Here’s what you’ll find in today’s edition:

• Felix digs into whether (and why) the Fed’s rate-cutting cycle could be over.  

• Breaking down the House Financial Services Committee’s new leaders.

• Checking in on financial advisers’ evolving crypto attitudes after the election.

No more rate cuts?

Back in September, the market priced one of the most aggressive cutting cycles I’ve ever seen, with multiple 50-basis point cuts priced in that would swiftly take us to 3% on the fed funds rate in 2025. Fast forward to today, and it's a completely different story, with one to two cuts at best priced for 2025.

Let’s dig into what has driven the change and what to expect.

Below is a chart that compares the effective federal funds rate (EFFR) against the two-year Treasury note. 

There’re a few takeaways we can grab from comparing these two yields:

• Throughout the last two years, we’ve seen many moments where the two-year has priced in an imminent and aggressive cutting cycle (as seen when two-year heads lower below EFFR).

• For the first time since mid-2022, we see these two yields are parity. This implies the market is pricing in a rate-cutting cycle that is essentially over, but it sees no chance of any hikes either.

One of the big drivers behind talk about a swift end to this short-lived cutting cycle is around surprisingly stubborn inflation. As we can see in the December summary of economic projections, FOMC members have aggressively shifted from seeing inflation as being broadly balanced to seeing risks weighted to the upside.

This, paired with what is proving to be a much more resilient and solid labor market than what it appeared in September when the FOMC started to cut rates, is shifting the distribution of probable outcomes more toward a hawkish monetary reaction function.

Putting these pieces together shines a light on why there’s increasing conviction in the idea that the rate-cutting cycle is over.

That said, there are still dovish voices within the FOMC. 

In his speech this week, Governor Waller mentioned he still believed in cutting this year: “So what is my view? If the outlook evolves as I have described here, I will support continuing to cut our policy rate in 2025. The pace of those cuts will depend on how much progress we make on inflation, while keeping the labor market from weakening.”

Much like the last two years, 2025 is shaping up to be another year of extremes where the market goes from pricing in aggressive hawkishness to aggressive dovishness. 

Investors will need to quickly decide whether to try and ride these changes in sentiment or ignore them as noise.

— Felix Jauvin

The holdings threshold CleanSpark just cleared. This milestone reflects a 236% year-over-year rise in the bitcoin miner’s BTC-denominated treasury — and a broader trend of corporate BTC hodling. 

Aside from MicroStrategy (447,470 BTC), CleanSpark joins Marathon (44,893 BTC) Riot Platforms (17,722) and Hut 8 (10,171 BTC) in holding more than 10,000 BTC.

The House Financial Services Committee has a new leadership team for Trump’s second term.

Incoming Chair French Hill, who last session led the digital assets subcommittee, announced the appointments today: 

1. Vice Chair - Rep. Bill Huizenga (MI-04)

2. Whip - Rep. Mike Haridopolos (FL-08)

3. Vice Chair for Communications - Rep. Mike Lawler (NY-17)

4. Subcommittee on Capital Markets Chair - Rep. Ann Wagner (MO-02)

5. Subcommittee on Financial Institutions Chair - Rep. Andy Barr (KY-06)

6. Subcommittee on Digital Assets, Financial Technology and Artificial Intelligence Chair - Rep. Bryan Steil (WI-01)

7. Subcommittee on National Security, Illicit Finance, and International Financial Institutions Chair - Rep. Warren Davidson (OH-08)

8. Subcommittee on Oversight and Investigations Chair - Rep. Dan Meuser (PA-09)

9. Subcommittee on Housing and Insurance Chair - Rep. Mike Flood (NE-01)

The digital assets subcommittee not only has a new chair, it also has a new name. “Artificial intelligence” was tacked on this year, replacing “inclusion.”

Rep. Steil was a member of the subcommittee last session, and while he wasn’t a cosponsor, he did vote in favor of two digital asset bills that passed last year: FIT21 and Joint Resolution 109, the latter of which sought to overturn the SEC’s staff accounting bulletin 121. 

Elsewhere, Steil cosponsored the CBDC Anti-Surveillance Act, introduced by Rep. Tom Emmer last spring. 

I’m told stablecoin and market structure legislation will be the top crypto priorities this Congress.

With Speaker Mike Johnson retaining the gavel after a briefly contentious vote, it’s expected that newly introduced legislation should progress to the floor fairly quickly after committee markups. 

It is Washington, though, so take the term “quickly” with a big grain of salt.

— Casey Wagner

After witnessing the post-election rise in crypto asset prices and ETF flows, here’s another data point backing up a sentiment shift: 56% of 430 surveyed financial advisers say they’re more likely to allocate to the space because of the November results. 

This number came from the Bitwise/VettaFi report we referenced a couple times this week as the companies teased findings before the formal release.

We mentioned, for example, that just 35% of advisers say they’re able to buy crypto for client accounts. Looking a bit deeper, 71% of these financial pros said at least some of their clients were investing in crypto on their own. 

“These held-away assets represent a major business opportunity for advisers seeking to help clients integrate crypto into a broader wealth plan,” the report notes. This sort of statement is nothing new, but rather drives the point home.

While nearly two-thirds report the inability to own crypto for clients, 22% allocated for clients in 2024 (twice the 11% in 2023). 

Of the advisers who haven’t yet invested, 19% plan to “definitely” or “probably” add exposure to the asset class this year. That’s more than double the percentage (8%) who said as much in last year’s report.

Other findings surprising to me:

• Though US spot bitcoin ETFs notched $36 billion of net inflows in their first year, flows into ETH products accelerated in December and filings for other spot crypto funds have proliferated, advisers thinking about jumping into crypto favor equity funds. Perhaps State Street Global Advisors’ mindset has legs, and we recently heard about how BLOK co-PM Dan Weiskopf is thinking about things.

• Secondly, despite the 56% swayed by the election, half the surveyed advisers still consider regulatory uncertainty the top hurdle for future crypto investments. That’s down from closer to two-thirds in previous years, but shows the wins of Trump and pro-crypto Congress members have not solved everything overnight.

The latter point confirms that amid the optimism of progress, there remains plenty of healthy skepticism — or at least patience — from those weighing their next move. 

— Ben Strack

• The US stock market was closed Thursday to honor former President Jimmy Carter. Shares will resume trading as normal on Friday. 

• AccuWeather Inc. estimates damages and economic losses from the Los Angeles wildfires will be between $52 billion and $57 billion, making it California’s most costly wildfire incident in history. Our thoughts are with those in Southern California. 

• The Biden administration plans to issue one last round of restrictions on AI chip exports, according to a report from Bloomberg.