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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, December 14th, 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 rates euphoria, a market correction, a meaningful rule change, 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.
Crypto markets today were joining in the post-FOMC celebration, with bitcoin at one stage climbing above 43,200 dollars – I’ll talk more about overall market reactions to the latest Fed meeting in a moment. Prices were climbing, that is, until a sharp correction that briefly pulled bitcoin back below 41,500.
According to CoinDesk Indices, at 9 a.m. eastern time today, bitcoin was trading up 2.4% over the past 24 hours, at 42,469 dollars. Ether was up 3.8%, trading at 2,275 dollars. Elsewhere, Solana was up 7%, Dogecoin was up 4%, Polkadot and Cardano were up 3%.
In macro matters, today of course we have to talk about the surprises delivered in yesterday’s FOMC statement and Fed Chair Jerome Powell’s press conference.
I mean, wow.
While Chair Powell did say that another rate hike was still on the table, he also said a lot of other things that sent markets a signal that rate cuts were coming soon. This is a strong departure from previous Fed messaging, pretty much all of which seemed to focus on discouraging markets from getting too excited.
For instance, Powell confirmed that the timing of rate cuts was talked about in the FOMC meeting. This is new. Also, he said that interest rates were “well into restrictive territory”, which is a subtle yet significant change from just “restrictive territory”. The addition of the words “well into” signals that the Fed feels it now has room to move.
And Chair Powell explicitly mentioned the importance of starting to cut rates way before inflation reaches 2%, as well as the risk that failing to do so could slow activity too much. This sends a strong signal that the committee’s cautious mentality seems to be shifting.
Beyond Powell’s comments, the updated dot plot – in which each official indicates their rate expectations for the years ahead – shows that the majority of FOMC members expect three or more cuts next year, while consensus forecasts had been for two. This is despite a very slight downward revision to the expected inflation for the end of 2024, from 2.5% to 2.4%.
The FOMC mood seems to have definitively changed, and markets pounced on that.
Futures are now pointing to six rate cuts next year, double the Fed’s official forecast. They are also suggesting a 20% probability of the first cut coming as soon as January – just a month ago, this probability was at 2%. The probability of a cut before March has more than doubled over the past month, now standing at a whopping 90%.
Yields and the U.S. dollar dropped sharply, with the 10-year treasury yield dipping below 4% for the first time since July, just as the Fed was implementing what looks like the final hike for this cycle.
And stocks jumped. The main U.S. stock indices were all up 1.4% yesterday, closing at all-time highs. Futures are pointing to continued gains today.
The main European indices were largely flat yesterday, as they had closed by the time the FOMC statement came out. This morning, however, they are joining in the celebration, with the FTSE 100 up 1.6% as the Bank of England kept rates steady for the third consecutive meeting. The German DAX was up half a percent and the broader Eurostoxx 600 index was gaining 1.3%, after the European Central Bank also held rates steady.
In Asia trading today, Japan’s Nikkei index fell three quarters of a percent, as a weaker U.S. dollar implies a stronger Japanese yen, which could hurt exports. The Shanghai Composite fell by a third of a percent, while the Hang Seng index climbed one percent.
In commodities, oil prices are climbing. Earlier today, the Brent crude benchmark added to its 1.4% gain yesterday with a further increase of 2%, trading at 76 dollars and 25 cents a barrel. This is despite a report released this morning by the International Energy Agency that slashes estimates for global oil demand. The reason is slowing economic activity in key countries, and increasing production from countries such as the U.S., Brazil and Guyana.
Gold is also climbing, boosted by falling yields and a lower U.S. dollar. Earlier today, the metal was up four tenths on the day, trading at 2,035 dollars an ounce.
Stay with us – after the break we’re going to talk about something that is normally very boring, but in this case, it’s just the opposite.
Welcome back!
Today we’re going to talk about accounting – stay with me, this is not a discussion about numbers or quarterly reports. It’s about a rule change that could trigger a new wave of corporate demand for crypto assets.
According to a statement yesterday from the Financial Accounting Standards Board, which sets general accounting practices in the U.S., crypto accounting just got a lot fairer. The agency has finally published an updated standard for the disclosure of crypto assets.
This change removes a significant barrier to corporations holding bitcoin on their balance sheet.
Under current rules, crypto tokens have to be valued on the balance sheet as long-lived intangible assets, like patents or trademarks. You can already see how crazy this is – crypto tokens have 24/7/365 market prices, patents and trademarks don’t.
The rules say that the balance sheet valuation for long-lived intangible assets has to be the lower of purchase price or market price. If the market price drops below the price of acquisition, the company has to take a write-down, known as an impairment charge. But they can’t write the assets back up again should prices recover. So far, balance sheet valuations of crypto assets have only been able to go down, not up.
This became painfully relevant to MicroStrategy, for instance, which started adding bitcoin to its treasury in 2020, and has since had to absorb roughly $2.5 billion dollars of impairment charges. That does hurt. MicroStrategy’s aim was to protect the company balance sheet from the accelerating drop of U.S. dollar depreciation from the printing of new money, and the argument makes a lot of sense. The accounting doesn’t. Not a great situation for corporate treasurers.
The new rule, which goes into effect next year, says that companies can value crypto assets on their balance sheet at fair market value. This means the valuation can go up as well as down.
This is better for businesses, which now are no longer blocked for accounting reasons from diversifying corporate reserves should they want to. And with the growth of the CME crypto derivatives market, the volatility can be hedged.
It could encourage more corporate treasurers to diversify at least part of their company reserves to protect against currency depreciation. What’s more, crypto markets are open 24/7, which should make it easier for corporate treasurers to move assets in case of urgent need.
And it’s better for investors, who get a more transparent view of a company’s holdings.
This rule change has been a long time coming. But rather than focus on how slow the accounting board has been in updating a rule that made no sense, we should focus on the fact that the idea of crypto assets on balance sheets is now important enough to warrant the board’s attention. That in itself is significant.
