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Agricultural ETPs took the lion’s share of flows
ETF Securities Weekly Flows Analysis – Agricultural ETPs took the lion’s share of flows
Highlight
- Agricultural ETPs garner the highest inflows in 9 years last week
- Gold ETPs extend outflows for the fifth week in a row
- Broad commodity basket ETPs face redemptions for the third week in a row
Agricultural ETPs garner the highest inflows since October 2009. Since the start of the year, agricultural commodities led by wheat, corn, cotton and soybeans have been spearheading gains across the commodity complex owing to supportive fundamentals helped by unexpected extreme weather conditions. In the case of wheat, severe hot and dry weather conditions that the main growing regions have experienced have driven concerns about lower global wheat production. According to the latest monthly July report released by the World Agricultural Supply and Demand Estimates (WASDE), international 2018/19 wheat supplies are forecasted to fall 9.3mn tons owing to lower production, which would mark the smallest supply in 3 years.
Last week, wheat prices also caught a tailwind subsequent to news that the Ukrainian Ministry was contemplating limiting the amount of milling wheat the country exports. In the case of corn, a positive demand story has been supporting prices high. After 5 years of surpluses, the corn market is expected to be in a deficit as consumption outpaces supply, driving corn stocks to a six-year low of 152 million tons, according to the US Department of Agriculture (USDA).
Meanwhile, the soybean market appears to be caught in the crossfires of the trade spat between the US and China. Despite being caught in this trade spat, concerns about drier conditions and diminishing soil moisture levels at an important time for bean development continue to support the soybean market higher. The cotton market also seems to be profiting from the USDA’s recent estimates that revised global supply downward and raised consumption estimates higher. Despite the ongoing trade frictions, as the fundamental outlook for most agricultural commodities improves, investors appear to be taking exposure via diversified agricultural commodity baskets.
Gold ETPs extend outflows for the fifth week in a row. Gold prices continued to face a number of headwinds last week, amidst the stronger US Dollar, the more optimistic outlook on the US economy at the Federal Reserve meeting and the positive non-farm payroll report in the US. Speculative positioning on gold futures reached a net short exposure of 41,987 contracts, as of 31 July 2018, according to Commodity Futures Trading Commission (CFTC), an oversold territory in our opinion and we expect a turnaround in gold prices to follow.
Broad commodity basket ETPs face redemptions for the third week in a row as the trade spat intensifies. The retaliatory tariff cycle between the US and China showed no signs of abating last week. Beijing confirmed it had prepared a list of US$60Bn worth of US products on which it would impose tariffs if the Trump administration did not dial back on its threat to hike tariffs on US$200Bn of Chinese products. Commodities prices continued to get whipsawed as sentiment towards the complex weakened.
Important Information
This communication has been issued and approved for the purpose of section 21 of the Financial Services and Markets Act 2000 by ETF Securities (UK) Limited (“ETFS UK”) which is authorised and regulated by the United Kingdom Financial Conduct Authority (the “FCA”).
Recent market movements reinforce the investment case for crypto index investing and we believe that now is the time to build a long crypto exposure via the Nasdaq Crypto Index (NCI) (or to boarden the exposure vs. a single asset Bitcoin ETF position).
Here are some commentaries from our Research:
• NCI surges +18% last week (Nov 3 to 10) while Bitcoin was up +15%: driven by market optimism following Trump’s election and a 25 bps rate cut by the Federal Reserve
• Bitcoin breaks new highs: Closed the week above $80k for the first time, leading a market rally
• Outperformance across NCI constituents:
o Smart contract platforms led gains:
Cardano: +72.6%
Avalanche: +31.4%
Ethereum: +27.2%
Solana: +25.4%
o All constituents (except LTC) outperformed Bitcoin’s gains, see below for last week:
• BTC Dominance tested 60% and retraced: Historically, this has either signaled the end of Bitcoin outperformance or the start of a powerful Altseason
• Strong performance outlook: Momentum in NCI’s broad diversification positions it well for potential long-term gains as macro and regulatory conditions improve
Nasdaq Crypto Index – Constituents performance Nov 3 – Nov 10:
Evolution of Bitcoin dominance:
Why consider Nasdaq Crypto Index (NCI) now?
• Diversification beyond Bitcoin: Capture both Bitcoin’s strength and the upside potential of emerging crypto assets in one allocation.
• Positioning for Altseason: NCI provides targeted exposure to key market segments poised to benefit from broader market growth.
• Current allocation:
One week after the US elections, bitcoin has been hitting new all-time highs. This price action reflects the fact that the results were an ideal outcome for bitcoin and other crypto assets—with both a pro-crypto president and Congress set to take the reins of the US government in January.
The support for crypto was overwhelming. There were 268 Congressional candidates and 19 candidates for the Senate that were elected and are considered pro-crypto, according to Stand with Crypto. This included the election of 50 of 58 candidates supported by the crypto industry.
But with change coming in 2025, what can investors take away from last week’s results? I think there are three things we know with certainty.
- Crypto will continue to be a political force: The election outcome might be the strongest signal we have seen that crypto is an asset class here to stay given the pro-crypto stance of President-elect Trump and many newly elected policymakers. Trump has supported big and bold ideas in this space, including supporting the US holding bitcoin on its balance sheet and the creation of a crypto advisory council to create supportive rules for the industry.
But this election will have an impact far beyond last week’s results. The engagement from the crypto community and industry in this election will reverberate into the next elections and those that follow, as policymakers are now grasping that—like the internet—crypto is a technology that should not be caught up in partisan politics. There were already signs of bipartisan support for the industry this year, but with such a definitive victory for pro-crypto candidates, both Democrat and Republican, the idea that Congress should try and stop this technology from being incubated in the US has faded away.
- The “generational shift” is happening: While there has been more support for crypto from Republicans than Democrats, I think this is a short-term dynamic that will not persist over time. What might be more important is the generational shift taking place, as younger generations of politicians embrace crypto while older generations remain skeptical. It’s not surprising that the most vocal critics of crypto tend to be relatively older, including Sen. Elizabeth Warren (75), Sen. Sherrod Brown (72), and Rep. Brad Sherman (70), while those who are embracing this technology—regardless of party affiliation—are much younger, including incoming US senators Tim Sheehy (38), Ruben Gallego (44), and Bernie Moreno (57). Over time, this generational gap might even become a more important distinction than partisan lines on this issue.
- It’s still early: Even with bitcoin’s rise over $82,000 this week, this is an asset class that is still in its early stages of adoption. Many investment advisors, wealth managers, and large institutional investors are still conducting their due diligence, and we think the political and regulatory environment next year will help them accelerate these efforts.
But we are still so early. And, given the cyclicality of this asset class, there is tremendous potential for this current environment being an excellent entry point. For example, one year after the 2016 and 2020 elections, bitcoin had returned 916% and 354%, respectively.
This performance tracks well with post-halving performance as well as favorable macro factors, such as lower interest rates in the US and economic stimulus in China increasing global liquidity and benefiting risk assets. These factors, along with the ongoing institutional adoption and a dramatically improving regulatory outlook in the US is setting crypto up for a very strong 2025.
Crypto is the election’s big winner
The new administration, together with a Congress more crypto-friendly than any other point in history, is poised to act quickly to ensure that the US maintains its leadership in digital assets. While there will be many uncertainties in the coming weeks and months regarding specific policies and personnel, we are clearly at an inflection point. Crypto has made its case to US policymakers and they have embraced it with open arms. This is a key factor setting 2025 up for what we believe will be an incredible year for this space.
For investors thinking about how to act based on the election results, we continue to advocate for taking a long-term view and getting diversified exposure to this asset class. We’ll continue to face uncertainty and volatility, but investors who maintain an extended horizon will benefit, just as they have in the past.
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