It’s gotta be bad!
Whenever the government does something, that’s our knee-jerk reaction…
It just has to be bad.
But sometimes governments or their agencies do things that aren’t so bad [Editor’s note: said through gritted teeth].
Things that end up benefiting sectors, companies, investors, and consumers.
Uncle Sam, through one of its many alphabet agencies, has just done exactly that.
And this change has the potential to embed one of the market’s most controversial assets even further into the financial mainstream.
We’ll explain all below. But first…
Market Data
The S&P 500 closed up 0.1% to end the day at 4,508.24… the Nasdaq gained 0.1%, to close at 14,113.67.
For individual stocks, Microsoft closed up 1.8% to $376.17… Apple ended higher by 1% at $189.71… and Tesla ended the day at $233.59, a 3.8% drop.
In commodities, West Texas Intermediate crude oil trades at $72.85… gold is $1,984.60 per troy ounce… and bitcoin is $35,868.12.
And now, back to our story…
A Bright Light Following a Painful Year
The story begins back in November 2022.
That’s when Teeka Tiwari told his subscribers about a decision that could have a big impact on the future of bitcoin (BTC) and its price.
At the time, bitcoin was trading for around $16,000.
It had fallen from its $69,000 peak almost exactly one year earlier.
No one – or very few people, anyway – wanted anything to do with bitcoin. Even Teeka said, “There’s no quick and easy way out of the current bear market. I don’t expect any of the headwinds to clear in a week… a month… or anything less than a year.”
Teeka was right about there being no “quick and easy” way out of the bear market. That’s true for any falling asset.
But in this case, without realizing it at the time, that month marked the bottom of bitcoin’s hellish trend lower.
It hasn’t been a straight line up, but the trend has gone in the right direction since.
Today, of course, it’s trading near $36,000. That’s more than double off of last year’s low. And it’s made bitcoin the top-performing asset of 2023.
But let’s get back to that decision from the little-known government agency.
The agency is the Financial Accounting Standards Board (FASB – rather than saying the initials, those in the know refer to it as “Fasbee”).
While it is notionally a standalone entity, FASB derives its authority from the Securities and Exchange Commission (SEC).
It was established in 1972 to help create a set of accounting standards that would apply across all businesses.
The same standards offer investors an apples-to-apples comparison of one company with another. If everyone has to report their financials the same way, it’s easier to compare.
And so Teeka sees FASB’s decision as another catalyst for the cryptocurrency’s price. And that will come into effect at the end of next year.
Specifically, this involves a major change in how companies will have to report the value of bitcoin held on their books.
Bitcoin Will Surge Before This
You see, right now, companies that own bitcoin have very strict rules on how they report the value of it… strict on the verge of ridiculousness.
To help you understand it, we’ll print here the explanation given by one of Teeka’s analysts, Michael Gross:
The new standard reclassifies how companies should report bitcoin holdings on their financial statements.
The previous standard accounts crypto assets as indefinite, intangible assets on company balance sheets. This means when the price of the crypto drops below the company’s purchase price, the companies must lower the reported value of their crypto.
However, the companies couldn’t subsequently raise the value of their crypto if it rose in price. In fact, the previous accounting standards prohibited them from raising the reported value of their cryptos once the price lowered.
So even if bitcoin staged an intense comeback, under the previous policy, companies would still have to report their crypto at the lowest price it reached after their purchase.
That means it would remain a black eye on their balance sheet.
Plus, the companies were required to report an impairment charge on their income statement in the event that their crypto value fell below their purchase price. They had to record this as an operating expense, which lowered companies’ reported profits…
But under the new standard, companies can account for crypto assets based on their fair value. That means companies can record the crypto’s value on its balance sheet at its current price.
Additionally, companies will now be able to record a gain on their income statement when the fair value of their crypto rises.
In practical terms, it means if a company bought bitcoin back in November 2022 at $16,000… they wouldn’t be able to value it on the books at today’s price.
The only time they could show gains is if they sold any of the bitcoin.
But, if the bitcoin price had fallen to, say, $10,000, the rules would have forced them to revalue their holding to the lower amount.
What’s more, they would have to book this as an expense on their income statement. That would mean reporting a big loss – even if it was just on paper and didn’t reflect the fundamental operations of the business.
Given that, it’s no wonder so few companies have added bitcoin to their corporate treasury.
Why would they? In contrast, a company that owns shares of other companies, like Berkshire Hathaway’s position in Apple, must adjust that value up or down each quarter. It’s not a one-way street. And it doesn’t matter if the position is sold or not. Only bitcoin is negatively impacted by this bureaucratic edict.
But that could all change when the FASB rule change goes into effect at the end of next year.
In anticipation of that, it wouldn’t surprise us in the least if businesses have already started buying bitcoin. Those companies may be worth watching closely – and buying – if bitcoin makes a big move higher in 2024.
Sure, companies have to report their bitcoin position under the old rules for now. That means they can’t show any recent bitcoin gains. But from January 1, 2025, companies will be able to mark-to-market any gains.
Of course, they’ll also need to mark-to-market any losses… but they’ve already had to do that. So this will level the proverbial playing field between bitcoin and other assets.
But this is just one part of the story that’s helping drive the bitcoin price. There are others…
Bitcoin to $1.48 Million? No joke
The biggest front-page story on bitcoin is when (that’s right, it’s no longer “if”) regulators will approve a bitcoin exchange-traded fund (ETF).
Teeka has pounded the table on this for as long as we can remember. And as time has passed, the closer we’ve gotten to it becoming a reality.
In fact, it’s at the stage where we would say Wall Street’s big firms are bullying the SEC into deciding on it.
As Reuters reported this morning:
Asset management giant BlackRock (BLK.N) on Thursday officially filed for a spot Ethereum exchange-traded fund (ETF), doubling down on its cryptocurrency bets amid investor optimism about the approval of such investment vehicles.
The iShares Ethereum Trust, which was registered last week and will be listed on Nasdaq if approved, will give investors access to ether – the second most popular cryptocurrency –- without directly owning it.
There is zero chance a big firm like BlackRock would file with the regulators and the exchange if they didn’t think it would happen.
They also wouldn’t do this if they thought the regulator had the upper hand… if they thought pushing ahead with this would antagonize the regulator.
No, they’re doing it because they know there is almost nothing that can stop it happening. Wall Street wants it… the funds want it… the exchanges want it… the brokers want it… and investors want it.
Think about it. Wall Street has been almost entirely locked out of the crypto business from day one. They just haven’t been able to monetize it because bitcoin and other cryptos have operated outside the traditional financial system.
But with the launch of a bitcoin, Ethereum’s Ether, or any other crypto ETF, Wall Street gets to grab part of the revenue from crypto investing.
So how much will that mean for Wall Street? Teeka and his team have run the numbers on that. As he notes in the latest issue of Palm Beach Letter:
Here’s a list of some of the biggest players and their total assets under management (AUM) currently lined up waiting for the SEC to approve bitcoin ETFs:
BlackRock: $8.5 trillion
Fidelity: $4.5 trillion
Invesco: $1.5 trillion
WisdomTree: $95.3 billion
VanEck: $76 billion
Ark Invest: $6.7 billion
Combined, these investment houses manage more than $14.5 trillion in assets.
Let’s look at how much of that wealth could be making its way into bitcoin…
Currently, in the U.S., there are around $109 billion in gold ETFs. I see that as just the first target for capital flow and demand.
I expect the BlackRock bitcoin ETF may break the record for the fastest ETF growth in history. The Invesco QQQ ETF currently holds that record – it had $36 billion of inflows in its first year of launch.
So $109 billion isn’t a stretch. It may even be conservative. I believe we’ll see around $298 million in daily demand.
Considering supply is around 900 BTC ($41 million at current prices), we’re facing an incredible demand/supply imbalance.
Adding fuel to the supply shortage is the upcoming bitcoin halving expected in April 2024. That’s less than six months away. When the halving kicks in, that daily supply drops to 450 BTC.
We’re talking about daily demand just from ETFs possibly around $298 million, with daily supply at around $20.5 million.
That means a potential massive price rise is ahead just so the ETFs that are required to hold the physical bitcoin can get them.”
You do the numbers on that. It means the demand for bitcoin would be 19 times the current available supply.
Of course, increased demand for something will often result in an increased supply. This means some of those holding the asset will eventually see a price at which they’re willing to sell.
Teeka’s price target for bitcoin is currently $500,000. That’s an increase of 1,258%… on top of the more than 8,400% gain it has seen since he recommended it in April 2016.
So for investors who think they’ve missed out, don’t worry, you haven’t. If Teeka is right, a $1,000 stake in bitcoin today turns into $13,580.
But if fund manager, Ark Invest CEO, Cathie Wood is right, a $1,000 stake today turns into more than $40,000 with her forecast of bitcoin hitting $1.48 million by 2030.
These may seem like outlandish claims. But folks said the same thing when Teeka first told his subscribers about bitcoin when it was just $428 in 2016.
It’s your money, so do what you want with it. But based on these projections, it’s hard to think of a better place for such a big potential return using such small stakes.
Worth thinking about.
Unconnected Dots
Our main task at The Daily Cut is to try to “connect the dots.” That is, we help you figure out what events are about, what makes them important, their consequences, and what it all means for you.
But sometimes, we see the individual “dots,” but can’t yet figure out how they connect to anything. Maybe they never will connect to anything.
Regardless, if those unconnected dots feel as though they could be important, we’ll mention them here. And we’ll let you draw your own conclusions.
Today’s unconnected dots…
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We try to ignore politics… if possible. If we do mention it, we do so in the vein of “a plague on both your houses” (Romeo & Juliet, by William Shakespeare). So, when we see something we don’t like, we’ll point it out regardless of the political colors.
In this case, it was from Nikki Haley, one of the Republican frontrunners for the Presidential nomination. As she said on Fox News:
The second thing is every person on social media should be verified by their name. First of all, it’s a national security threat…
We wonder what “Agrippa,” “Cato,” “Harrington,” “Phocion,” “Publius,” and “Senex” would have to say about such a thing.
Don’t mistake them for Roman or Greek philosophers. These were the pennames of America’s founding fathers during the constitutional debates of the late 18th century. In order, James Winthrop; George Clinton; Benjamin Rush; Alexander Hamilton (on his own as Phocion); Hamilton, James Madison, and John Jay as Publius; and Patrick Henry.
We can’t know for sure what dead men think. But we’ll bet a dollar they wouldn’t be impressed with Ms. Haley.
More Markets
Today’s top gaining ETFs…
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First Trust Flexible Municipal High Income ETF +2.4%
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U.S. Global GO GOLD and Precious Metal Miners ETF +2.3%
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VanEck Gold Miners ETF +1.5%
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iShares U.S. Medical Devices ETF +1.4%
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iShares MSCI Turkey ETF +1.1%
Today’s biggest losing ETFs…
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KraneShares MSCI China Clean Technology ETF -5%
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Global X MSCI China Consumer Discretionary ETF -3.5%
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Global X Lithium & Battery Tech ETF -3.7%
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KraneShares Electric Vehicles and Future Mobility Index ETF -3.1%
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Invesco China Technology ETF -3%
Mailbag
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Write to us at feedback@legacyresearch.com and just type “Daily Cut mailbag” in the subject line.
Cheers,
Kris Sayce
Editor, The Daily Cut