Friday December 22nd, 2023 - Issue # 58
(Any views expressed below are the personal views of the author and should not form the basis for making investment decisions, nor be construed as a recommendation or advice to engage in investment transactions.)
It’s officially that time of the year…winter is here. Typically, when I think of the expression “winter is coming”, I associate it with hard times…cold, hard times. This winter, however, looks a bit different, does it not? I’m not sure what it is (global warming?) but as a Canadian, I welcome the new look of green everywhere I look. I’m not talking about the weather, it’s quite uncomfortable…I’m talking about the market!
Today, among a few things — all incredibly bullish tidbits you can pull out at the dinner table — I want to highlight a substantial development for Bitcoin, specifically regarding the Financial Accounting Standards Board (FASB) upgrade. In what is arguably more bullish than the imminent ETF approvals, FASB has officially adopted Fair Value Accounting for Bitcoin for fiscal years beginning after December 15th, 2024.
Why is this so important? Let me ask ChatGPT…kidding.
Last week brought some groundbreaking news from the Financial Accounting Standards Board (FASB) regarding cryptocurrencies, signaling a major shift in the financial landscape.
Here's the lowdown:
Before this game-changing decision by the FASB, cryptocurrencies like Bitcoin were treated as 'intangible assets' on balance sheets. Think of it as being in the same category as goodwill.
This classification had major implications for big players like Microstrategy, MassMutual, Tesla, and Block, all of which have Bitcoin investments. They were stuck in a rigid accounting model where they could only record Bitcoin's value at its lowest, regardless of any price surges. This meant not being able to show the true potential of their Bitcoin assets.
For CFOs of publicly traded companies, this was a huge headache. Imagine your company's Bitcoin stash soaring in value, but your hands are tied – you can't show this growth in your financial reports. Instead, due to Bitcoin's notorious fluctuations, you might end up reporting a deflated value. This was likely one of the key reasons why Tesla sold 75% of its Bitcoin holdings last year.
But here's the game-changer: FASB has shifted to a fair value reporting model for crypto. This is massive. For the first time, CFO's can finally adjust their balance sheets to reflect Bitcoin's true market value when its price increases.
The Key Insight: The introduction of these new accounting standards, along with the rise of accessible and streamlined methods for handling Bitcoin investments (like the highly anticipated ETF), is creating an exciting story. We're standing at the threshold of a significant increase in corporate engagement with Bitcoin, marking a positively bullish trend for the cryptocurrency sector.
Here’s the king of corporate treasury strategy, Michael Saylor explaining why this change in fair value accounting is so revolutionary:
The ETF marketing race is on
It’s very rare that an ETF like this can come to market with such a large consumer base. The largest financial institutions like BlackRock and Fidelity are all fighting for it, which means we're going to see them throwing a lot of weight and resources into making sure the launch is a hit. They're all in it to win it right from the start.
In the world of ETFs, it's usually the largest in AUM (assets under management) that ends up grabbing most of the market, like 80-90% of it. So, it's extremely important for these companies to make a strong impression fast. They know if they come out swinging on the sales and marketing side, they can pull away from the pack and have a massively profitable product on their shelpf. That's why they're going to be pushing this product hard. If they don't go all out, they risk falling behind, and nobody wants to be left playing catch-up in this game.
It’s already starting:
What bear market?
As we wrap up the year, let's acknowledge the unmistakable bull trend we're witnessing. Despite Bitcoin's impressive 150% surge this year, we're likely just getting started. While major indices like the S&P 500, Nasdaq, and Dow are breaking records, Bitcoin is still about 40% shy of its peak, and other cryptocurrencies like SOL are even further behind, lagging by around 65% despite its remarkable performance this year.
Without a doubt, this year has been a definitive one for the crypto market, firmly establishing its resilience and permanence. Do me a favour and cast your mind back a year and imagine being told that 2023 would see FTX unravel as one of the most monumental frauds in American history, a stringent regulatory crackdown on crypto by the US government, and the SEC, led by Gensler, classifying almost every token (aside from Bitcoin) as a security. Picture hearing about lawsuits against giants like Coinbase, Kraken, and Binance, a financial crisis with major banks collapsing partly due to crypto, and interest rates soaring to 5% amid aggressive fiscal policies. Given all this being true, I would’ve assumed we’d be in an extremely bad situation at this juncture. Yet, here we are, standing strong. This resilience not only underscores the market's robustness, but also its undeniable staying power. In the face of adversity, crypto has not just survived; it has thrived, proving itself as an unyielding and dynamic force in the world of finance.
Coles notes for a bull
Bitcoin ETF approval imminent — possibly the most important event in Bitcoin’s history.
The market is pricing in rate cuts in the US starting in March — easier macro conditions.
Bitcoin halving in April — supply of bitcoins for sale from miners will be cut in half.
Presidential election year — typically very bullish for market
In case you were looking for some inspiration for your Christmas dinner Bitcoin conversation…here’s the guy who started the phrase “HODL” impressively working his way through a drunken rant.
Happy Holidays! See you all in 2024 for what is shaping up to be a historic year.