Market Commentary — August 23, 2021

Stocks pulled back for the week, but not before the S&P 500 reached a new record high of 4480 on Monday. Small caps and energy shares were losers for the week.

There are plenty of negatives weighing on market sentiment including evidence of a slowdown in China, weaker than expected retail sales, and mixed housing data. Adding to concerns are the delta variant and the rise of the Taliban in Afghanistan after a hasty U.S. withdrawal.

Now that the SEC has signaled it may be receptive to a bitcoin ETF using futures, in the past two weeks ProShares, Invesco, VanEck, Valkyrie, and Galaxy have all filed plans for bitcoin futures ETFs. But investors may be ultimately disappointed by this construct.

Todd Rosenbluth, head of ETF and Mutual Fund research at CFRA, cautions that futures-based ETFs rarely replicate the performance of the underlying markets they track due to the pricing fluctuations between futures contracts and the spot market. There are also costs associated with the roll when contracts expire. Indeed, Bloomberg ETF analyst Eric Balchunas estimates the rolling process could cost investors at much as 10% a year, on top of the high expense ratio, expected to be as much as 1%.

Regardless of structure, the approval of the first bitcoin ETF would still be an industry milestone. In other crypto ETF news, investment firms Van Eck and ProShares have both withdrawn their applications with the SEC for approval of Ether futures ETFs, just two days after filing them, suggesting they were given feedback that even though there is also a futures market for Ether, such a fund was unlikely to gain approval.

Robinhood reported its first quarterly results since its IPO on July 29 and shared that crypto trading comprised 50% of its transaction-based revenue in the second quarter and that 62% of crypto revenue came from dogecoin, the meme-inspired digital coin originally started as a joke.

In Afghanistan, amid a nationwide cash shortage, run on the banks, and a plunging currency, cryptocurrency is emerging as an important lifeline. There is no PayPal, Venmo, or Zelle and Western Union has suspended services. But cryptocurrency is alive and well, providing a real-time proof of concept, use case.

Take care everyone and enjoy your last nuggets of summer.

Jane Edmondson
CEO and Co-Founder

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