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Market Pulse
Monday, September 4, 2023

The persuasive power of statistics, a Bitcoin ETF, and China’s solar playbook

Welcome to this week’s Market Pulse, your 5 minute update on key market news and events, with takeaways and insights from the Sidekick Investment Team.

In this week’s edition we have:

  1. “Lies, damn lies and statistics”
  2. Shot fired in the battle for a Bitcoin ETF
  3. China dusts off its solar panel playbook

Read the full Market Pulse below, or if you want to access it on the go, download the Sidekick app.

Cyril (Chief Investment Officer), and the rest of the Sidekick team.

It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

1) “Lies, damn lies and statistics”

Government statisticians often revise GDP growth rates retrospectively and, late last week, we saw just such a revision from the UK Office of National Statistics (ONS). It's not often we see a revision quite like this however. The sheer magnitude of the revision caught many economists by surprise.

Thanks to more detailed survey data, the ONS revised up UK GDP growth for 2021 and, as a result, the UK economy is almost 2% bigger than previously thought[1]. This is great news of course and it also completely changes the narrative for the post-pandemic UK recovery.

The main narrative around UK economic growth over the last few years has been that the UK has been an outlier in the G-7. And not in a good way. As little as a few weeks ago economists still believed that the UK economy was smaller than it was pre-pandemic[2]. But, according to the revised data, the UK economy actually surpassed its pre-covid peak in late 2021, more than a year and a half ago, and has powered on since then. In fact, the UK post-covid recovery was as strong as that of France and better than Germany. Only the US and Canada did better post-pandemic[3].

So what does this mean for us here in the UK? Some might think this is all rearview mirror stuff and not that important but we think it is very important. First, it completely invalidates the overly pessimistic narrative that the UK economy was performing much worse than its peers post-covid. The pessimists were proved wrong. The UK is no longer the ‘sick man of Europe’ as it has often been referred to[4]. The more upbeat narrative around the UK economic recovery could impact voter decision-making in the future. Secondly, it means the UK debt to GDP ratio is somewhat better than previous estimates. This could help to improve investor sentiment regarding UK assets. Thirdly, it probably means the UK has less ‘catching up’ to do than previously thought. This could mean growth going forward could be somewhat lower than previously expected.

Our title, ‘lies, damn lies and statistics’ is a phrase that was popularised by Mark Twain. It describes the persuasive power of statistics and how it is often used to construct compelling narratives. While we are firm believers in an evidence based investment approach, we view this as a reminder that all statistics, and especially outliers, should be regarded with a healthy dose of suspicion.

2) Shot fired in the battle for a Bitcoin ETF

Companies have been trying to launch a Bitcoin spot ETF in the US for years but so far, more than 30 applications have been denied by the SEC, the US financial regulator[5]. This status quo could change over the coming months after a landmark court ruling against the SEC.

Asset management firm Grayscale has applied to the SEC to convert its popular Grayscale Bitcoin Trust into an ETF but the application was denied. Grayscale already holds more than $16bn in Bitcoin and they believe that a spot ETF could unlock billions of dollars in additional investment, mainly from institutional investors[6].

Grayscale is not the only company trying to launch a spot Bitcoin ETF. The world's biggest asset manager, Blackrock, is also trying to get in on the action. But despite Blackrock’s size and reputation, the SEC still said no. The SEC has made it clear that they believe the unregulated nature of the crypto space increases the potential for fraud and market manipulation. They have also expressed concern that Bitcoin’s volatility might be too high for ordinary investors[7].

After the SEC rejection, Grayscale decided to sue and, last week, a US court found in favour of Grayscale. The judge said a spot Bitcoin ETF is similar to other products already approved and the SEC rationale for rejecting the application seems ‘capricious’. While the court did not order the SEC to approve the application, they did order the SEC to review the application again[8].

What does this mean for investors in the UK? Just because the SEC might soon approve a Grayscale or Blackrock spot Bitcoin ETF in the US doesn’t mean it will automatically be available to UK based investors. But it does probably mean that it might become available at some point in the future. Blackrock has many ETFs available in the UK and if a Bitcoin ETF proves very popular in the US, we see no reason why they won’t offer a similar product in the UK.

3) China dusts of its trusty solar panel playbook

China has a tried and tested strategy to capture a large share of the market in fast growing global industries. They dominated the solar panel industry through a combination of generous government subsidies and cheap high-end manufacturing. Today, China's share in the manufacturing of solar panels exceeds 80%, more than double China's share of global demand[9].

In the past, solar panel manufacturers in other countries have complained that they cannot compete with Chinese players that have access to government subsidies but the fact remains that China has been instrumental in bringing down the cost of solar panels. This sharp reduction in costs has most likely led to an acceleration of the clean energy transition.

Now, China is doing it again. This time with batteries for electric vehicles. One of the main reasons electric cars are often more expensive than traditional counterparts is the high cost of electric vehicle batteries. As an example, the battery on a Tesla model Y costs around £10,000, almost a quarter of the total car price[10].

We can see some evidence that China is following its solar panel playbook. China is building battery plants far beyond what is needed to supply domestic demand. Current Chinese production of EV batteries is double what they need domestically this year and, based on current plans, production will be up to 4 times more than domestic demand by 2027[11].

Some market participants are worried that, like with solar panels, China will dump excess production in international markets at prices other manufacturers can’t match. This is clearly a risk and it could make life very difficult for battery manufacturers outside of China. It also risks a repeat of the boom and bust cycle like we’ve seen in the Chinese solar panel and real estate markets.

It’s difficult to tell who the winners and losers might be in the race to supply the world's auto manufacturers with cheap EV batteries, but we think it’s important to keep an eye on the bigger picture here. The quicker we can reduce the cost of EV batteries, the quicker we can transition to a cleaner and more sustainable future.


[1] https://www.ft.com/content/19746fd9-d5d0-4e02-920c-745611705ecf

[2] https://www.ft.com/content/19746fd9-d5d0-4e02-920c-745611705ecf

[3] https://www.spectator.co.uk/article/gdp-revisions-show-uk-economy-almost-2-larger-than-thought/

[4] https://www.ft.com/content/508dee91-f42f-4662-892c-bb7219f02401

[5] https://www.investmentweek.co.uk/news/4123659/us-court-rules-sec-improperly-rejected-bitcoin-spot-etf

[6] https://www.bloomberg.com/news/articles/2023-08-29/us-court-paves-way-for-first-bitcoin-etf-in-grayscale-ruling

[7] https://www.reuters.com/business/finance/whats-stake-grayscales-spot-bitcoin-etf-case-against-sec-2023-08-29/

[8] https://www.ft.com/content/5a90b1ab-e9fc-4620-aeb7-6d0095efca8f

[9] https://www.iea.org/reports/solar-pv-global-supply-chains/executive-summary

[10] https://history-computer.com/how-much-does-it-cost-to-replace-a-tesla-battery-it-depends/

[11] https://www.ft.com/content/b6038e51-7b5b-4f97-a5da-9202e71562fc


It’s important to note that the content of this Market Pulse is based on current public information which we consider to be reliable and accurate. It represents Sidekick’s view only and does not represent investment advice - investors should not take decisions to trade based on this information.

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