Last night right after the equity market closed, we got news that Treasury Secretary Steven Mnuchin planned to end several of the emergency programs available to the Fed before the end of the year. The move looked like it was designed to place the power to continue monetary stimulus back in Republican’s hands, as re-authorizing these programs in 2021 under a Biden administration would require approval from the Senate. Bond yields ticked up and the dollar strengthened immediately after the announcement. However, overnight markets seemed to digest the news and show less worry than I would have anticipated. Still, this morning, corporate bonds are trading off while treasuries are trading higher. We’ll see today and next week whether the specter of the Fed stepping back from the corporate bond market will spook investors or not. If it does, I would expect the dollar to show strength as credit spreads widen and risk assets come under pressure.

This week we saw some forces exerting negative pressure, at least from a theoretical standpoint, on both gold and BTC. While gold traded off all week, BTC seems to have consolidated around the $18,000 level. On Wednesday, I mentioned that many chart readers and technical analysts were gearing up for at least a modest pullback. From what I have been seeing, the price action in BTC is essentially stronger than it “should” be given the circumstances this week. To me, this is another data point suggesting steady program buying from institutions, which is helping to keep prices stable even while active traders are reducing exposure. I”ve read several independent analyses of leverage and derivatives exposure, and all have come to the conclusion that the BTC market gains of late are driven mostly by physical buying in the spot market rather than leveraged prop bets. That is a hallmark of a healthy market, as it suggests that returns are being driven more by investment rather than speculation.

Two new developments this morning are also worth noting. First, Rick Rieder, the CIO of fixed income at BlackRock threw support behind BTC as a durable mechanism that might take the place of gold, during an interview on CNBC. This marks another heavyweight in the world of traditional finance agreeing with the original thesis that Paul Tudor Jones gave us last Spring. Second, Digital Asset Investment Management announced that they would serve as an advisor and fiduciary in helping companies create 401(k) plans that could hold up to 10% allocation to BTC. I believe that the actual execution of this plan is still in the distance, but this would mark a true fundamental shift in access to crypto markets, potentially even more impactful than the moves that we’ve seen from Square and PayPal already this Fall.

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