“The valor that struggles is better than the weakness that endures.” – GW Hegel ||
Hi all! So, it looks like I missed some interesting stuff yesterday…
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.
If you’re not a subscriber, I do hope you’ll consider becoming one! It would help enable me to continue to share what I learn as I work on figuring out where we’re going. It’s only $8/month for now ($12/month as of January), with a free trial.
And if you find this newsletter useful, would you mind hitting the ❤ button at the bottom? I’m told it boosts the distribution algorithm.
Also, I’m now host of the CoinDesk Markets Daily podcast – you can check that out here.
IN THIS NEWSLETTER:
Market whiplash?
Bitcoin bonds and sovereign demand
New crypto accounting standards and corporate demand
Google ads and retail demand
WHAT I’M WATCHING:
Market whiplash?
At yesterday’s post-FOMC press conference, Fed Chair Jerome Powell said that the US central bank was ready to rates again if necessary. And yet the markets heard a totally different message. Stocks soared, with the main US indices reaching new all-time highs. Bond yields plummeted, with the US 10-year yield dropping below 4% for the first time since July, when the Fed hiked US rates for what could end up being the last time this cycle.
(chart via TradingView)
The market is loudly proclaiming the end of US rate hikes and the likely initiation of an unwinding of the tightening measures within the next few months.
The probability of the first cut coming as soon as next month has jumped from 2% a month ago to almost 20% as of this morning, according to CME futures. And the probability of a cut by March has more than doubled, from 35% a month ago to a whopping 90% [corrected].
(chart via CME FedWatch)
A total of six rate cuts are priced in for 2024, double the Fed’s expectation of three. The probability of no rate cuts by June has dropped to 0%. Consensus is pointing to three rate cuts by then, with a probability of almost 65%.
This would, of course, be totally amazing should it come to pass. Fewer corporations would need to default on their debt, fewer people would lose their jobs, the outlook for government interest expenditure would (hopefully!!) not be as terrifyingly high, and the prices of crypto assets should benefit.
I’m still skeptical, however. We’ll get rate cuts next year – but not three by June. I still think the market is underpricing energy supply risks, and we know the oil price impacts both sentiment and inflation, either directly or indirectly. I also believe that happy markets are inherently inflationary, both through the liquidity impact of stronger collateral, and through the spillover into sentiment and spending. And services inflation ex-housing actually ticked up last month, so that battle is far from over. But I would be so happy to be wrong here! I have been wrong on the timing of the recession onset, so there is hope.
There’s plenty more to say on how I think markets are overreacting to Powell’s comments, and there’ll be more coming on this over the next few days (I’m keeping an eye on the word count!).
For now, let’s look at why the market heard what it heard:
Keep reading with a 7-day free trial
Subscribe to Crypto is Macro Now to keep reading this post and get 7 days of free access to the full post archives.