Noelle Acheson, the mind behind the Crypto Is Macro Now newsletter, explores a crypto IPO, Chainlink, Fed comments and more.
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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 Wednesday, November 8th, 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 a possible crypto IPO, Chainlink, Fed comments 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 perked up yesterday, with a sharp jump late in the day at one point pushing the bitcoin price above $35,700. It has since settled back some, but seems to be holding on to the gains. At 9 a.m. Eastern time today, bitcoin was trading at $35,400 dollars, up 1.8% over the past 24 hours. Ether was trading up 1%, at $1,890. Elsewhere, Chainlink, Polygon and Toncoin up 8%, and Solana, Cardano and Polkadot up 3%.
In macro indicators today, it’s time to talk about talking. I’m referring to the attention paid to speeches and interviews given by Fed officials, at events, on television, at universities, wherever, and why it matters. And I mention it today because Fed officials do like to get out there and deliver their message, nothing new there. But this week seems to be particularly noisy. This morning, I counted 15 scheduled Fed official public remarks for this week alone, and there are probably some I didn’t catch. Two are from Fed Chair Powell himself.
First, let’s look at why they do this, and then we’ll get into why we should pay attention, and also what they are saying. They do this for several reasons, one of which is personal branding. Another is broader education, that’s part of the job. In case you haven’t noticed, the Federal Reserve even has an Instagram account now, and posts regularly.
Perhaps the most relevant reason, however, is the messaging coming from people involved in setting U.S. interest rates. Each Fed official is allowed to say what they think, they don’t have to conform to any official statement. And because of this, their comments shed light on what goes on behind the closed doors of the FOMC committee, and what factors could influence the next interest rate decision.
For that reason, we should pay attention. This may be hard since there is so much Fedspeak. But even just glimpsing at reports of official comments can give a feel for where the collective mood is. And this can help to shape expectations of where interest rates could go from here.
So, let’s take a look at what Fed officials are saying. On Friday, Atlanta Fed President Raphael Bostic said he thought the Fed was done raising interest rates. On Monday, Minneapolis Fed President Neel Kashkari hinted that he thought there were more interest rate hikes ahead. In speeches on Monday and today, Federal Reserve Governor Lisa Cook said that she hoped that no more rate hikes would be needed, but that escalating geopolitical tensions could spill over into higher inflation. Yesterday, Chicago Fed President Austan Goolsbee hammered home that any move on rates will depend on inflation, not on jobs or economic growth – in other words, heading into a recession will not budge the Fed.
There are several other comments as well, and taken together, they give the impression of a Federal Reserve board that is not in unanimous agreement about the rates outlook, but that does with one voice stress the importance of the inflation numbers. That does not mean other economic data points are not significant – after all, pretty much everything is intertwined. But it does mean that the inflation data is the most significant. Next Tuesday, just over a week from now, we get October’s U.S. inflation figures. Until then, let’s cross our fingers and hope we get some good news.
In stocks, the main U.S. indices were up yesterday for their seventh consecutive session. Momentum seems to be calming down, however. The S&P 500 was up three tenths of a percent, the Dow Jones rose two tenths, and the Nasdaq climbed nine tenths. Futures today are pointing to a muted yet positive opening.
In Europe, most of the main indices closed more or less flat yesterday, but so far today are looking more positive, with the German DAX and the broader Eurostoxx 600 up four tenths of a percent.
In Asia, sentiment continues to be weak, with Japan’s Nikkei index down one third of a percent, and the Shanghai Composite down almost two tenths, despite what looks like tentative confirmation that China’s President Xi Jinping will visit the U.S. next week and will meet with President Biden. Hong Kong’s Hang Seng index rose four tenths of a percent today.
One interesting feature of China’s recent stock market performance caught my eye this morning:
Many of the top performers have “Dragon” in their name, and February sees the beginning of the Year of the Dragon. According to reports, Chinese investors are picking their stocks by the name, without caring much what the stock actually does. This reminded me of meme trades in the crypto market, and highlights that sometimes people just want to have fun with their investment picks.
In commodities, oil continued to decline, and is now well below where it was before the October 7 attack on Israel. As I mentioned yesterday, it seems that traders are not taking into account any potential escalation of the conflict, instead choosing to price in the weaker demand that is likely to accompany a global economic slowdown.
Earlier today, the Brent crude benchmark was trading down half a percent, at 81 dollars and 80 cents, it lowest point since July. This brings its drop to more than four percent over the past week.
Gold also continues to soften, trading down two tenths at $1,966 per ounce. It is still up more than 7% over the past month.
Stay with us – after the break we’re going to talk about trusts and IPOs.
Welcome back! In this section, we’re going to talk about a possible public listing, but first …
There are signs of growing institutional interest in Chainlink.
For some background, Chainlink offers a blockchain oracle service, which is a decentralized oracle network built on Ethereum. Oracles import real-world data into smart contracts – for instance, if an insurance contract will pay out in the event of a flight cancellation, how does the code know if that has happened? Via an oracle that connects the smart contract to the flight data, while ensuring the data’s reliability. That’s just one example.
The network has a token called LINK, and there is only one publicly listed vehicle that gives institutional investors exposure to the token.
This vehicle is a trust managed by CoinDesk’s sister company Grayscale. Similar to the well-known bitcoin trust GBTC, the Chainlink trust trades on OTC markets and does not allow redemption. This means that the share price of the trust does not necessarily reflect the price of the underlying tokens, it is whatever the market will pay for it, regardless of what the token is doing. The share price of the trust relative to the underlying value of the token is an interesting barometer for market interest.
CoinDesk’s Shaurya Malwa reported this morning that the trust premium has reached 200%. Part of this is due to relative illiquidity – LINK is not a particularly liquid token, and the trust only holds around $4 million worth of LINK, versus a market cap of 7.6 billion. LINK has been doing very well – the token price is up 80% over the past month, 20% over the past week. But many investors cannot hold assets that are not listed vehicles, so the Grayscale Chainlink Trust is the only option available to them. Because of this, they would now have to pay a hefty premium over spot price to get exposure.
This highlights the frustration of investors eager to support or speculate on certain tokens. The lack of spot ETFs that accurately reflect underlying prices leads to disadvantageous pricing. Let’s hope this changes with time.
Next, I want to talk about a possible initial public offering that, if it happens, would be a very big deal.
Yesterday, Bloomberg reported that Circle, the issuer of the USDC stablecoin, was talking to advisers about an IPO early next year. A decision has not yet been taken, and there is no indication as to what the size of the offering would be, or the subsequent valuation of the company.
In a 2022 funding round, Circle was valued at $7.7 billion dollars, which is a hefty amount, but the market has obviously changed since then. For comparison, the market cap of crypto exchange Coinbase is over $21 billion dollars.
If it happens, it would be the second large crypto market infrastructure company to go public, joining Coinbase.
It would also further cement crypto assets in the financial landscape. Big-name investment houses would most likely assign analysts to cover it, getting the stock and the business behind it in front of institutional and retail investors. And it would give investors an alternative way to get exposure to the ecosystem.
USDC is the second largest stablecoin in the crypto market, behind Tether’s USDT. The amount in circulation has almost halved since the beginning of the year, but it is still a considerable $22 billion dollars, and is likely to pick up as trading activity returns.
Personally, I’d be excited to get a look at the detailed accounts, to understand better how stablecoin businesses work. Right now, they must be pretty profitable – they take in dollars, park them in high-yielding treasuries, and keep the interest income. So, with rates at these levels, a listing could make sense. Whether it would influence stablecoin regulation remains to be seen.