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Exchange Traded Funds Hit Record $2.865 Trillion In April; May Reach $5.9 Trillion By 2021

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Exchange traded funds (ETFs) – baskets of assets traded as stocks by investors and institutions that typically charge lower fees than mutual funds – hit a record $2.865 trillion in April, driven by rising stocks, according to a report from ETFGI, an ETF researcher.

Source: ETFGI

The ETFGI estimate is in line with a February report from PricewaterhouseCoopers that pegged ETF assets at $2.5 trillion and predicted they will rise to $5.9 trillion by the end of 2021, according to Investopedia. Nigel Brashaw, PwC partner and global ETF leader, said the estimates are based on survey data, analysis and modeling.

Milestone Reached Following Elections

The iShares ETF from BlackRock Inc. surpassed the $1 trillion asset mark for the first time in January, Reuters reported. The milestone came following a shift in markets following the November U.S. presidential election, carrying a stock rally.

ETFs’ low cost and tax efficiency is expected to drive this growth, along with investor disappointment with high fees and poor returns on actively managed funds.

The demand for ETFs has survived questions over the funds’ durability in periods of market stress.

Martin Small, the U.S. head of iShares, said clients are using iShares ETFs in place of individual securities to trade more efficiently than futures, individual bonds and swaps to assume long term positions.

Equity Markets Drive ETF Growth

“Investors continued to favor equities over fixed income and commodities as equity markets performed positively in April,” said Deborah Fuhr, ETFGI managing partner and co-founder. She said the S&P 500 was up 1%, while emerging markets and global equity markets outside the U.S. were both up 2% in April.
“Investors were captivated by a closely-fought first round of the French elections during April,” she said.

U.S. listed ETFs/exchange traded products (ETPs) gathered $36.09 billion in April, a record amount of net inflows for the month and marking the 14th straight month of net inflows, according to ETFGI, which according to its website is the leading independent research and consultancy firm on trends in the global ETF/ETP ecosystem, based in London, England.

Equity ETFs/ETPs took in the highest net inflows with $26.41 billion, followed by fixed income ETFs/ETPs with $8.83 billion. Commodity ETFs/ETPs suffered net outflows of $889 million.
Inflows year to date reached a record $169.71 billion compared to $45.31 billion last year.

iShares accounted for April’s largest net ETF/ETP inflows with $24.21 billion, followed by Vanguard at $9.93 billion and Schwab ETFs with $2.53 billion.

Year to date, iShares took in the largest net ETF/ETP inflows of $78.53 billion, followed by Vanguard’s $50.43 billion and Schwab ETFs’ $9.21 billion.

Passive ETFs To Lead Growth

Passive ETFs that track market indices will provide the majority of the next $1 trillion in U.S. ETFs, according to PwC’s Brashaw. PwC expects smart growth ETFs to be a more critical part of the market in the future.

Actively managed funds that are not transparent represent another segment of the market. The U.S. Securities and Exchange Commission (SEC) requires daily transparency of actively managed ETFs, Brashaw said. He said this segment of the ETF market will expand if the SEC eliminates the daily transparency rule, which does not apply to mutual funds. He predicts the transparency rule will be changed at some point in the future.

The transparency rule is less of an impediment to actively managed fixed income ETFs.

Cost Drives Passive Index ETFs

Low cost is the main consideration for passive index trackers, Brashaw said. For the other two types of ETFs, investment managers’ track records are the main differentiating factors.

The average ETF investor is usually younger or has higher net worth and more sophistication than the average investor overall.

Robo advisors tend to use ETFs on account of the lower cost. Robo advisors will face higher performance and digital delivery channel expectations over time.

More investment strategists are using ETFs for building portfolios, including some who completely use ETFs.

Bitcoin ETF Awaited

Cryptocurrency users, meanwhile, are awaiting the SEC’s approval of the first bitcoin ETF since it will make the cryptocurrency more accessible to the investors and enhance its credibility. The SEC rejected a bitcoin exchange-traded fund (ETF) sought by Tyler and Cameron Winklevoss in March, but the proposal is currently under review.

ETF holdings by individual investors have been stable at 45% to 55% of total U.S. assets even as interest from institutional investors and the ETF market itself has grown, according to Brashaw.

S&P 500 ETF Benefits

The S&P 500 is considered by many to be the best representation of the U.S. economy since it covers all the main economic sectors and covers about 80% of the country’s market capitalization. About $7.8 trillion of investor cash is held in the index’s equities, of which more than $2 trillion is in index ETFs.
Some S&P 500 ETFs do a better job of replicating the index benchmark while some do a better job at a lower cost.

Warren Buffet has suggested investing 90% of retirement funds in S&P 500 ETFs.

ETF Picks For 2017

Top ETF picks for 2017 according to Investopedia are as follows:

SPDR S&P 500 ETF (SPY)

Issued by State Street Global Advisors, SPDR S&P 500 ETF had $227 billion under management and has increased 4.13% year to date as of March with a 0.09% expense ratio.

SPY is a unit investment trust and technically not an ETF. It is the oldest of the S&P 500 benchmarked funds and has the most assets under management. The fund trades in excess of $25 billion daily, making it an attractive tactical trading instrument in addition to being a buy-and-hold investment.

iShares Core S&P 500 ETF (IVV)

With $94.5 billion assets under management, iShares Core S&P ETF gained 4.09% year to date as of March with a 0.04% expense ratio. The fund offers S&P 500 exposure at low prices. The fund is liquid for every class of investor, with more than 3 million shares trading daily.

Unlike SPY, the iShares Core S&P 500 is a true ETF, escaping the cash drag that is inherent in a unit investment trust.

Vanguard S&P 500 ETF (VOO)

With $61 billion in assets under management, the Vanguard S&P 500 ETF gained 4.09% year to date as of March with a 0.05% expense ratio. The fund offers low costs, high liquidity and offers large-cap coverage of an S&P 500 benchmark fund.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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3.9 stars on average, based on 8 rated postsLester Coleman is a veteran business journalist based in the United States. He has covered the payments industry for several years and is available for writing assignments.




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Analysis

Long-Term Cryptocurrency Analysis: Bearish Trend Intact Despite Explosive Rally Attempts

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The negative trend in the cryptocurrency segment continues to be dominant, with almost all of the top coins trading below the structural support levels that were broken during the summer months. Bitcoin is still above the $5850 level, the last base support before last winter’s explosive speculative event, but Ethereum, Ripple, Litecoin, and the other main altcoins all continued relentlessly lower.

Most of the majors formed a bottom in August, even though Ethereum continued to lead the way lower amid the bleak sentiment and capital flight. Several oversold rally attempts already failed in the segment, leaving the long-term declining trends intact, with last week Ripple providing hope for bulls with its explosive move higher.

While some of the coins tried to follow Ripple higher, the development of a healthy leadership failed yet again, add our trend model continues to be overwhelmingly bearish from a long-term perspective. With that in mind, the short-term buy signals should still be treated cautiously by traders. The August lows are not in direct danger right now, and a more durable bottom might already be in, but a broader rally would be needed to confirm a trend change.

BTC/USD, Daily Chart Analysis

While BTC has been holding on relatively well during the summer months, in the past weeks, as the largest coin was hurt by selling related to large wallets. The coin failed to show bullish momentum despite its stability, and a break below the key long-term support zone near $5850 is still possible here.

Primary support is at $6275, and in the case of a breakdown below $5850, the next major support zone is found near $5000, while resistance is ahead at $7000, between $7200 and $7300, and in the $7650-$7800.

ETH/USD, Daily Chart Analysis

After spiking below $180 and forming a panic-bottom, Ethereum rallied up to $260, but due to the extent of the preceding decline, it didn’t reach the declining trendlines which dominated the market for several months. The coin has been leading the selloff in the segment, and now a re-test of the lows is once again likely, even if a more durable bottom is already in.

Short-term support is found at $200 and $180, while below the recent low, further zones are found near $160 and $130, with resistance zones ahead between $275 and$280, near $300, and in the $330-$335 zone.

(more…)

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 353 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Cryptocurrencies

Exploring the Korean Bitcoin “Kimchi Premium”

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Korean Kimchi Premium

If you have been trading Bitcoin for over a year, you will no doubt have heard of a weird market phenomenon called the “Kimchi premium”.

This is essentially the premium that Korean traders will pay over the international price of Bitcoin.

More specifically, it is the difference between the USD equivalent of the KRW price of Bitcoin vs. the USD price of Bitcoin on an international exchange.

This premium has varied anywhere from a few percent to over 20% in periods of severe market volatility. This opens up a whole host of questions around potential “arbitrage trades” between the markets.

So, can you take advantage of the Kimchi premium? Do other local market premiums exist?

In this post, we will give you everything you need to know about the Kimchi premium as well as the potential to trade it.

Kimchi Premium Example

Before we can take examine the implications of the Kimchi premium, it helps to take a look at a practical example of it in the markets today.

At the time of this post, the price of Bitcoin on an international exchange such as the Binance exchange is currently sitting at $6,618. However, if we take a look at the price of Bitcoin on a South Korean exchange such as Bithump, it is currently 7,540,000 KRW.

The current exchange rate between the Korean Won and the USD is about 1,100 KRW/USD. This means that the price of Bitcoin on an exchange like Bithump converted into USD is $6,854. This is about a 3.5% premium over the price of Bitcoin on Binance.

While this is far from the 20% premium that we have seen in the past, a 3.5% risk free profit would entice many traders who trade arbitrage. Yet, there are a number of factors that you need to take into account before you can consider attempting to arbitrage this market.

Triangular Kimchi Arbitrage

If a trader wanted to take advantage of this Kimchi premium, then they would have to buy Bitcoin in USD, send the coins to a South Korean exchange, sell them for Korean Won and then convert them into USD. Below is an example of the triangular arbitrage nature of the trade.

Triangular Arbitrage Example with Binance and Bithump

This is a simple example of how it will work. However, there are a few things that you should consider that could reduce the potential gains. These are fees, both on the exchange side as well as the fiat banking side. There is also the added scrutiny that comes from fiat currency exchange controls.

In terms of fees, there is likely to be a Bitcoin network fee as well as a withdrawal fee from Bithump. Then, when you try to send the funds abroad, you are likely to encounter more fees on the purchase of USD (rate above is spot) as well as international wiring fees.

When all of these fees are added up, it is likely that the Kimchi premium will be greatly reduced.

Another really important consideration is the requirements in order to obtain an exchange account and bank account in South Korea. There is no doubt that they will want to see proof of residency for the applicant.

So, unless you happen to have access to both a South Korean trading and Bank account, then you may find it difficult to ever place an arbitrage trade on the Kimchi premium.

However, I have observed similar market premiums on a number of other local currency exchanges in the past. I have seen premiums between the USD and the EUR, AUD, CAD, JPY and ZAR prices on these exchanges.

All that is required is you to observe the USD equivalent of the different currency prices for Bitcoin on Coinmarketcap. Interestingly enough, the South Korean exchanges have actually been removed from these calculations given the pricing distortion they had on prices in the past.

In order for you to make the most of these local market premiums, you have to understand why they are present.

Why Do they Exist?

Arbitrage opportunities exist in the Bitcoin markets because of the varying degrees of local supply / demand vs the demand on international markets. There could be specific reasons that an individual country has such high demand for Bitcoin

In the case of Kimchi premium, it is well known that South Korean users are much more bullish than their counterparts in other countries. This excessive demand will drive up the price of Bitcoin in Korean Won.

Taking a look at a more extreme example, you have the case of Zimbabwe.

Prices for Bitcoin in Zimbabwe have exceeded the international price by over 60% in the past. Bitcoin is so highly prized in Zimbabwe because of the hyper inflation that is currently gripping the country. The same can be said for other countries such as Venezuela or Argentina currently.

A 100 Trillian Bank Note in Zimbabwe. Source: citeco.fr

These premiums also exist because they are hard to take advantage of. For example, it would be very hard to use any traditional banking in countries such as Zimbabwe or Venezuela to take advantage of the premium. Who would trust their fiat money in a country where the inflation rate tops 100,000%?

There are also a number of countries that have exchange control limits on their citizens. On the individual level, these are likely to be quite low which means that eventually you will be stopped from converting your local currency for USD.

In the more secure western countries, the premium may still exist merely because there is not enough money pursuing the trade. This is the more favourable position to be in and it means that you as an individual have a slight advantage over larger hedge funds and institutional money managers.

These established markets with developed banking infrastructure are the most likely place for you to try and take advantage of these opportunities.

Conclusion

While markets have fallen considerably over the past few months, so has the Kimchi premium. This is probably as a result of South Korean trader’s lack of appetite for Bitcoin currently.

However, this is likely to turn the moment that the next Bitcoin bull market rolls in. South Korean traders will feel a great sense of FOMO and the local demand for Bitcoin is likely to increase.

As the Bitcoin markets are still relatively unexplored by large financial institutions, pricing inefficiencies are likely to remain along with the Kimchi premium.

Featured Image via Fotolia

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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5 stars on average, based on 3 rated postsNic is an ex Investment Banker and current crypto enthusiast. When he is not sitting behind six screens trading Bitcoin, he is maintaining his numerous mining rigs.




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Altcoins

Why Investors Should Pay Attention to Chainlink

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The blockchain industry is still very much in its early stages, and is seen as “the disruptor” to banks and many other industries. But that doesn’t mean there can’t be disruptors within the industry. Companies that pop up and begin to threaten incumbents in a certain space.

The last few days have shown that exact event occurring with a relative unknown called Chainlink. A few positive announcements have catapulted them up onto the map within the oracle space, and it is unclear where this will take them in the future.

What is a Blockchain Oracle?

Smart contracts are incredibly effective and novel ways of handling automation and decision-making, but they currently live inside the “walled garden” of their own ecosystem. We have discussed companies that connect different blockchains, as well as companies that use blockchain to connect real world assets, but there is also a need to connect data external to the blockchain.

The term oracle comes from Ancient Greek mythology where people didn’t have enough information to make decisions and would go to oracles for additional inputs. This is exactly what “oracles” aim to do. Connecting Dapps and APIs is just the beginning of the power of oracles.

Bitcoin and Ethereum operate in a form of isolation, with no connection to information outside of their respective chains. This makes validating conditions of smart contracts very difficult. Ideally, an oracle would be able to translate outside information into terms that Dapps could understand, thus triggering (or not triggering) the smart contract.

The idea is that much like Coinbase acts as a gateway for a large amount of the funds going into the blockchain ecosystem, one company would likely be able to become the gateway for much of the information flowing into the ecosystem.

Chainlink as a Competitor

Ever since people realized there was massive potential for whoever could figure out how to bring information like price changes, payments, or even something as innocent as temperature into the blockchain, more companies have been working on solving this problem. Oraclize has long been seen as the frontrunner within the industry, with other behemoths like IBM and Microsoft throwing their hats in the ring as well.

Chainlink was late to the game, but has made significant progress in the time they’ve been going after market share. With high profile partnerships including SWIFT payments, IC3, and Gartner, they are hardly an unknown anymore.

Their coin, LINK, is what is used to pay for an Oracle (or a node) to provide data. The services offered include certification, validation, and reputation services, all with the goals o f enforcing the overall integrity of the networks’ Oracles. Historically, Chainlink has been weak on the connection from and aims to let their technology do the talking. Right now, their mainnet is not yet live, and it still isn’t’t clear when it will be released. For this reason, the only way to really judge how they are doing is based on their partnerships and their listings.

Chainlink’s Recent Performance

In the last few weeks, we have seen Chainlink climb up the rankings to enter the top 20 ERC-20 tokens in terms of market capitalization. Up a wild 23.8% in just the last week, this is due to a combination of a few pieces of news. First, Bithumb announced that LINK would be listed on their exchange. Then, Chainlink announced a partnership with Gamedex where they would translate professional sports match results into the Dapp.

These few pieces of information alone don’t mean much, but there is often a momentum play that can be made as a company comes out of obscurity. Being in the top 20 of market capitalizations is a good tell.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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