ARK Invest Report Highlights Economic Challenges for Cryptocurrencies in 2023
Summary:
ARK Invest, a $13.9 billion asset management firm, warns of economic challenges for the remainder of 2023, impacting cryptocurrencies like Bitcoin. Factors including interest rates, GDP estimates, unemployment, and inflation contribute to a bearish outlook. The divergence between real GDP and income, downward revisions in employment data, and the potential for stagflation add to the uncertainty. Cryptocurrency investors may face obstacles amidst lower economic growth and higher inflation.
Investor sentiment in 2023 has been volatile, and while stocks have performed well, a recent report from ARK Invest suggests that there may be economic challenges ahead. ARK Invest, with $13.9 billion in assets under management, is known for its CEO, Cathie Wood, a strong supporter of cryptocurrencies. In collaboration with European asset manager 21Shares, ARK Investment initially applied for a Bitcoin exchange-traded fund (ETF) in June 2021. Their most recent request for a spot BTC ETF is currently awaiting review by the US Securities and Exchange Commission (SEC) after being filed in May 2023. Despite ARK's positive outlook on Bitcoin, based on their research that highlights how the combination of Bitcoin and Artificial Intelligence could revolutionize corporate operations by boosting productivity and reducing costs, the investment firm believes that a Bitcoin bull run may face challenges due to the current macroeconomic conditions. ARK points to several reasons for their cautious stance on cryptocurrencies, including interest rates, GDP estimates, unemployment, and inflation. The report highlights that the US Federal Reserve (Fed) is implementing a tightening monetary policy for the first time since 2009, as indicated by the "Natural Rate of Interest." This rate, which represents an equilibrium point for the economy, is important, as whenever it surpasses the "Real Federal Funds Policy Rate," it creates pressure on borrowing and lending rates. ARK expects inflation to continue to slow down, driving the "Real Federal Funds Policy Rate" higher and widening the gap with the "Natural Rate of Interest." As a result, the report takes a bearish stance on the macroeconomic outlook. The analysts also draw attention to the divergence between real GDP and GDI (income). According to the report, GDP and GDI should align closely, as income should equal the value of goods and services produced. However, recent data reveals that Real GDP is approximately 3% higher than Real GDI, suggesting downward revisions in production data might be needed. The report also points out that US employment data has consistently been revised downward for the past six months. This trend reflects a weaker labor market than originally reported. Notably, the last time six consecutive months of downward revisions occurred was just before the Great Financial Crisis in 2007. Another concern mentioned in the report is "stagflation." The authors highlight the reversal of the trend of price discounts, driven by increased consumer spending. They refer to the Johnson Redbook Index, which tracks over 80% of retail sales data compiled by the US Department of Commerce, indicating that total same-store sales rebounded in August for the first time in 12 months, suggesting upward pressure from inflation. The aforementioned indicators suggest that ongoing uncertainty in the macroeconomic environment is likely to persist in the coming months. However, it remains uncertain how cryptocurrency investors will respond if this trend confirms lower economic growth and higher inflation, as this scenario is often considered unfavorable for risk-on assets.
Published At
9/7/2023 8:42:53 PM
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