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Today’s Stories:
U.S. Treasury Campaigning for Amplified Powers to Chase Crypto Overseas
China Investment Bank Bans Bearish Research, Wealth Displays - Bloomberg
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This episode was hosted by Noelle Acheson. “Markets Daily” is executive produced by Jared Schwartz and produced and edited by Eleanor Pahl. All original music by Doc Blust and Colin Mealey.
Audio Transcript: This transcript has not been edited and may contain errors.
It’s Thursday, November 30th, 2023 and this is Markets Daily from CoinDesk. My name is Noelle Acheson, CoinDesk collaborator and author of the Crypto is Macro Now newsletter on Substack. On today’s show we’re talking about the slowing U.S. economy, regulatory overreach, market moves and more. So you don’t miss an episode, be sure to follow the podcast on your platform of choice, and turn on notifications. And just a reminder, CoinDesk is a news source and does not provide investment advice.
Now, a markets roundup.
After yesterday’s jump, crypto markets are settling back today. According to CoinDesk Indices, at 9am Eastern time this morning, bitcoin was trading down 1%, at 37,703 dollars. Ether was also down 1%, trading at 2,033 dollars. Elsewhere, Chainlink and Polkadot are down 2%, Polkadot is down 4%, Filecoin is down 5%.
Since this is the last trading day of November, let’s have a quick look at monthly performances. Some are quite astonishing. Over the past month, Avalanche is up 84%, Solana is up 56%, Uniswap is up 43%. Cardano and Chainlink are each up 27%. Bitcoin and ether haven’t done too badly. They’re up 8% and 11% respectively.
In macro matters, it’s time to talk about inflation again.
On Tuesday’s episode, I set up the expectations for the U.S. personal consumption expenditures index, known as the PCE, which is the Federal Reserve’s preferred inflation gauge. If you missed it and want some background on how this index is different from the CPI, then you might find it helpful to go back and check out that episode. I pointed out then that consensus forecasts were pointing to a continued decline in both the headline figure and the core index, which strips out food and energy.
Well, the data came in pretty much bang in line with expectations. The headline PCE index grew by 3% in October, down from 3.4% in September. Core PCE grew by 3.5%, the lowest level since April 2021. This was down from September’s 3.7%.
The data further reinforces the idea that inflationary forces are abating. This is good news. The market is not so sure, however, and U.S. yields increased when the data came out. But markets tend to be volatile right after economic releases, so yields could turn around as the morning progresses.
There was plenty more economic data to chew on. U.S. personal spending seems to be slowing. According to the release this morning, it rose by 0.2% in October, in line with expectations and notably lower than September’s 0.7% increase. This was the smallest advance in five months, and hints at further improvement in inflation data. Remember that inflation has been held relatively high by consumption, especially once the pandemic- and conflict-related supply chain issues were smoothed out.
And another data point out this morning that also shows signs of an economic slowdown in the U.S. is the jobless claims. The number of Americans filing for unemployment benefits climbed in the week ending November 25th, but slightly less than expected. More interesting is the number of Americans who continue to receive unemployment benefits. Known as continuing claims, this number shows how many unemployed Americans are having trouble finding another job.
Last week, it jumped to 1.93 million, the highest level since November 2021. These are not alarming numbers yet – but it does look like the U.S. jobs market is finally starting to cool down. This will also help in the Fed’s fight against inflation.
In stocks, U.S. indices are looking uncertain, despite comments from Fed officials and economic data that suggest there will be no more rate hikes. Yesterday, the main indices were largely flat, and futures are pointing to modest gains this morning.
In Europe, stocks were mixed yesterday, with the FTSE 100 down four tenths of a percent, the German DAX up 1 percent, and the broader Eurostoxx 600 up half a percent.
In Asia, Japan’s Nikkei index was up 0.5% today, while the Shanghai Composite and the Hang Seng are up roughly three tenths. According to a report in Bloomberg, analysts at China International Capital Corp, one of China’s largest investment banks, have been instructed to not say anything bad about the economy or markets in private or public statements, so that might help.
In commodities, oil prices are still climbing, as the market awaits news from the OPEC+ meeting on the expected production quotas. In early trading today, the Brent Crude benchmark was up 1.4% on the day, trading at 84 dollars per barrel.
Gold is still holding steady at around 2040 dollars an ounce – if this continues throughout the day, it will give the metal its second consecutive monthly advance.
Stay with us – after the break I’m going to highlight some astonishing U.S. regulatory overreach.
Welcome back!
Today I have to talk about a proposed U.S. rule change that could impact the functioning of crypto markets far beyond U.S. borders.
In a speech yesterday, Deputy Secretary of the Treasury Wally Adeyemo outlined a proposal that the Biden Administration will submit to Congress. This proposal would give Treasury the broadest expansion of its powers since the Patriot Act, enacted after the terrorist attacks of 2001.
The aim is to further curtail the financing of terrorist activities, by making it much harder for certain groups to use crypto assets. Adeyemo’s speech cited figures given in media reports suggesting that Hamas has relied on crypto financing, even though these figures have since been solidly debunked. Nevertheless, the message is that crypto helps terrorists and therefore crypto needs to be controlled.
The new powers would give Treasury the right to penalize any crypto platform, anywhere, for facilitating transactions involving sanctioned entities or persons, even if the transactions have no U.S. touchpoints. It basically extends the reach of the Treasury well beyond its current boundaries, and essentially places all crypto platforms around the world under U.S. jurisdiction.
Treasury would become the world’s financial policeman, at least as far as crypto transactions are concerned. You may think that is problematic enough – or you may agree with the idea, on the basis that only the U.S. can be trusted to do this – but the proposals go further. They suggest that OFAC should have jurisdiction over all U.S.-based stablecoins, anywhere.
If blockchain-based dollars were used, then the idea is that the U.S. has jurisdiction. Even if, say, a resident of China not on any sanctions list wanted to use USDT to buy some dogecoin on a Hong Kong-based exchange. But the U.S. does not have jurisdiction over the Eurodollar market. Or the dollar cash market, which is plenty active in countries such as Argentina, Zimbabwe and many others. This idea therefore penalizes the technology used, rather than the asset or the use case. The result would be to boost the use of stablecoins backed by other assets such as gold or yuan, to the detriment of the U.S. dollar.
Hang on, it gets worse.
The restrictions on interacting with U.S.-designated sanctioned entities or persons would also apply to DeFi services, wallets and validator nodes, all of which would need to implement anti-money laundering and terrorism financing measures.
This reveals a total misunderstanding of how crypto technology works – nodes, wallets and DeFi apps are not financial entities, and don’t have a way to collect detailed user identification data. They just don’t. And even if they did, there’s the security risk of having such data honeypots just sitting there in automated entities distributed around the world.
What’s more, it’s crazy to assume that they even should have to collect this data. It’s like holding a road responsible for stopping bank robbery getaway cars.
Bottom line, we can probably agree that curtailing terrorism financing is a good thing.
But the U.S. administration is proposing to do so by implementing global financial surveillance, even over crypto asset transactions, when this is precisely what bitcoin and others were created to prevent. The proposal suggests that the fiat system should have jurisdiction over networks created to operate outside the fiat system.
Should this proposal go through, and that is not a given, it could push more crypto businesses offshore, swing the balance of stablecoin use to non-dollar options, and trigger a firestorm of debates about privacy and U.S. political overreach.
Whatever happens, one thing is for sure: the privacy-protecting utility of crypto assets will continue to become ever more important.
