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This episode was hosted by Noelle Acheson. “Markets Every day” is govt produced by Jared Schwartz and produced and edited by Eleanor Pahl. All unique music by Doc Blust and Colin Mealey.
Audio Transcript: This transcript has not been edited and will include errors.
It’s Thursday, December 14th, 2023 and that is Markets Every day from CoinDesk. My title is Noelle Acheson, CoinDesk collaborator and creator of the Crypto is Macro Now publication on Substack. On in the present day’s present we’re speaking about charges euphoria, a market correction, a significant rule change, and extra. So that you don’t miss an episode, make sure to comply with the podcast in your platform of alternative, and activate notifications. And only a reminder, CoinDesk is a information supply and doesn’t present funding recommendation.
Now, a markets roundup.
Crypto markets in the present day have been becoming a member of within the post-FOMC celebration, with bitcoin at one stage climbing above 43,200 {dollars} – I’ll discuss extra about total market reactions to the most recent Fed assembly in a second. Costs have been climbing, that’s, till a pointy correction that briefly pulled bitcoin again under 41,500.
Based on CoinDesk Indices, at 9 a.m. jap time in the present day, bitcoin was buying and selling up 2.4% over the previous 24 hours, at 42,469 {dollars}. Ether was up 3.8%, buying and selling at 2,275 {dollars}. Elsewhere, Solana was up 7%, Dogecoin was up 4%, Polkadot and Cardano have been up 3%.
In macro issues, in the present day in fact we’ve to speak in regards to the surprises delivered in yesterday’s FOMC assertion and Fed Chair Jerome Powell’s press convention.
I imply, wow.
Whereas Chair Powell did say that one other fee hike was nonetheless on the desk, he additionally stated loads of different issues that despatched markets a sign that fee cuts have been coming quickly. It is a robust departure from earlier Fed messaging, just about all of which appeared to give attention to discouraging markets from getting too excited.
For example, Powell confirmed that the timing of fee cuts was talked about within the FOMC assembly. That is new. Additionally, he stated that rates of interest have been “nicely into restrictive territory”, which is a refined but vital change from simply “restrictive territory”. The addition of the phrases “nicely into” alerts that the Fed feels it now has room to maneuver.
And Chair Powell explicitly talked about the significance of beginning to minimize charges method earlier than inflation reaches 2%, in addition to the chance that failing to take action may sluggish exercise an excessive amount of. This sends a powerful sign that the committee’s cautious mentality appears to be shifting.
Past Powell’s feedback, the up to date dot plot – through which every official signifies their fee expectations for the years forward – reveals that almost all of FOMC members anticipate three or extra cuts subsequent yr, whereas consensus forecasts had been for 2. That is regardless of a really slight downward revision to the anticipated inflation for the tip of 2024, from 2.5% to 2.4%.
The FOMC temper appears to have definitively modified, and markets pounced on that.
Futures are actually pointing to 6 fee cuts subsequent yr, double the Fed’s official forecast. They’re additionally suggesting a 20% likelihood of the primary minimize coming as quickly as January – only a month in the past, this likelihood was at 2%. The likelihood of a minimize earlier than March has greater than doubled over the previous month, now standing at a whopping 90%.
Yields and the U.S. greenback dropped sharply, with the 10-year treasury yield dipping under 4% for the primary time since July, simply because the Fed was implementing what seems to be like the ultimate hike for this cycle.
And shares jumped. The primary U.S. inventory indices have been all up 1.4% yesterday, closing at all-time highs. Futures are pointing to continued positive aspects in the present day.
The primary European indices have been largely flat yesterday, as that they had closed by the point the FOMC assertion got here out. This morning, nonetheless, they’re becoming a member of within the celebration, with the FTSE 100 up 1.6% because the Financial institution of England stored charges regular for the third consecutive assembly. The German DAX was up half a p.c and the broader Eurostoxx 600 index was gaining 1.3%, after the European Central Financial institution additionally held charges regular.
In Asia buying and selling in the present day, Japan’s Nikkei index fell three quarters of a p.c, as a weaker U.S. greenback implies a stronger Japanese yen, which may damage exports. The Shanghai Composite fell by a 3rd of a p.c, whereas the Cling Seng index climbed one p.c.
In commodities, oil costs are climbing. Earlier in the present day, the Brent crude benchmark added to its 1.4% achieve yesterday with an extra improve of two%, buying and selling at 76 {dollars} and 25 cents a barrel. That is regardless of a report launched this morning by the Worldwide Power Company that slashes estimates for international oil demand. The reason being slowing financial exercise in key international locations, and growing manufacturing from international locations such because the U.S., Brazil and Guyana.
Gold can be climbing, boosted by falling yields and a decrease U.S. greenback. Earlier in the present day, the steel was up 4 tenths on the day, buying and selling at 2,035 {dollars} an oz.
Stick with us – after the break we’re going to speak about one thing that’s usually very boring, however on this case, it’s simply the other.
Welcome again!
At present we’re going to speak about accounting – stick with me, this isn’t a dialogue about numbers or quarterly studies. It’s a few rule change that might set off a brand new wave of company demand for crypto property.
Based on a press release yesterday from the Monetary Accounting Requirements Board, which units basic accounting practices within the U.S., crypto accounting simply obtained loads fairer. The company has lastly printed an up to date customary for the disclosure of crypto property.
This alteration removes a big barrier to firms holding bitcoin on their steadiness sheet.
Underneath present guidelines, crypto tokens need to be valued on the steadiness sheet as long-lived intangible property, like patents or emblems. You possibly can already see how loopy that is – crypto tokens have 24/7/365 market costs, patents and emblems don’t.
The foundations say that the steadiness sheet valuation for long-lived intangible property must be the decrease of buy worth or market worth. If the market worth drops under the worth of acquisition, the corporate has to take a write-down, often known as an impairment cost. However they’ll’t write the property again up once more ought to costs get better. Up to now, steadiness sheet valuations of crypto property have solely been in a position to go down, not up.
This turned painfully related to MicroStrategy, for example, which began including bitcoin to its treasury in 2020, and has since needed to take up roughly $2.5 billion {dollars} of impairment prices. That does damage. MicroStrategy’s intention was to guard the corporate steadiness sheet from the accelerating drop of U.S. greenback depreciation from the printing of recent cash, and the argument makes loads of sense. The accounting doesn’t. Not an excellent scenario for company treasurers.
The brand new rule, which works into impact subsequent yr, says that corporations can worth crypto property on their steadiness sheet at honest market worth. This implies the valuation can go up in addition to down.
That is higher for companies, which now are not blocked for accounting causes from diversifying company reserves ought to they wish to. And with the expansion of the CME crypto derivatives market, the volatility might be hedged.
It may encourage extra company treasurers to diversify at the very least a part of their firm reserves to guard in opposition to foreign money depreciation. What’s extra, crypto markets are open 24/7, which ought to make it simpler for company treasurers to maneuver property in case of pressing want.
And it’s higher for traders, who get a extra clear view of an organization’s holdings.
This rule change has been a very long time coming. However reasonably than give attention to how sluggish the accounting board has been in updating a rule that made no sense, we must always give attention to the truth that the concept of crypto property on steadiness sheets is now vital sufficient to warrant the board’s consideration. That in itself is important.