Americans ramped up their spending at retail stores in April, a sign that consumers are still weathering the inflationary storm even as prices continue to hover near a 40-year high.
Retail sales, a measure of how much consumers spent on a number of everyday goods, including cars, food and gasoline, rose 0.9% in April from the prior month, the Commerce Department said Tuesday. That was in line with expectations from Refinitiv economists, but it marked a noted slowdown from the upwardly revised 1.4% gain in March.
The so-called core retail sales, which exclude automobiles, gasoline, building materials and food services and are most closely correlated with the consumer spending aspect of the nation’s gross domestic product, rose 1% in April.
People walk through a shopping area in Manhattan on June 7, 2021, in New York City. (Angela Weiss/AFP via Getty Images / Getty Images)
The April advance – which is not adjusted for inflation, meaning that consumers may be spending the same but getting less bang for their buck – was led by a burst in spending at bars and restaurants as well as on vehicles, clothing, furniture and electronics.
Receipts at gas stations actually dropped last month as prices at the pump briefly fell from highs recorded in March. However, gas prices have since notched a new record, climbing to a national average of $4.52 per gallon, up from $3.04 one year ago.
“American consumers continued to spend more at retail stores in April, despite inflation as lower gasoline prices helped to boost spending on discretionary items,” said Tuan Nguyen, a U.S. economist at RSM. “But it won’t last long as gasoline prices reached a record high in May.”
Signage displays fuel prices at a Shell gas station in San Francisco, California, on March 7, 2022. (David Paul Morris/Bloomberg via Getty Images / Getty Images)
There are other signs that inflation is beginning to weigh on consumers: Walmart reported earlier Tuesday that its profit took a beating in the first quarter of the year as the company grappled with soaring prices for everyday goods like food and fuel and higher costs from snarled supply chains.
The data comes as consumers face the worst inflation spike in decades The government reported last week that the consumer price index climbed 8.3% in April from the previous year, close to a four-decade high. The reading was much higher than economists expected and underscores that inflationary pressures in the economy remain strong.
Rising inflation is eating away at strong wage gains that American workers have seen in recent months: Real average hourly earnings decreased 0.1% in April from the previous month, as the inflation increase eroded the 0.3% total wage gain, according to the Labor Department. On an annual basis, real earnings actually dropped 2.6% in April.
Emergency funds are important should you be faced with an unforeseen setback like a sudden job loss, an unexpected car repair or a serious medical situation. If you tapped into or depleted your emergency savings during the pandemic, it’s vital to set a financial goal to rebuild an emergency fund. Experts suggest having enough money for six months of living expenses in an emergency fund.
Even if your budget is tight, there are ways to stash some cash each month toward emergency savings. “It may seem difficult to set aside savings when you are on a tight budget, but you have to think about it as having no other choice,” said Dawit Kebede, a senior economist for the Credit Union National Association, which advocates on behalf of America’s credit unions.
Why is an emergency fund so important to have?
Your emergency fund allows you to pay for unexpected expenses, like providing a cushion if you lose your job or face sudden financial obligations. If you don’t have savings, you may have to rely on credit cards.
“Most people rely on high-interest rate credit cards to pay for unforeseen expenses, which leaves them in debt,” said Kebede. “Creating an emergency fund avoids relying on debt to absorb a financial shock.”
Pay yourself first
Kebede noted that people tend to put saving at the bottom of their priorities when they have fewer resources. So make building an emergency fund a priority.
“Understand that savings cannot be the lowest priority on your budget,” Kebede said. “You have to pay yourself first, even if it’s $15 a month. Setting goals and setting aside something, however small it may be, will go a long way. It will accumulate over time.”
Set a reasonable monthly goal, even when there’s little wiggle room.
If you get any extra money during the month, even if it’s a small amount, earmark it for your emergency fund.
“When building out your emergency fund for the first time or rebuilding following a major emergency expense, it’s okay to start with small contributions, and any tax refunds, gifts or extra cash are all great ways to contribute,” said Ryan Ball, vice president of market experience at Capital One. “Having a small amount in your account is more helpful than nothing at all in the preparedness for an emergency.”
Set up a save schedule
If you get paid twice a month, for example, create a plan to take a set amount and transfer it directly to your emergency savings account. Even if your budget is tight, pick a small amount and devote it to savings. “When contributing to your emergency fund, the best practice is to contribute to your account regularly and setting a schedule can help,” advised Ball.
To force savings, Greg McBride, chief financial analyst at Bankrate.com, advised automating your savings with a direct deposit from your paycheck into a dedicated savings account. “The savings happens first without having to think about it,” McBride said.
Another option, McBride explained, especially for the self-employed, is to set up an automatic transfer from your checking account to a savings account at a regular interval, such as once per month or every two weeks.
How can you force yourself to save without it seeming like a punishment?
First, accept the mindset that savings should be viewed as deferred spending for important or unexpected items rather than a punishment, said Kebede. Next, take an inventory of your spending habits. Can you cancel monthly subscriptions you’re not using?
Can you reduce takeout meals or the amount you’re spending on extras like dining out or paying for coffee every morning? Can you carpool to save on gas or stick to your grocery list by meal planning in advance?
“Setting aside a small amount regularly helps you feel that you haven’t sacrificed a lot, and watching your savings slowly accumulate will also provide motivation for you to continue,” Kebede said.
For example, Ball noted that Capital One has resources, including its complimentary Money & Life Program, that helps participants build a plan to achieve their goals in life and think through how their financial behaviors connect to those goals.
“In addition to Money & Life mentoring sessions with a professional mentor, we offer a self-guided Money & Life exercise, ‘Map Your Spend,’ that can help participants visualize their spending and figure out where they can make changes to put a little extra money per month away for an emergency fund,” he said.
Contact your bank or visit a retail location to inquire about what mentoring services may be available.
Both corporate values and customer expectations are driving more conscious policies and spending to benefit the planet. Here’s how data and analytics are helping retail organizations hit their sustainability targets.
We are entering the age of circular economics where “once is never enough.” Products and businesses will need to be designed for regeneration, rather than produced, delivered, and trashed.
Is your business sustainable, equitable, ethical? These days, does it have a choice not to be?In 2020, interest in “ethical brands” and online shops exploded, growing between 300% and 600% based on Google searches alone.
It can be hard to remember just how much things have changed in the months since the pandemic seized the world. Sustainability is now as much about the resiliency of your business as it is that of the planet—with both benefiting accordingly. Sustainability represents a huge opportunity to serve consumers with what they want, and the world with what it needs, in order to help keep everyone thriving—including your bottom line.
We are entering the age of circular economics where “once is never enough.” Products and businesses will need to be designed for regeneration, rather than produced, delivered, and trashed.
Sustainability is rapidly growing as a way to evaluate the non-financial performance of companies and measure the purpose and values that drive a brand.
Coupled with the ongoing concerns around the environmental impacts of carbon emissions, material waste, energy consumption, and scarce resources, retailers are using the challenges raised by the pandemic as a chance to rewire their systems to drive healthier, sustainable, and more resilient value chains that will allow them to thrive in the future.
For example, reducing synthetic PVC plastics in products can reduce fossil fuel consumption. Sourcing raw materials ethically and sustainably helps increase supply chain longevity. Providing services that encourage consumers to repair, rather than buy new products, can reduce unnecessary waste.
Such an emphasis on sustainability may seem like a whole new way of doing business that at times runs counter to the conventional practices of the past. Yet if we don’t seriously reconsider the future of business, will there be much of a future for businesses at all?
Building this future will require an entirely new understanding of the components, inputs, and resources that go into a business. This kind of understanding is made possible on the cloud.
Sustainability sells: Consumers are driving new transformation
The turmoil of COVID-19 didn’t just bring social distancing—it marked the beginning of an eco-awakening. The increased attention on health, safety, and well-being sparked a renewed awareness around sustainability, particularly in the personal choices consumers make in their own lives and how those choices impact the environment.
In fact, Google research* shows that people now have a greater appreciation for life, are more aware of how valuable nature is for their mental and physical health, and recognize being sustainable plays a critical role in protecting it. As a result, sustainability is more top of mind than before the pandemic.
Now, shoppers are looking more closely than ever at the products they buy and the brands they support—and they’re ready to make different choices if they don’t like what they find:
As mentioned, Google search interest in “ethical brands” and “ethical online shopping” during 2020 grew 300% and 600% compared to the previous year.
1 in 3 shoppers stopped purchasing certain brands or products due to ethical or sustainability related concerns.
Nearly 6 in 10 consumers say they are willing to change their shopping habits to reduce environmental impact.
Retailers were already feeling the pressure to reduce their impact on the environment long before the pandemic. After all, the fashion industry alone accounts for 20% of wastewater and up to 8% of carbon emissions globally. But this new shift in consumer behavior serves as an extra warning that it’s time to accelerate changes now—or pay the price later on.
And it’s not just consumers looking for a commitment from retailers—suppliers, investors, employees, and policymakers are also expecting tangible, sustainable action from businesses. Sustainability is rapidly growing as a way to evaluate the non-financial performance of companies and measure the purpose and values that drive a brand.
At least 65% of world economies have made 2050 net-zero commitments and new EU regulations even require businesses to disclose ESG data about what and how they operate and manage social and environmental challenges.
These changes are already underway. So how can retail businesses stay ahead of them?
Data is key for doing good for retail and for the planet
Retailers have been pushed to illuminate the murkier aspects of their value chains to strengthen credibility and prove in concrete terms exactly how they are delivering on sustainability. But companies can only manage what they are able to measure, so data is crucial for sustainability efforts.
There is a lot of valuable data that can be generated from the first mile to the last mile of products; from direct energy consumption in stores and in warehouses; to CO2 emissions from supply chains and manufacturing; to the effects of resource procurement. Organizations can also gain insight into upstream and downstream activities, such as product distribution and delivery, consumer disposal of product packaging, and other waste.
Migrating to a sustainable cloud can reduce CO2 emissions by 59 million tons a year, which is equivalent to taking 22 million cars off the road, according to Accenture research.
Nearly every aspect of the value chain has the potential to be measured in terms of the impact on the environment as long as companies have the right technologies in place.
Given the public cloud’s inherent efficiencies, it is one of the fastest paths to hit sustainability targets and reduce energy costs. In fact, according to Accenture research, migrating to a sustainable cloud can reduce CO2 emissions by 59 million tons a year, which is equivalent to taking 22 million cars off the road.
But the cloud offers other capabilities that benefit the overall sustainability efforts of retailers, too. Namely, the cloud enables a strong data foundation that allows information to be collected, processed, managed, and analyzed in one place.
The reduction of silos and the availability of a single, centralized view of all relevant data creates the end-to-end visibility needed to understand the full environmental impact of business decisions across the value chain.
Here’s how data is helping retail organizations hit their sustainability targets:
Lowering carbon emissions and energy usage. Retailers need to accurately measure and understand carbon emissions and energy consumption across thousands of devices, facilities, processes, and locations. By gaining a full picture of carbon emissions, businesses will have the power to optimize and implement sustainable best practices—and track future progress—that will deliver real reductions. For example, data can be used to identify cleaner times of day or lower carbon density regions that can create big opportunities to offset and lower emissions.
Reducing waste and optimizing supply chains. There are numerous opportunities for retailers to apply data to supply chain sustainability problems, such as inaccurate demand and inventory planning, manufacturing inefficiencies, packaging or product surplus waste, and more. Integrating data from disparate internal systems, partners and suppliers, and external public sources can help create more sustainable and resilient supply chains. Real-time visibility and advanced analytics enable retailers to drill down into key sustainability metrics, benchmark their progress against other industry players, identify and mitigate risks, and improve overall production quality.
Unlocking deep insights for better decision making. Retailers are looking to answer questions about how current processes impact the environment now and how their businesses will be affected by climate change in the future. Leveraging rich datasets about the planet, new AI and machine learning models, and smarter analytics enables them to extract insights and predict outcomes around sustainability, helping them to make better decisions that keep them on track to future goals.
Retailers are already working on sustainability
Putting their vast amount of data to work, retail companies are already starting to harness, organize, and democratize data both within and outside of their organizations, identifying where environmental impact is happening and taking action.
For example, retailers are applying predictive forecasting models to chase down waste to make demand planning more accurate. Understanding what products customers are most likely to buy and where they will purchase can influence decisions about sourcing, where to place inventory, and optimize shipments and deliveries. It also provides a more personalized product selection, keeping both customers and suppliers happy.
Retailers can also reimagine last-mile delivery packaging. For instance, intelligent packing recommendation (IPR) solutions can analyze the physical dimensions of every SKU, packing materials, and other properties like fragility and temperature to make sure every box is optimally packed. Google Cloud research shows that IPR brings significant savings and an improved customer experience, reducing the total packaging cost per order by 29% and total shipping costs by 19%.
When retailers do good while doing well, everyone wins—consumers, businesses, and the planet.
“Sustainability Theories”. World Ocean Review. Retrieved 20 June 2019. The concept of ‘sustainability’ comes from forestry and originally meant something like: using natural resources mindfully so that the supply never runs out.
Amazon has always presented its Marketplace, where outside businesses sell products through Amazon’s platform, as one of its biggest success stories: mutually beneficial to Amazon, sellers, and customers alike. But a new report says those benefits are increasingly lopsided — in Amazon’s favor.
The report, which comes from the nonprofit Institute for Local Self-Reliance (ILSR), asserts that Amazon takes a larger and larger cut of sellers’ earnings through the various fees it levies on them. These fees have become so lucrative for Amazon that they now represent the company’s most profitable segment as well as its fastest-growing revenue stream, according to ILSR. And because sellers are paying Amazon high fees, customers may face inflated prices, even when they shop beyond Amazon’s borders.
“Amazon is the only winner here,” Stacy Mitchell, ILSR co-director and author of the report, told Recode. “It’s exploiting its monopoly power over these small businesses to pocket a huge and growing cut of their revenue.”
You might consider this to be a good business strategy on Amazon’s part, as it’s certainly paid off for the company. And some sellers on Amazon’s platform say they’re happy with the arrangement — at least, for now. But a growing number of others argue that Amazon’s dominance over the e-commerce market and its power over its sellers has given rise to anti-competitive practices that hurt Amazon’s competitors, competition in general, and consumers.
“Amazon’s dominance is bad for businesses, jobs, and America’s competitiveness,” Rep. David Cicilline, chair of the House Judiciary Antitrust Subcommittee, told Recode. “This important study makes clear that Amazon is crushing sellers through abusive policies that make it nearly impossible for everyday businesses to get ahead.”
These are some of the same issues identified by regulators and lawmakers who have accused Amazon of abusing its market dominance. They say it’s further evidence that action must be taken to curb Amazon’s power — and some of them are already working on legislation.
“It is important to understand how tech platforms can exploit their power to hurt small businesses and raise prices for consumers,” Sen. Amy Klobuchar, chair of the Senate Judiciary Antitrust Subcommittee, told Recode. “This report highlights how Amazon’s tactics can lead to that result and why Congress must act to set clear rules of the road for the digital giants that dominate our online economy.”
Amazon disputes the report’s findings, calling it “intentionally misleading” for lumping its mandatory fees and optional services together as “seller fees.” Amazon maintains that all of its fees — mandatory and optional — are competitive with what similar services charge, and that many sellers are successful without taking advantage of those optional services. But Mitchell says many sellers feel compelled to pay those ostensibly optional fees if they want their businesses to stay afloat.
Marketplace: The gift that keeps on giving (to Amazon)
Marketplace is a huge part of Amazon’s business. In his 2020 letter to shareholders, Jeff Bezos said it accounted for nearly 60 percent of Amazon’s retail sales, which come from nearly 2 million sellers. So when you buy a product on Amazon, chances are it was sold by an independent business using Amazon’s platform. Amazon isn’t providing that platform for free.
“The trade-off that any seller is dealing with is you get access to a huge audience, you get access to scale, the ability to scale your sales, but it comes at a cost to margin,” Andrew Lipsman, principal analyst at eMarketer, told Recode.
The cost to sellers is increasing every year, according to ILSR’s analysis, making business unsustainable for some sellers while Amazon’s profits grow.
The new ILSR report found that Amazon’s seller fees accounted for an average of 19 percent of sellers’ earnings in 2014. That’s almost doubled to 34 percent in 2021. And while seller fees accounted for 14 percent of Amazon’s entire revenue in 2014, that figure is up to 25 percent in 2021. Amazon will pull in $121 billion from seller fees alone, ILSR estimates.
That revenue translates to a lot of profit — more than even Amazon Web Services (AWS), Amazon’s cloud computing platform typically believed to be the company’s most profitable arm. AWS netted $13.5 billion in 2020, according to Amazon’s financial data. ILSR estimates seller fees netted $24 billion. (Amazon says these figures are inaccurate but did not provide its own; the company’s public earnings statements also don’t combine seller fees in this way.)
“Everyone thinks AWS generates all of Amazon’s profits,” Mitchell said. “But in fact, Marketplace is this massive tollbooth that gushes profits.”
Seller fees primarily come from three things: sales, fulfillment, and ads. Every item sold is subject to a referral fee, which is Amazon’s commission. Over the years, that’s stayed pretty consistent at 15 percent (it may be lower or higher, depending on the product category). According to ILSR, those referral fees made up the majority of seller fees as recently as 2017.
Since then, however, the majority of fees come from Fulfillment by Amazon (FBA), Amazon’s service that stores, packs, and ships sellers’ items to customers. Ad revenue is steadily gaining ground as more sellers pay for more ads to get prominent placement on Amazon’s site, including on product pages and search results.
Sellers who use FBA pay Amazon a fee based on the size and type of item they sell. Sellers also have to pay to ship items to and from Amazon’s fulfillment centers and to store them there. For some sellers, this might be a cheaper or easier option than doing it all themselves. Amazon says FBA’s pricing is competitive with similar fulfillment services if not cheaper, and sellers aren’t required to use it.
But help with logistics isn’t the only appeal of FBA for many sellers. Enrolling in the FBA program is the only way that most sellers can qualify for Prime. (Some sellers may qualify for Seller Fulfilled Prime, but it’s not accepting new enrollees at this time.) Getting that Prime badge is huge for a seller. Amazon shoppers — especially those 200 million Prime members — are far more likely to buy products that qualify for Amazon Prime. But that’s not only because they want to take advantage of the free shipping. It’s also because customers may not even see non-Prime offerings in the first place, thanks to the mechanics of the so-called Buy Box.
When multiple sellers offer the same item, Amazon’s algorithm picks one of them to be the default purchase on the product’s page. This is called “winning the Buy Box,” and when the customer clicks to add an item to their cart or to buy now, the seller who won the Buy Box is the one who gets the sale.
Prime items are far more likely to win the Buy Box than non-Prime items, and customers rarely click on that small “other sellers” link or the small “new and used” box where all the other listings are housed. This gives sellers a major incentive to pay for FBA, even if it costs more than taking care of the shipping themselves.
These FBA fees have been great for Amazon, which has dramatically expanded the logistics network that powers FBA as well as the number of sellers participating in the program. Five years ago, about half of Amazon’s top 10,000 sellers worldwide used FBA. By 2019, it was 85 percent. Amazon even offers a version of FBA for products ordered from other e-commerce services, including Shopify. Dave Clark, the CEO of Amazon’s consumer business, believes his company will be the largest delivery service in the United States by early 2022.
FBA aside, there are other ways sellers are paying Amazon more and more in the hope of generating sales. Amazon has been making a big push into digital advertising recently, and seller ads are part of its strategy. Critics have accused Amazon of increasing the number of sponsored slots in search results to increase ad inventory, and of charging more for the ads in them. (Amazon says the number of ads varies, and pricing is determined by an auction.)
Because of this, some sellers feel like they’re paying more and getting less. Amazon itself says these ads increase product visibility, which can translate into more sales. But that also means less visibility for the products in organic search results that earned their placement through strong sales and positive reviews. Sellers are already competing for this space with Amazon’s own products, and that competition might not be fair, as Amazon reportedly ranks its own products above others that had higher ratings. (Amazon has disputed these reports and says its ranking models don’t take into account whether the product is made by Amazon or offered by a third-party seller.)
Either way, many sellers increasingly feel pressure to buy ads just to get the same search placement (and sales) they once got for free. In a statement to Recode, Amazon maintained that FBA and ads are not mandatory and that sellers may find them beneficial.
“Sellers are not required to use our logistics or advertising services, and only use them if they provide incremental value to their businesses,” an Amazon spokesperson said.
How sellers’ problems affect your wallet
If you’re not a seller that relies on Amazon to survive, you might not see how any of this affects you. If you’re an Amazon customer, you might even think that this system is ensuring that you can buy products at the best price. But you might be wrong.
“Whether you shop on Amazon or not, you are paying higher prices because of its monopoly power,” Mitchell said.
When sellers have to raise their prices to account for Amazon’s increased fees, they often pass those costs along to the customer. And, thanks to Amazon’s fair pricing policy, sellers have to offer the same price on other platforms that they do on Amazon — even if their costs to sell on those platforms are less. If they don’t, Amazon may suspend or demote their listings. Sellers don’t want to take that risk, which could be potentially devastating to their business.
This policy could mean that, as sellers adjust their prices to account for Amazon’s fees, prices end up being higher elsewhere, too. It also makes it harder for other e-commerce platforms to compete with Amazon and challenge its market dominance, since they aren’t able to offer lower prices that would attract more customers. The lack of options means sellers are basically stuck with Amazon if they want to reach its exponentially larger and loyal consumer base.
Sellers have helped Amazon grow to own 40 percent and 50 percent (depending which report you cite) of the e-commerce market in the United States, and in some product categories, its share is far higher. Its closest platform competitor, Walmart, has just 7 percent. Amazon is often the first place online shoppers look for products — even before search engines — especially if those shoppers are Prime members. A large, established company can pull itself out of Amazon, as Nike did in 2019, and still do fine. Most businesses don’t have that luxury.
“Small businesses don’t have other options when it comes to the digital economy,” Rep. Ken Buck, the ranking member of the House Judiciary Antitrust Subcommittee, told Recode. “Amazon continues to use their monopoly power to crush competition.”
One solution is for lawmakers and regulators to step in. Some are trying: The European Commission announced last year that it is investigating whether Amazon gave preferential treatment to itself and sellers that used FBA when determining who gets the Buy Box. The fair pricing policy and its potential to inflate prices across the internet is the basis of the District of Columbia’s lawsuit against Amazon, as well as a class action lawsuit filed by Amazon customers last year.
Several members of Congress — Buck, Cicilline, and Klobuchar among them — have introduced bills that would forbid some of Amazon’s practices they believe to be anti-competitive. These bills came out of a 16-month-long House antitrust subcommittee investigation into Big Tech companies, including Amazon. The committee accused Amazon of luring in customers and sellers with artificially low prices and Prime memberships that the company loses money on, only to raise rates as soon as Amazon’s market dominance was assured.
The proposed legislation would forbid Amazon from giving its own products prominent placement, unless it earned that place organically, and from requiring sellers to pay for ads or services like FBA in order to get preferred placement. One bill would forbid Amazon from competing in a marketplace it also owns, and could force Amazon to split off into a first-party sales company and a company that operates a platform for third-party sellers.
Amazon has responded to all of this by denying that such measures are necessary or that it’s doing anything wrong. The company has become one of the biggest lobbying spenders in the country, and it’s been emailing select sellers to warn them that pending antitrust legislation could make it difficult or impossible for them to sell their products on Amazon.
After years of studying Amazon’s business practices, Mitchell, of ILSR, thinks the best solution is arguably the most drastic.
“Policymakers could regulate Amazon’s fees — basically accept it as a regulated shopping monopoly, like a utility,” she said. “But I think a much better, more market-oriented approach is to break it up by splitting Amazon’s major divisions into stand-alone companies.”
The latest Commitments of Traders (COT) report issued Monday night by the Commodity Futures Trading Commission (CFTC) for the week ending Nov 23 revealed a three-fold increase in the number of short bitcoin futures contracts held by retail investors compared to the previous week. These holdings, called open interest, represent capital held at the CME as collateral for long and short trades.
Shattering the average number of short bitcoin futures held by retail traders (about 798 contracts through last week), the COT report showed a 200% jump in short bitcoin contracts from 887to 2,663. The monetary equivalent of this net short increase is $511 million, and it should be noted it did not come from trading in micro bitcoins (MBT) futures, which is still nascent and 20 times smaller than the BTC futures market.
This dramatic shift follows a temporary but equally sharp bullish (long bitcoin) move on the second half of October. Together, these moves suggest that perhaps wealthy retail investors, those able to purchase the typical $300,000 CME bitcoin futures contract, may be starting to place short-term speculative bets in tandem to profit from short-term movements in the volatile cryptocurrency market.
In recent weeks and months, the market for providing crypto trading insights has grown from trading platforms like LMAX Digital and Coinbase to also a few US banks with crypto research teams. Wealthy retail traders require specialized brokerage access to trade CME futures and this can be done through firms like ADM, Stonex, thinkorswim (owned by Schwab), and also a small number of investment banks that have authorized wealthy clients to buy and sell CME crypto futures.
One surprising development seen in the CME bitcoin futures market is the fluidity by which market participants take on and ease off trading risk. While retail traders are uncharacteristically short bitcoin presently, a small (eight to ten) group of asset managers active in CME futures have taken massive, long bitcoin futures positions in November, totaling more than 5,000 bitcoin futures contracts equivalent to $1.5 billion.
Thus, the long bitcoin futures holdings of commercial and retail traders seen in October amidst the ProShares BITO bitcoin ETF launch, ushered asset manager demand which they, in turn, received from institutional clients wanting a long bitcoin position in their funds.
Commercial traders, which are firms and/or professionals with deep industry and market knowledge generally hired to mitigate business risk through use of futures contracts, cut back sharply their long bitcoin futures holdings to pre-BITO levels but boosted sharply their ‘spread’ contracts – which is the practice of holding long and short positions in the same contract to provide liquidity to those who need it.
Separately and over recent weeks, this group of traders has built a large short position equivalent to $113 million worth of MBT futures contracts which makes them the largest short liquidity providers. Said differently, this group of traders went from facilitating liquidity for the large surge from bitcoin ETF in October to now getting back to a smaller exposure and selectively providing liquidity in new areas like MBTs.
Meanwhile retail traders shrewdly adopted the previously discussed short bitcoin futures position, betting on the price of bitcoin possibly falling below the $57,600 level bitcoin seen last week – bitcoin did fall to a low of 53,200 on Nov 28 and that could have provided some of these retail traders a profitable exit of their short trades – which become profitable as the price of an asset decreases in value.
The big picture remains bright for bitcoin and cryptocurrencies at large as institutional demand continues to grow, with large asset managers like Vanguard and BlackRock allowing funds they manage to pour approximately $3 billion each into crypto stocks as of Nov 2021 and rival Fidelity nearly doubling to 200 their institutional clients – hedge funds, family offices, registered investment advisors, pensions and corporate treasuries – that use the firm’s bitcoin execution and custody services.
While bitcoin price has dropped 18% below its $69,000 Nov 10 high, this has been due to robust macro headwinds like rising inflation and the Omicron variant impact on the global economy, and not due to weak bitcoin demand. In fact, the sharp drop in crude oil prices – Brent crude oil price down 20%+ since Nov 10 – shows that Omicron uncertainty is providing an organic break to inflationary forces.
It will be weeks if not months until the world regains confidence that it can defeat the Omicron variant, and in the meanwhile it’s sensible to expect lower expectations for global economic growth, lower inflation, and a modest appreciation of risky assets like cryptocurrencies. For these reasons, shrewd investors will continue to look to crude oil price action as a proxy for the expected energy demand globally but also as a guide for bitcoin appreciation potential over the short term.Follow me on Twitter or LinkedIn. Check out some of my other work here. Send me a secure tip.
“Variant: 21K (Omicron)”. covariants.org. CoVariants. 28 November 2021. Archived from the original on 28 November 2021. Retrieved 28 November 2021. Variant 21K (Omicron) appears to have arisen in November 2021, possibly in South Africa.