Tech Stocks Overvalued
Keep an eye on that yield curve steepening!
The 'term premium' represents the additional yield attributed to longer-term bonds, compensating investors for the risk of locking in their funds for an extended duration.
Various methods exist for quantifying this term premium, and they all converge on one observation: it is on the rise. What's noteworthy is that expectations of higher interest rates don't primarily drive this increase. Instead, a shift in risk perception and a supply/demand imbalance reshape the relationship between longer-term and shorter-term bond yields.
Federal Reserve Chair Jerome Powell's recent comments at the Economic Club of New York further underscored this trend. Powell acknowledged that the bond market's impact on yields has been significant enough to warrant the Fed's attention. As a result, the U.S. 2-year yield retreated from a level above 5.25% to below 5.15%, while the 10-year yield continued its ascent.
Is any regulation better than no regulation?
Recently, California Governor Gavin Newsom signed a crypto licensing bill colloquially called the 'California BitLicense.' Initially, my attention was not piqued as it will take effect in July 2025, and the political landscape can shift significantly by then.
However, the industry's reaction to this development has captured my interest. Many have lauded California's proactive approach, particularly in contrast to the federal government's inaction. An article by CoinDesk quoted a policy director commending California's 'collaboration with industry.'
A few aspects warrant attention
First, some legal experts have described the enforcement powers as 'broad and, frankly, worryingly vague.' Such ambiguity could stifle innovation at its inception.
Furthermore, the mandate for all applying exchanges to evaluate the likelihood of a listed digital financial asset being classified as a security by federal or California regulators appears challenging.
Additionally, a provision suggests that in-game digital tokens might fall under the bill's purview if they are redeemable for other tokens or fiat. Theoretically, a game designer in Malaysia or Germany would need a California BitLicense to offer their game to California residents.
Governor Newsom acknowledged that several aspects of the bill would require further refinement before it becomes effective.
Beyond the bill's contents (as they are subject to change), what intrigues us is its reception. In 2015, when the New York BitLicense was introduced, it sparked uproar and resistance. Numerous bitcoin companies pulled out of New York, with some relocating to California. The New York BitLicense was widely considered expensive and overly restrictive, causing considerable operational challenges. It did not prevent the downfall of key market infrastructure providers, some of which held a BitLicense.
However, the recent response to California's initiative has generally been positive (from what I've observed). Could it be that we now prefer some regulation to none? Are we so accustomed to federal inaction that any state-level initiative feels like progress?
The gradual imposition of restrictions that hinder ecosystem growth is a possibility. Hopefully, California businesses and legal experts will contribute their insights before the bill takes effect. Encouraging their involvement is crucial, considering the stakes in the evolving regulatory landscape.
It’s not manipulation; It’s just outsmarting reality’s expectations”
Monday's Bitcoin market drama was not merely a case of misreporting a crucial crypto development; it delved into the intricate world of media business models and the nuanced objectives of the SEC.
Media Business Models: CoinTelegraph's account of the incident hinted at some employees deviating from the standard procedure when sharing information on social media. While processes are in place for good reason, the underlying culprit here was the insatiable hunger for clicks, often fueled by the race to break news first. This haste for primacy reflects the current media landscape, where advertising revenue is the lifeblood, and traffic is its heartbeat. Speed, at times, appears to outshine accuracy. Thankfully, there are signs of a shift away from this quagmire of conflicting incentives, with the rise in popularity of independent newsletters and the potential for more decentralized micro-payment systems.
Misunderstanding of SEC Objectives: In the aftermath, some on X (formerly known as Twitter) suggested that this misinformation might reduce the chances of a spot bitcoin ETF approval this year. This insinuates that the error wasn't just a mistake but possibly an act of manipulation. CoinTelegraph's report further noted the deletion of the Telegram account responsible for the misinformation. However, this crypto manipulation doesn't quite align with the SEC's primary concerns. The agency's rigorous focus on market surveillance agreements indicates a more profound worry about tangible price manipulation on trading platforms, which starkly contrasts social media antics.
Don't get us wrong; the SEC takes social media manipulation seriously. In 2018, it went after the current owner of X for allegedly fraudulent tweets related to Tesla. The agency has also pursued actions against individuals for flagrant misconduct.
In this case, it's unlikely that the SEC will launch an investigation. While there's a suspect, their identity remains shrouded in uncertainty. Moreover, establishing that this was a deliberate act might be a Herculean task. It wasn't part of an ongoing scheme, and while money changed hands, the sums involved might not be enticing enough to warrant the SEC's intervention.
The prospect of this incident altering the SEC's stance on approving a spot BTC ETF remains remote. To do so, it would need to demonstrate that such occurrences never transpire in other asset classes that serve as the foundation for ETFs—a challenge that, quite frankly, it can't conquer.
GDP will be announced at 8.30 a.m. E.T. on October 26. Nowcasts suggest that annualized real GDP growth could come in at over 5%, and professional economists see growth topping 3% after a trend of upward revisions in recent weeks. Even if the 3% forecasts hold, that would still be an impressive growth rate. The October 26 GDP number will be the first of three progressively more accurate estimates for Q3 GDP Growth from the Bureau of Economic Analysis, with revised estimates coming on November 29 and December 21. Subsequent revisions can adjust the advanced estimate of GDP growth by half a percent up or down, on average.
Given that robust Q3 growth is broadly expected, Q3 GDP numbers are unlikely to significantly alter the Fed's or markets' perspective. Rates will likely be held, and we won't see any hikes. However, another rate increase subsequently has yet to be ruled out by policymakers.
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