Monday, Dec 18, 2023

Fed motives, market vs crypto narratives, Bitcoin tx, SEC stubborness

“May your choices reflect your hopes, not your fears.” – Nelson Mandela ||

Hello everyone! I hope you all had a great weekend, and that you’re gathering strength for the end-of-year reflections that are always expected and usually useful.

You’re reading the daily premium Crypto is Macro Now newsletter, where I look at the growing overlap between the crypto and macro landscapes. There’s also usually some market commentary, but NOTHING I say is investment advice. For full disclosure, I have held the same long positions in BTC and ETH for years, and have no intention to either buy more or sell in the near future.

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Programming note: This newsletter is going to take some time off around the holidays, for refreshing and planning and baking and wrapping – I figure the news flow will be light and so hopefully I won’t miss out on much (if anything major happens I’ll of course hop back on). I’ll publish through to Wednesday 20th, and then pick up again the following Thursday 28th.

IN THIS NEWSLETTER:

• Macro and crypto: Watch the narratives

• The pros and cons of the Bitcoin transaction debate

• The SEC digs in

WHAT I’M WATCHING:

Macro and crypto: Watch the narratives

Last week, joining the collective head-scratching as to why, why??, Fed Chair Powell decided to tease a pivot so soon, I wrote that it could have something to do with not wanting to cut rates in H2 either just before or just after the US general election, to avoid accusations of being political.

Ha. This weekend, catching up on podcasts, I heard several commentators insist that the Fed’s premature move is obviously political, with some going as far as suggesting that Yellen had gotten on the phone and said a few things. So much for my idea that the shift was pre-emptive.

I mean, maybe? But I don’t think so. I’d still like to think that Powell is a strong enough steward of the Fed’s reputation that he wouldn’t succumb to political pressure. He didn’t when Trump threatened to fire him back in 2020 for not cutting rates faster. I don’t see why he would do that now, even though I’m sure he would rather not have to deal with another Trump administration come next January.

More than one commentator surfaced the idea that Powell knows something we don’t. That would be worrying.

But that also doesn’t feel convincing. There’s no shortage of economic data telling us that manufacturing is weak while the service sector is strong. With services accounting for around 70% of the US GDP, this keeps the recession at bay for now.

On Thursday, the Atlanta Fed updated its GDPNow model (which it stresses is not a forecast, rather an output based on various economic data inputs) to show a hike in its prediction, up from 1.2% to 2.6%. That’s a whopping increase, driven almost totally from strength in the services industry.