Today, you can log into your brokerage account and gain direct exposure to Bitcoin by buying one of the 11 newly-approved ETFs. Well, unless you use Vanguard.

We’ll have much more below, but the approvals are seen as a watershed moment in the 15-year-old crypto industry.

💭 We want to know: Will you allocate portions of your brokerage or retirement accounts to any bitcoin ETFs? (Answer our poll at the bottom of this newsletter to tell us.)

— Matthew & Shawn

Here’s today’s rundown:

Today, we'll discuss the three biggest stories in markets:

• The Bitcoin ETF is here

• Banks game a rescue plan meant to save them

• OpenAI debuts new GPT Store

All this, and more, in just 5 minutes to read.

Chart(s) of the Day

In The News

👀 At Long Last, the Bitcoin ETF Has Arrived

Finally, at long last, the long-awaited day arrived Wednesday: Bitcoin ETFs are here, allowing investors the ability to buy funds directly tied to the spot price of the cryptocurrency. Now, investors can buy bitcoin as easily as stocks or mutual funds. 

The approval is being hailed as a landmark event in the adoption of bitcoin by mainstream finance, a historic day for the burgeoning asset class. The ETF gives institutions, advisors, and individual investors a way to buy exposure to bitcoin, which bitcoin bulls see as just another step forward for the nascent asset. 

• On Wednesday, the SEC approved 11 spot bitcoin ETFs after the market close. Trading began today, Thursday, Jan. 11. 

Bull market: Bitcoin has risen about 10% in 2024, 160% over the past 12 months, and 1,183% over the past five years. Though coins were trading for less than $30,000 in October, they’re now trading at around $46,000 per coin, the highest level since late 2021, which marked the end of the last bull market. 

• The ETFs are just another way for investors to get bitcoin exposure without owning the asset.
  

• There already were closed-end funds owning bitcoin (GBTC), ETFs tracking bitcoin futures (XBTF), and companies that are more direct plays to it, such as MicroStrategy and Coinbase. (Coinbase is listed as the custodian on eight of the 11 spot-bitcoin ETF applications.)

Big players: All 11 applications filed by asset managers, including BlackRock, Fidelity, ARK, WisdomTree, Bitwise, Valkyrie, and Grayscale have been greenlighted. 

• “Today is a monumental day in the history of digital assets,” said the chief investment officer of one ETF issuer.

SEC Chair Gary Gensler has been, uh, less enthusiastic: “Investors should remain cautious about the myriad risks associated with bitcoin and products whose value is tied to crypto,” he said, adding that crypto assets can be “exceptionally risky and are often volatile.”

Why it matters:

Advisors and asset managers controlling trillions of dollars of private wealth might now be more willing to allocate a tiny percentage of a client’s portfolio to bitcoin via the ETFs. 

• “The approval means that both retail and institutional investors now have the ability to diversify their portfolio with crypto exposure without worrying about the complicated issues of custody,” noted a Duke finance professor.
  

• Some of the new funds will compete on cost: Fees for some funds range from zero to as high as 1.5%. 

That’s not all: Keep an eye on what the SEC does about applications to launch the first ETFs tracking the second-largest cryptocurrency, ethereum.

• The SEC deadline to approve or reject those funds is this May.

Read more

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🎮 Banks Game a Fed Rescue Program Meant to Save Them

We have some snake oil to sell you if this news comes as a surprise — an emergency program set up early last year to contain a regional banking panic is now being exploited as easy money by big banks.

• That is, the Bank Term Funding Program (or just “BTFP”) from which borrowing has peaked in recent weeks.

Expected rate cuts next year have renewed interest in the BTFP, enabling banks to “arbitrage” the difference between the cost to borrow from the Fed via this crisis-era program and the yield from immediately depositing the funds again at the Federal Reserve.

Say what? See, commercial banks are, well, banks for you and me, while the Fed is a bank for banks — bank-ception, to invoke one of our favorite Leo movies.

• The banks we store our money at, like JPMorgan or Bank of America, store their currency reserves with the Federal Reserve. And the Federal Reserve pays those banks an interest rate on their deposits.
  

• The easy money, then, for banks stems from a) borrowing from the Fed through the BTFP at low rates and b) earning more than their borrowing costs by depositing those funds back at the Fed.

How is that possible? Banks’ borrowing rate for BTFP loans is tied to future interest-rate expectations, which have dropped considerably as markets anticipate the Fed cutting rates this year while inflation cools.

• Of course, though, rates haven’t actually fallen yet, allowing banks to earn more on their deposits today at the Fed — based on current rates — than they pay for them (based on future rates.)

Why it matters:

Flashback to the collapse of Silicon Valley Bank, First Republic, and even Credit Suisse (roughly around the same time) last Spring. It was a time of fear in the financial system — fear that the Fed had hiked interest rates too fast and “broken” something.

There’s probably some truth to that. Rapid rate hikes from rock-bottom levels weighed on banks’ balance sheets, inflicting losses on their bond portfolios.

• A sudden rush of withdrawals forced Silicon Valley Bank to lock in losses to raise cash, and many worried a handful of other banks faced similar fates, yielding them insolvent.

Crisis averted = payday today: That didn’t happen, in part, because of the BTFP. The Fed rushed to the scene, promising to lend banks money against their bonds, not at current market values, but at their face value — the amount to be received when the bonds are paid off.

• This temporarily relieved the balance sheet crises some banks faced with their bond portfolios, which was, ironically, caused by the Fed’s own inflation-fighting rate hikes.
  

• Now, the tables have turned. The Fed offers BTFP financing at below 5% interest rates while paying 5.4% to banks for their deposits, allowing banks to capture the difference.

And this isn’t lost on bank executives. BTFP loans jumped to $141.2 billion last week, up 25% from mid-November. But this isn’t, presumably, a sign of banking system distress; it’s just easy money.

• At least, it is until March 11, when the program is set to expire.

Read more

More Headlines

💬 Consumer prices rose more than expected in December

🧐 Can a new rule narrowing the independent contractor definition survive legal challenges?

💰 Microsoft briefly surpasses Apple as most valuable public company

🎷 Gen Z is fueling a jazz comeback 

🌎 The top 24 travel destinations in 2024, per Airbnb

💧 Scientists find 10-100x more plastic particles in bottled water than previously thought

🏈 Coaching legends Nick Saban, Pete Carroll, and Bill Belichick all parted ways with their respective teams this week

🥳 OpenAI Debuts New GPT Store

It’s been a few weeks since OpenAI’s drama with firing and re-hiring Sam Altman as CEO gripped folks’ attention, but the company commands attention like few others, meaning it can’t stay out of the spotlight for long.

This time, though, it’s under better circumstances. On Wednesday, the firm unveiled its GPT Store, a counter to traditional app stores, allowing users to list personalized chatbots (“GPTs”) for others to use.

• It also used the attention to highlight its new enterprise offering for businesses with less than 150 ChatGPT users, costing $30 per month per user. It includes shared workplaces and the chance for companies to build their own GPTs.

Wondering whether the GPT Store will be a success? CNBC reports that community members have already created over three million custom chatbots.

• The Store will boast leaderboards showcasing the most popular GPTs to download, with a revenue-sharing program for developers apparently coming soon, too.
  

• In November, Altman commented, “What OpenAI is really in the business of selling is intelligence — and that, and intelligent agents, is really where it will trend over time.”

Why it matters:

ChatGPT has more than 100 million weekly active users, making it a staple of the modern corporate world, but with a far swifter adoption curve than Excel and even email — 92% of Fortune 500 companies use ChatGPT.

• OpenAI has effectively channeled several new revenue streams from its ChatGPT product, helping the company reach an $86 billion valuation.
  

• At least, that’s the valuation employees will use in its looming “tender offer,” giving insiders the chance to sell their shares to outside investors.

Read more

Quick Poll

Yesterday, we asked: If your next flight is on a Boeing plane, how concerned about safety would you be?

— One very concerned reader said, “I will try to use Airbus, but if I have no other options, I will have to pay more attention to personal safety matters and carefully observe what the crew is doing.”

— One with no concern wrote, “Much more danger driving to the airport.”

— Added another, “I would avoid the 737 Max and feel comfortable flying other models.”

See you next time!

That's it for today on We Study Markets!

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