The Fed, Iran, and Bitcoin

In trading this week, markets ended down despite a week-long upward trend. Major indices hit a big wall on Thursday, and fell triple digits in order to erase the week’s gains. By the end of the week Friday, markets were in freefall and continued to lose ground. On the whole, it was a difficult week that saw many investments lose value as only a few key stocks made any headway in the sea of red ink.

Iran Deal to Move Forward Next Week

Even cheaper crude oil could be on the way with the announcement that the deal easing sanctions on Iran will move forward. The move will clear the way for the country to begin exporting crude oil openly, rather than through black market deals with Russia and rogue nations like North Korea.
The deal is widely opposed politically, but the President has enough support to thwart any attempts to veto or block it.

Fed Refuses to Raise Rates in September

In a speech that mentioned the instability in China 16 separate times, Janet Yellin, the chairwoman of the Federal Reserve, laid out the reasons why rates won’t be going up this month. "The outlook abroad appears to have become more uncertain," Yellen said. She added, "The question is whether or not there might be a risk of a more abrupt slowdown."

This marks a big shift for the Fed, which has traditionally been unconcerned about their impact on foreign markets, at least publicly. The worry seems to be that any inflationary moves, like raising the prime interest rate, will have large ripples abroad, where currencies are nearing record levels of weakness in comparison to the US dollar.

And that might be the key to the Fed’s reasoning. When foreign currencies are weak, every move that America makes has oversized effects. Combined with structural economic weaknesses in Europe and, as Yellin said, in China, the inflationary move might have been too much for import markets to bear.

The next opportunity to raise rates comes in December, although some analysts are predicting March. Whatever the timing, international markets will have to be more stable than they already are, and ideally international currencies would be on stronger footing.

Bitcoin Gets an ETF

Cybercurrency and noted risky investment Bitcoin now has an exchange-traded fund. The fund is designed to mirror the price of Bitcoins and allow investors to take advantage of fluctuations in the price of the currency without having to actually buy Bitcoins themselves.

Up until this point no ETF had invested in Bitcoins, but ARK Financial is the first. Their Web X.0 ETF now holds a number of Bitcoins in order to provide a proxy for traders. One of the largest criticisms, though, has been the way that the fund has failed to mirror the price of Bitcoin, with large jumps and declines that aren’t reflected in the actual price of XBT, the Bitcoin currency ticker.

Matt Hougan, an analyst with ETF.com, was quoted as saying, "You're not really getting Bitcoin here. You're getting a Bitcoin derivative that kind of tracks the price of Bitcoin -- but not really well," said Hougan. "There are a bunch of leaps of faith in that chain of command."

Another factor to consider is that this investment isn’t purely in Bitcoin. The Web X.0 ETF invests in a number of disruptive technologies, including Netflix (NFLX) and LinkedIn (LNKD). That may not be what your average Bitcoin-interested investor has in mind when it comes to where to put their dollar.

Regardless, this is the first ETF with a presence in Bitcoin, no matter how tenuous, and it’s not likely to be the last. Although it’s not a pure-Bitcoin investment vehicle, if you’re interested in the web and disruptive technologies the fund might be worth taking a look at.
Published on Sep 19, 2015
By Aaron Phillips
Aaron Phillips is a financial researcher and journalist based out of Michigan. He regularly writes the IG Daily and IG Weekly columns.

Copyrighted 2016. Content published with author's permission.

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