FBTC: Breaking Out On Fiat Fears

Summary FBTC made a new all-time high this week. The divergence from other risk assets suggests the move was driven by the Moody’s downgrade. The downgrade reminds everyone why crypto is so appealing, but it is not likely to create a sustained divergence as the findings are not new. FBTC is long-term bullish, but I would be wary of chasing this break-out. The Fidelity Wise Origin Bitcoin Fund ETF ( FBTC ) broke to new all-time highs this week, exceeding the $94.8 peak set in December of last year. This article explores the drivers behind the break-out, and why it may not be a good idea to chase the rally at these levels. A Quick Look at FBTC FBTC was launched in January 2024 and has become one of the most popular Bitcoin ETFs. Its low expense ratio of 0.25% and excellent liquidity are an attraction, as is the well-known and trusted name behind the product, “Fidelity.” To be completely honest, there is very little to recommend it above its main competitor, the iShares Bitcoin Trust ETF ( IBIT ), which has a slightly better performance (only 0.13% since inception and probably from a tracking error), and higher AUM. Seeking Alpha However, if you have a large exposure to Bitcoin, I would consider FBTC as an alternative to IBIT and spread the risk between the two funds. One consideration is that they have different custodians and Fidelity is self-custodian. Driving the Break-out FBTC often has a high-beta correlation to other risk assets such as stocks and the weakness in the S&P500 ( SPY ) in Q1 was replicated in FBTC. Both bottomed on the exact same day, April 7th. Data by YCharts There are periods where FBTC will out or under-perform due to various reasons. This was evident following the election when the new administration’s crypto-friendly stance sparked a large rally. It was also the case this week as FBTC and SPY have moved in opposite directions and FBTC broke to a new all-time high. Seeking Alpha The driver this week appears to be Moody’s downgrade of US government debt. This sparked a rise in yields as the risk of buying/holding US Treasuries has increased. It also dropped the US dollar, and it was notable that when stocks and bonds recovered on Monday 19th May (the first trading session after the downgrade was announced), the US dollar stayed weak. After a feeble recovery in May, it looks to be heading for further lows. TradingView Here is some of the rationale for the downgrade: Without adjustments to taxation and spending, we expect budget flexibility to remain limited, with mandatory spending, including interest expense, projected to rise to around 78% of total spending by 2035 from about 73% in 2024. If the 2017 Tax Cuts and Jobs Act is extended, which is our base case, it will add around $4 trillion to the federal fiscal primary (excluding interest payments) deficit over the next decade. As a result, we expect federal deficits to widen, reaching nearly 9% of GDP by 2035, up from 6.4% in 2024, driven mainly by increased interest payments on debt, rising entitlement spending, and relatively low revenue generation. We anticipate that the federal debt burden will rise to about 134% of GDP by 2035, compared to 98% in 2024. And here’s a shocking projection: Federal interest payments are likely to absorb around 30% of revenue by 2035, up from about 18% in 2024 and 9% in 2021. None of this is particularly new – Fitch, and Standard and Poor’s already downgraded the credit rating years ago, and it was a matter of time before Moody’s followed suit. But this puts some worrying calculations back in the spotlight. In the long term, the debt pile will erode the value of the dollar and all other fiat currencies. Crypto (and FBTC) is attractive as it has no sovereign risk, no debt, and no dilution. This is why it diverged from other risk assets this week and broke to a new all-time high. TradingView A Temporary Tailwind Breaking to new highs when stocks are moving in the other direction is impressive, but we don’t want to see the two asset classes diverge for too long as they tend to rally and correct together over the longer term. TradingView A sustained period of FBTC outperformance would likely need a significant and new driver. A strategic Bitcoin reserve would fit the bill, but that now seems a dead-end given the project has to be budget-neutral. As already outlined, the reasons for the divergence this week are not new developments – crypto’s main attraction has always been its independence from what many see as a doomed system of fiat currencies. Moody’s downgrade may have brought some issues to the fore again, but nothing specific sparked the move. In short, I do not expect the divergence to last very long, and since stocks look to be rolling over – or at least unlikely to break to new highs any time soon – the break-out in FBTC may also stall. As I am writing this, I see both stocks and bitcoin have dropped as President Trump has threatened the EU with 50% tariffs. This isn’t necessarily bearish, but we may see a consolidation like we did the last time Bitcoin approached a previous all-time high. The current pattern and the larger-scale pattern from 2022-2025 are quite similar. TradingView Implications The main takeaway is to not get carried away with this break-out. The outlook for FBTC is bullish, but I would not rush in to buy at new all-time highs. A pullback to the gap around $85 would be a more compelling buying opportunity over the summer. For those holding long-term, this week’s developments underpin why crypto is a good investment, but don’t really change anything. Conclusions FBTC and stocks diverged this week following the Moody’s downgrade. While the rally was welcome for bitcoin bulls, the drivers do not look like igniting a sustained divergence as the downgrade was expected and not due to anything particularly new. Without a “risk on” environment that also lifts stocks, the break-out may not be sustained and a drift-down/consolidation looks likely. FBTC is long-term bullish, and I rate it a “hold,” but I would wait to initiate new positions nearer $85.