Waiting on the Fed

It’s that time again: the next Fed meeting is almost upon us and everyone is wondering what sort of mood Jerome Powell is going to be in as he comes down the chimney.

Today’s forward guidance looks at the implications of the looming FOMC meeting and what lies ahead for the markets. The hoped-for Santa Rally may or may not be on the cards, depending on what Powell and the other Fed governors are thinking about the state of the US economy.

We also take a look at a sector which has lots of crypto market participants reaching for the eggnog: digital asset treasury companies. Concerns that these, from the likes of Strategy downwards, could be forced to begin selling their crypto are weighing on the markets and so we examine what’s going on with them.

📺 New Altcoin ETFs 📺

As the crypto sector frets over Japanese bond yields and what the Fed might be thinking, the launch of more spot altcoin ETFs in the United States has gone largely unnoticed. In news that would once have been shouted from the rooftops, XRP, Solana and even Dogecoin are now available to regular stock market investors via ETFs, with more on the way for them and other cryptocurrencies besides.

In today’s video, we look at how successful these ETFs have been so far and which other altcoins are next in the queue to get the ultimate TradFi seal of approval. Crypto prices may be limping towards the end of the year, but it seems that the market is set to mature further in 2026 and beyond.

You can watch that video here.

📈 Crypto Market Forecast 📈

It’s going to be a big week for the markets. That’s because the Fed’s next meeting is this Wednesday, December 10th. As always, everyone is focused on how the Fed will adjust short-term interest rates. For context, the markets are currently pricing in a 0.25% rate cut. No rate cut would therefore be bearish, and a rate cut itself could be a nothingburger, as it’s mostly priced in.

What’s not priced in however is what the Fed will decide to do with the balance sheet and what its Summary of Economic Projections (SEP) will look like. For reference, the Fed ended QT on December 1st, and Fed governor John Williams has been hinting that the central bank could begin QE again in the coming weeks. As such, adjustments to balance sheet policy are likely on the menu.

For those unfamiliar, QT is when the Fed buys fewer US government bonds, and QE is when the Fed buys more US government bonds. The former causes liquidity to fall, and the latter causes liquidity to rise. When you combine the recent end of QT with the resumption of US government spending following the end of the shutdown, the liquidity backdrop is positive.

In other words, the liquidity backdrop is already looking better regardless of what the Fed decides to do with its balance sheet this Wednesday. This means that the most important factor to watch at the Fed’s next meeting is the SEP, which will reveal Jerome Powell and co’s thinking on things like inflation and unemployment, as well as the Fed’s policy in the coming months - what it plans to do long term.

It’s hard to say what the Fed will signal, simply because recent economic data has been mixed. Some sources suggest that unemployment is rising and inflation is falling, which would be supportive of Fed easing. Other sources suggest that both unemployment and inflation are holding steady. On top of that, there’s the added complication of perceived Fed politicization.

In case you missed it, economist Kevin Hassett is currently projected to be the next Fed chair when Powell’s term ends in 2026. Bond investors are reportedly concerned that Hassett will be too eager to cut rates and stimulate due to his connections to Trump. Since the Fed’s SEP extends to next year, it could be more hawkish than expected to offset these kinds of concerns.

Believe it or not, but this would be consistent with what we’ve seen after the last few Fed meetings, wherein the crypto market would rally leading up to the meeting, and then crash in the aftermath. In turn, this would explain why so many investors are reportedly short heading into the Fed meeting. Some would argue that this sets the stage for an upside surprise.

This is possible because we’re entering a seasonally strong period for the markets which many refer to as the ‘Santa Rally’. Although the Santa Rally technically applies to trading days at the end of December and early January, positive price action often begins in the second half of December. This means that, even if crypto dips after the Fed meeting, it’s likely to recover soon after.

This would explain why we’re seeing high-profile crypto projects and companies like Stable and Twenty One Capital recently announcing that they will be launching their main net and Bitcoin Treasury respectively next week. FYI, both of these entities are backed by Tether and Bitfinex, which are two of the most powerful players in the crypto industry.

Another powerful player is Coinbase, and you might have seen that it has been aggressively marketing an upcoming announcement that will be made on December 17th. While this could all just be Tether and Coinbase trying to take advantage of the assumed positive seasonality, some would say that the timing of these announcements could foreshadow significant crypto inflows.

In sum then, the price action for next week depends on what the Fed decides to do with interest rates, its balance sheet, and the SEP. History suggests that crypto will rally until the Fed’s meeting and sell off afterwards, but positive seasonality and bullish positioning by powerful players in the crypto industry suggests more shorts will get squeezed, pushing prices higher.

😨 DAT FUD Decoded 😨

Digital Asset Treasuries (DATs) have been under heavy scrutiny recently.

Many believe this is largely due to an mNAV compression that has seen some of these entities trade at a discount. For those unfamiliar, the ‘mNAV’ (Market Net Asset Value) is a metric that measures the ratio of a company’s market capitalization to the value of its cryptocurrency holdings. It is used to evaluate whether the value of the company’s stock is worth more or less than the value of its assets (in this case, crypto holdings).

An mNAV greater than 1 indicates the company trades at a premium to its crypto assets, while mNAV below 1 signals the company is trading at a discount to its holdings.

You see, an mNAV below 1 is typically considered bad since it hints that investors don’t believe in the company’s ability to increase ‘crypto-per-share.’  This lack of confidence tends to come from perceptions about excessive share dilution in the future; the inability of the company to raise capital via equity issuance or convertible debt, and the possible sale of the underlying assets during market downturns. In its most basic interpretation, it means that investors believe the value of the underlying crypto-per-share will continue to go down in the near future.

Likewise, an mNAV above 1 is seen as good since it reflects investor confidence in the company’s ability to grow its holdings, or crypto-per-share, through capital raises and strategic initiatives. This may come from confidence in the company’s ability to generate income, borrow or raise capital to buy more crypto that holders believe will continue to grow in value.

That said, it’s important to understand that trading DATs purely on their mNAV numbers is a fool’s game. The DAT financing model is way more complex than it was a few years ago. Many of the current DATs trading under an mNAV discount (less than 1) have active contracts (potential future share issuance) that can dilute current holders. This means that a stock with an mNAV of 0.2 could potentially be inflated to an mNAV of 1.5 if there are enough new shares issued in the future. As an investor in these stocks, this means that the price of the stock you hold could decrease while the mNAV continues to grow.

But those are considerations for long-term investors. In the short term, it’s a narrative game – which brings us back to why the market is currently freaking out about DATs.

At the root of the matter, there seems to be low confidence among investors about these entities surviving the crypto bear market. For what it’s worth, the recent mNAV compression was expected by some of the more seasoned DAT investors. In fact, in an August edition of this newsletter, we noted that some of these sophisticated DAT investors were expecting a massive mNAV compression between the months of September and November. We recommend you give that issue a read to understand why.

As for the current DAT panic, a closer look at the issue reveals two specific factors creating FUD among investors.

The first is MSCI's ongoing consultation on whether companies with predominant digital-asset exposure (50% or more) should remain eligible for its benchmark indices. The crux of MSCI’s issue with DATs is that many of these entities are structurally very similar to investment funds (entities traditionally ineligible for equity index inclusion). For context, Strategy (MSTR) was added to the MSCI World Index in May 2024. An exclusion from the index would trigger mechanical selling from index-tracking funds. For DAT investors, this signals a potential black swan event that could bring down the share price and mNAV of MSTR and other companies. MSCI’s final decision on the matter is due on January 15, 2026. The follow-on logic is that many of these DATs (that don’t have external sources of income) would struggle to raise further capital to fund operating expenses – which could result in them selling the underlying altcoin treasury. That last part has crypto investors panicking.

For what it’s worth, Strategy alone makes up over 80% of the cumulative market cap of DAT companies. For his part, Strategy’s head honcho Michael Saylor has publicly clarified that the company does not fall under MSCI’s definition of an investment firm or holding company. He stressed that Strategy has an ongoing software business that generates revenue every year. He noted that its BTC accumulation strategy is just a sophisticated financing engine.

As for the second factor affecting investor confidence, there’s a lot of concern over the ability of DATs to finance and pay back debt obligations during the crypto bear market, when investor sentiment for crypto-related ventures tends to decline. This, of course, has been amplified with the recent market drop. That said, there is a valid concern for investors here. Cash flow is king. Without cash in hand, DATs may be pressured to liquidate their assets, in turn defeating the long-term viability of their treasury strategies. That said, much of this debt FUD was again concentrated around MSTR. To Saylor’s credit, the company has followed up and announced a $1.44 billion cash reserve dedicated to future dividend and interest payments. The reserve is expected to currently cover at least 21 months of dividend obligations.

In summary, these two issues form the crux of the recent DAT FUD. In our opinion, all factors considered, most of the major DATs like Strategy are likely going to be fine. However, there’s legitimate cause for concern when it comes to some of the smaller and more volatile altcoin-focused DATs. There’s likely going to be a bloodbath for these entities.

But, just how much of an effect this would have on the crypto market is anyone’s guess. If you ask us, we’re likely going to see the broader market remain resilient in the long term while certain altcoins get pummelled to a pulp in the short term. If you hold some of these DATs, it might be a wise idea to do the maths. Next cycle, there’s going to be a greater focus on the underlying cash-generating business models of DATs. In other words, it’s going to be much harder to see altcoins pump from DAT-fuelled hype.

🔥 Hot Deal Of The Week 🔥

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📖 Quote of the Week 📖

Investing emotionally in this market is one of the quickest ways to lose your capital. FOMO and greed will have you overextending yourself.

“The investor's chief problem - and even his worst enemy - is likely to be himself” - Benjamin Graham

Team Coin Bureau

Disclosure: Authors may own cryptoassets named in this newsletter. These are unqualified opinions, and a Coin Bureau newsletter, is meant for informational purposes only. It is not meant to serve as investment advice. Please consult with your investment, tax, or legal advisor.