
Even more politically driven than gold is the oil market. As an introduction, let’s recap what happened to oil prices after the most severe worldwide economic crisis since the Great Depression – the Global Financial Crisis (GFC) in 2008. Thanks to the cheap capital available following the GFC, production and growth were more important to oil and gas companies than profits, ushering in a period of extreme drilling. The subsequent explosion in production had predictable results. In the middle of the decade, the glut of oil that hit the market caused the price of oil to plummet from $100 per barrel in 2014 to less than $40 just two years later. The result was a wave of bankruptcies in the oil industry. This period is known as Shale 2.0. The oil and gas drillers who survived had to learn to make ends meet. This meant that they had to use earnings from existing wells to fund new growth and occasionally return cash to shareholders. This new era of capital discipline in the oil patch, which we’re still in today, is known as Shale 3.0. The profitable symmetry of Shale 3.0 is this: Not only are companies acting in the best interest of their shareholders by returning capital directly, but by doing so they’re also reducing global supply and thereby improving their future cash flows. For shareholders, this is a win-win situation. After all, even in a recession, people are still driving cars, trucks are still delivering packages and airplanes are still flying – just a little less. For this reason, the real driver of oil prices is almost always supply. And with Saudi Arabia still keen to push the OPEC quota cheats out of the market, it’ll make sure there is enough supply to keep prices down for some time.
Staying on the subject of energy, this time uranium. The global market for nuclear fission is expected to grow to $472 billion by 2030, with an additional compound annual growth rate (CAGR) of 6% between 2030 and 2040. This growth will be driven by increasing demand for clean, sustainable energy sources and advances in nuclear fission technology. Microsoft, Alphabet and Amazon have announced plans to power their new AI data centers with nuclear energy, and 14 of the world’s largest banks – including Bank of America, Citi, Goldman Sachs, Morgan Stanley and Barclays have pledged to fund a three-fold expansion of nuclear energy by 2050 (see Edition #42 for more details).
But what about supply? The OECD’s Nuclear Energy Agency (NEA) and the International Atomic Energy Agency (IAEA) have published a report stating that the world’s uranium resources are sufficient to support the long-term use of nuclear energy. However, they emphasized the need for timely investment in innovative mining and processing techniques to ensure a stable supply. Currently, the break-even price for uranium mining is $50 to $60 per pound. With spot prices rising to around $80, mining has become profitable again and growing demand is likely to drive prices up further in the coming years. Kazakhstan, Canada, Namibia and Australia together account for over 70% of the world’s uranium production.
The former CTO at Microsoft, Nathan Myhrvold, condensed the nuclear renaissance as a necessity for the AI revolution: “Nuclear energy is a baseload – meaning it’s power that you can run any time you want, day or night – and carbon-free.“
The Rest …
According to JPMorgan Private Bank, the average bull market in the S&P500 since 1950 has lasted about 4 years, which is roughly three times as long as the average bear market. Within this time frame, the S&P500 has risen by 110% on average, compared to the current 62% rise since October 12, 2022. So there still seems to be some room for further gains.
And according to Goldman Sachs (GS), the risk of an imminent recession is fading rapidly amid signs that the labor market remains solid. Jan Hatzius, Head of GS Research, explained that “our economists say there’s a 15% chance of a recession in the next 12 months”. This corresponds to the long-term average recession probability of 15%. The unemployment rate is back below the threshold that triggers the Sahm Rule, which we highlighted in Make-it Edition #41 and which identifies signals that may indicate the onset of a recession. The Bloomberg consensus, however, assumes an average probability of 30% for a recession in 2025. That is double the historic average. Time will tell. Should you wish to delve deeper into the GS universe, here is a safe link to above report: ‘The probability of a US recession in the next year has fallen to 15%’:
JP Morgan Asset Management recently published its Long-Term Capital Market Assumptions for 2025, which provide a comprehensive 10-15 year outlook for returns and risks across all asset classes. It forecasts an annual return of 6.4% for a USD 60/40 equity/bond portfolio over the next 10-15 years, down slightly from last year but still above the long-term average. Long-term growth prospects have risen, driven by robust capital investment, advances in artificial intelligence (AI), robotics and continued fiscal activism. Inflation is expected to be slightly above pre-pandemic levels, but the starting point for inflation is lower than in last year’s forecast, leading to slightly lower long-term inflation assumptions. Significant opportunities exist in infrastructure and other real assets that can provide stable returns and a hedge against inflation. The report emphasizes the importance of alternative investments for generating alpha and diversifying the portfolio. The overall outlook remains optimistic as investments increase and interest rates normalize. At the end of this Make-It Edition #43 you will find a secure link to the original document.
And according to a new study by the Boston Consulting Group, the global asset management industry showed some signs of recovery in 2023 as total assets under management (AUM) increased by 12% year-on-year to almost $120 trillion while 8.33% or $10 trillion thereof is managed by just one company: BlackRock.
As per Idan Levy of DC Finance, global family offices currently hold roughly the same amount of assets as BlackRock, i.e. $10 trillion. However, over the next 15 years, another $65 trillion will be transferred from baby boomers to the next generation. This will be the largest transfer of wealth ever recorded. The family office market is already larger than the entire private equity and venture capital industry combined, and its importance to global wealth distribution will only increase in the future.
The US Federal Reserve (FED) meanwhile has reduced the size of its balance sheet by 22% to $7.03 trillion since its peak of $8.96 trillion in April 2022. That’s $1.93 trillion which has been removed from the financial system. In relation to GDP, the level is now similar to that of 2014 (at about 25.6%). From the Fed’s perspective, it has pursued a tight policy and is close to its target.
On the other side of the planet, Vladimir Putin hosted the BRICS Plus meeting, which was attended by 36 countries. Reason enough to delve deeper. Let’s start with a brief history of the BRICS group. The term BRIC was coined in 2001 by economist Jim O’Neill of Goldman Sachs to describe the four fast-growing and future economic powerhouses of Brazil, Russia, India and China. The first BRIC summit took place in 2009 in Yekaterinburg, Russia. In 2010, South Africa was invited to join the group and the acronym was changed to BRICS. Then in 2024, Iran, Egypt, Ethiopia and the United Arab Emirates joined as official members.
According to the Council on Foreign Relations, BRICS aims to promote economic growth, political stability and cooperation between member states. The group also seeks to challenge the dominance of Western-led global institutions such as the International Monetary Fund (IMF) and the World Bank. In this context, Putin urged the creation of a new BRICS payment system that would offer an alternative to the global bank messaging network SWIFT and enable Moscow to evade Western sanctions. He described the new BRICS Plus trading currency as “faster, transparent and cross-border“. Does he have a new cryptocurrency based on Bitcoin in mind? It sounds like it. Time will tell, of course. However, such a construct would catapult the best-known cryptocurrency to unimagined heights.
Moving on to China: The Standing Committee of the National People’s Congress (NPC) – China’s highest legislative body – wants to pass a fresh fiscal package with new borrowing of over 10 trillion yuan ($1.4 trillion) in the next few years in order to revive the country’s weakish economy. The planned stimulus package amounts to 8% of China’s GDP. By comparison, 8% of US GDP would amount to $2.19 trillion. The second largest economy seems to have set itself the goal of reviving its economy, strengthening its banks and boosting consumption, leading to a steady rebound in Chinese share prices. As an international investor, it could be a smart idea to follow the money. Here is the founder and CEO of Baupost Group, Seth Klarman: “Investing is the intersection of economics and psychology.“
MAKE-IT CAPITAL FUND (the Fund)
| As a unique hedge fund for a comprehensive blockchain / cryptocurrency portfolio, the Fund allows investors to participate in the full spectrum of distributed ledger / crypto assets with just one investment. The Fund aims to reduce inherent risk and volatility without compromising performance by applying its proprietary 5-pillar strategy. The Fund is operated by Make-It Singapore and managed by Make-It New Zealand. The Fund is fully transparent and always trades at the exact NAV. |
The Fund had another good month. Only, the position in ETH was a drag on the overall performance, however, we are still believers in the long-term potential of ETH as it is not only ‘digital oil’ as coined by Matthew Siegel above but rather the Transmission Control Protocol/Internet Protocol (TCP/IP) of blockchain. In simplistic terms, TCP/IP is the language computers use to talk to each other on the internet. Unfortunately, it was not possible to invest in it directly at the time. ETH offers a second chance.
According to the study ‘ETFs and Beyond Study 2024′ by Charles Schwab, millennial investors are putting their money into crypto. Millennials, or Generation Y, were born between 1981 and 1996. The study looked at the investment behavior of 2,200 millennials to better understand how they approach different types of exchange-traded products. When asked where they would invest their money in 2025, 62% said they would invest in cryptocurrencies. American equities and fixed income investments came in second and third, respectively. Why does this matter, you might rightly ask? Well, over the next decade, $84 trillion will pass from older generations to younger ones, which is a huge boon for cryptocurrencies. After all, that means an influx of about $52 trillion will be looking for a new home in Bitcoin, ETH and all the other cryptos. That’s a lot of firepower.
We can’t help but be very optimistic about Bitcoin and cryptocurrencies in general for at least another year as two forces come together. Interest rate cuts and Bitcoin’s halving. The last time this was the case was in 2020, when legendary billionaire and hedge fund manager Paul Tudor Jones said that Bitcoin was the “fastest horse” in this environment. That was in May 2020, when bitcoin was trading at around $9,000 per coin. A year later, it was trading at more than $50,000. We now have a similar situation again. This time, Larry Fink, says that Bitcoin is very attractive. He sees a revolution in the financial system, triggered by the tokenization of assets and securities (please see above comments about the Texas Stock Exchange). Furthermore, he stated that he strongly believes in this asset class and that most people are still missing out on it. Very true.
As promised above, here is the link to the JP Morgan Asset Management study:
Thank you for your time and attention
Sincerely,
Philipp L.P. von Gottberg