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DECEMBER 15, 2023

ETHEREUM SUPERPASSING BITCOIN

The recent price upswings of Bitcoin have generated excitement among investors, yet some experts are betting on Ethereum to outshine Bitcoin in 2024. While optimistic voices on Crypto Twitter have anticipated a new bull run with Bitcoin’s resurgence, JPMorgan analysts have expressed doubts. They question the potential impact of potential spot Bitcoin ETF approvals, pointing to the weak demand for existing spot Bitcoin ETFs in Europe and Canada. Instead, they anticipate significant growth for Ethereum in the coming year, thanks in part to an upcoming upgrade to the underlying Ethereum blockchain. This upgrade, known as EIP-4844 or proto-danksharding, is expected to increase throughput and decrease transaction fees on the network, potentially recapturing market share within the crypto ecosystem. Furthermore, JPMorgan’s report has highlighted a recent boost in venture capital funding for cryptocurrencies, indicating a potential turnaround in the volatile crypto market. This pivot suggests the potential end of the Crypto Winter, as a revived venture capital activity in the crypto industry could signify a significant shift in the upcoming year.

RATE CUT RALLY

Based on Bank of America Corp.’s Michael Hartnett’s evaluation, there has been a substantial surge in the investment market, with investors demonstrating strong confidence in the expected series of central bank rate cuts slated for the coming year. The assets, such as distressed and heavily leveraged ones that were underperforming this year, are now being actively sought after, following the indication from the Federal Reserve about its plans to initiate rate reductions. It is anticipated that this upward trend in investment activity will persist until a significant resurgence in inflation occurs, potentially followed by a recession, as noted by Hartnett in a recent report. This mounting enthusiasm has led to a shift from cash hoarding to investing in stocks, resulting in global equity funds receiving inflows of $25.3 billion in the week ending December 13 – the most substantial eight-week influx since March 2022. Additionally, money market funds saw outflows of about $31 billion for the first time in eight weeks. Nonetheless, it is worth noting that despite the 23% S&P 500 rally, Hartnett remains bearish on stocks this year, expressing a cautious outlook, stating that historical data does not guarantee that continued cash outflows will necessarily translate to further gains for risk assets. Moreover, Hartnett believes that bonds and commodities will continue to serve as the safest investment options in the first half of 2024, especially as expectations for a soft economic landing come to fruition.

UNCERTAINTY DESPITE OPTIMISM

The Federal Reserve’s pivot has led to increased expectations for earlier and more substantial rate cuts in 2024, with markets now pricing in an 80% chance of the first cut in March. This change follows the Fed’s prediction of inflation falling faster and cooler-than-expected inflation data. Goldman Sachs, for instance, now forecasts three consecutive 25bp cuts in March, May, and June based on this new outlook. However, not all economists agree with the aggressive market pricing, as some, such as Wells Fargo, are projecting later rate cuts beginning in June. They argue that elevated inflation and solid employment growth could lead to a slower pace for rate cuts. Still, the Fed’s acknowledgment of being closer to implementing cuts rather than raising rates has been deemed important, though some caution that the market’s expectations for rapid cuts may be overdone. Nevertheless, the economic climate remains uncertain, with the potential for cost fatigue affecting consumer spending, and the looming question of whether a recession is still on the horizon.

TAX-FREE OPPORTUNITY

If you are thinking about selling investments or adjusting your brokerage assets next year, you might not have to pay taxes on the profits for 2024 as the IRS recently announced changes for 2024, raising the thresholds for long-term capital gains brackets, potentially giving you the chance to sell assets without increasing your tax bill. The adjustments might put you in the 0% capital gains bracket, allowing you to sell assets or rebalance your portfolio without owing taxes. The new income threshold for this bracket is $47,025 for single filers and $94,050 for married couples filing jointly. The higher standard deductions for 2024 can make you eligible for lower tax rates, and individuals with taxable income below these thresholds could avoid paying taxes on capital gains. This provides an opportunity for future tax planning, especially for retirees who have not begun receiving Social Security income and others with income fluctuations.

INTERNATIONAL NEWS

The eurozone’s private sector weakened at the end of the year, sparking concerns about the region potentially entering a recession as the S&P Global’s purchasing managers’ index fell for the seventh consecutive month in December, dropping to 47 – well below the 50 level indicating growth and going against economic forecasts. Both manufacturing and services sectors also showed a decline, as evident in the figures. This raised concerns, especially in Germany and France, the two largest euro-area economies, as employment fell in both countries. Furthermore, the downturn is attributed to factors such as geopolitics, customer reluctance, and the ECB’s efforts to combat inflation. Moreover, adding to the concerns, the European Central Bank’s (ECB) latest forecasts only predict a marginal improvement, creating a negative economic outlook, and although there is some mixed data on inflation, the overall economic outlook remains troubling.

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