Thursday, Sept 19, 2024

post-FOMC, what was said, stablecoin use

“For every complex problem there is an answer that is clear, simple, and wrong.” – H. L. Mencken   ||      

Hi all! I hope you’re doing well, and as relieved as I am that the FOMC suspense is OVER… for now, anyway. More on this below.

Today’s newsletter is going out early due to a schedule squeeze, and I confess I haven’t done as much news reading this morning as usual. And I still haven’t shared this week’s tokenization roundup! Tomorrow, for sure.

IN THIS NEWSLETTER:

• So it begins

• What was said?

• Stablecoin use

If you’re not a premium subscriber, I hope you’ll consider becoming one! It’s the price of a couple of New York coffees a month, and you get ~daily commentary on how macro moods are influencing crypto markets, and also on how crypto is impacting the macro economy.

WHAT I’M WATCHING:

So it begins

Well, hunh, 50bp. This FOMC statement was an ideal example of something that was a surprise and also not a surprise, in a somewhat nonsensical contradiction. Regular readers will know that I didn’t think 50bp was warranted – but it became a strong possibility after informed (wink) mainstream media reporting last Friday flipped the market expectations.

Heading into the event, my feed was divided between those insisting a 50bp would be disastrous for the market, and those convinced it would send assets including BTC and stocks soaring. The former saw a message that the Fed is more worried than we realize; the latter were focusing on the additional monetary liquidity about to pour in to support prices.

Both were wrong, go figure. Prices jumped then fell, and when I reluctantly shut down my screen last night, stocks were soft and BTC was below its pre-FOMC announcement level. I mean, what?

This morning, BTC is climbing, and there’s outperformance (for a change!) from ETH. But while we know the tailwinds are strong, it’s not yet clear the headwinds have sufficiently dissipated. I am very much not a trader, so my plan is to make popcorn and watch.

(BTC chart via TradingView)

Bigger picture, we can finally step back and proclaim the easing cycle has started and liquidity will push prices higher. This should be bullish.

We can also continue to feel uncomfortably confident that “nothing stops this train”, and bringing down rates won’t unfortunately help the US deficit situation much – some, for sure, but not enough to change the outlook. That should be good for hard assets.

Only, I still think the 50bp cut, despite Powell’s protestations to the contrary, signals concern about a weakening economy. Put differently, I’m still left wondering about the messaging of a big cut when things are supposedly “fine”. The last two times the Fed started an easing cycle with a 50bp cut were in 2001 and 2007. Traders/investors who remember those periods are going to be uneasy, however “different” this cycle may seem.

(chart by Frederik Ducrozet, @fwred)

Meanwhile, tailwinds continue to build for BTC, as both a liquidity play and a breakdown hedge. Going forward, more liquidity combined with continued growth? Good for risk assets. Or, a re-ignition of inflation, economic chaos and political uncertainty? Good for longer-term safe havens.

Looking outside the US, the 50bp move should trigger a wave of further cuts elsewhere, as many central banks were reluctant to get too far ahead of the US cycle for fear of what that could do to their currencies. The easing ahead will be global, with the exception of Japan. This should also favour BTC and gold relative to equities.

What was said?