Casey Wagner

<div id="highlights-block_624de6f47b4f6" class="highlights">
 <ul>
 <li>Fed officials plan on pulling back economic support at a faster rate than expected</li>
 <li>Cryptocurrencies fell on the news while stocks traded sideways</li>
 </ul>
 
</div>



Federal Reserve officials are planning on reducing the central bank’s trillions of dollars in bond holdings by around $95 billion a month, minutes from the March meeting show.&nbsp;



Central bankers also plan to allow some of their government-backed holdings to expire, helping to pare down the Fed’s balance sheet, which currently stands at $9 trillion. A limit of $60 billion in Treasurys and $35 billion in mortgage-backed securities would be allowed to roll off, officials “generally agreed,” the <a href="https://www.federalreserve.gov/monetarypolicy/files/fomcminutes20220316.pdf">minutes</a> note.



The Fed voted to raise rates a quarter of a percentage point in <a href="https://cms.blockworks.co/fed-raises-interest-rates-a-quarter-percentage-point/" target="_blank" rel="noreferrer noopener">March</a> and officials noted that an increase in the pace of interest rate hikes may come in the near future. 



St. Louis&nbsp; ​​Fed President James Bullard was the only official to vote against the action, “preferring to raise the target range for the federal funds rate by 0.5 percentage point to ½ to ¾ percent in light of elevated inflation pressures,” according to the minutes.



“The Fed cannot afford, literally and figuratively, to bail out the economy from the forthcoming recession,” David Tawil, president of crypto hedge fund firm ProChain Capital. “Rates must go higher, otherwise we will have a decade of stagflation.”



The minutes come as the central bank begins to tighten monetary policy with inflation rising at the fastest pace in four decades. Russia’s invasion of Ukraine has also presented additional economic challenges, the minutes note. Commodity prices have been pushed higher, “hurting global risk sentiment, and exacerbating supply bottlenecks,” the minutes read.



Cryptocurrencies largely fell on the news, with bitcoin and ether losing about 4% and 7%, respectively. Stocks traded sideways with the S&amp;P 500 losing close to 1% and the Dow Jones down 0.5%. The tech-heavy Nasdaq was trading almost 1% higher.&nbsp;



“We were having a bad day before the announcement, and it got worse,” Tawil said. “Today, crypto is trading like a technology company equity.”



Others are less certain, though, that the Fed’s current policy path will push crypto lower.



“I don&#8217;t think history supports the view that reduction of the Fed&#8217;s balance sheet is necessarily bad for crypto,” said Jack Farley, macro analyst and host of Blockworks&#8217; <a href="https://cms.blockworks.co/podcasts/forwardguidance/" target="_blank" rel="noreferrer noopener">Forward Guidance</a> podcast. “The last (and only) instance of quantitative tightening by the Fed began in October 2017, and bitcoin went up 340% from then until its peak in December 2017.”



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central bank

Bitcoin and Ether Plunge as Fed Moves To Shrink Balance Sheet by $95B a Month

<div id="highlights-block_6232331b6927f" class="highlights">
 <ul>
 <li>The central bank signaled seven more rate hikes this year</li>
 <li>Inflation is not likely to decline until the middle of 2022, Powell said</li>
 </ul>
 
</div>



In an effort to curb inflation, the Federal Reserve raised the benchmark interest rate a quarter percentage point, its first increase since 2018. The central bank signaled there will be seven more rate hikes in 2022.&nbsp;



The increase comes as the Fed faces a series of challenges associated with ongoing supply chain issues, rising energy prices and Russia’s recent invasion of Ukraine.&nbsp;



“The economy is very strong, and against the backdrop of an extremely tight labor market and high inflation, the Committee anticipates that ongoing increases in the target range for the federal funds rate will be appropriate,” Fed Chair Jerome Powell said during a <a href="https://www.federalreserve.gov/live-broadcast.htm" target="_blank" rel="noreferrer noopener">press conference</a> following the release of the Federal Open Market Committee (FOMC) statement Wednesday.



There are seven more FOMC meetings this year, Powell said, and seven more hikes to come. December Fed <a href="https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html" target="_blank" rel="noreferrer noopener">fund futures</a> are now pricing in eight rate hikes, and the probability of nine rate hikes has tripled since yesterday.



Markets dipped slightly, with bitcoin losing about 1.2% and the S&amp;P 500 and the Dow Jones Industrial Index each falling less than 1% in the half hour following the release of the report.&nbsp;&nbsp;



Analysts were unsurprised, commenting that both equities and cryptocurrency markets had a 0.25 basis points rate hike priced in.



“In my opinion, the amount is too small to matter right now, and the amount of the hike is irrelevant,” said Jason Brady, president and CEO at Thornburg Investment Management.&nbsp;



The “more important headlines” right now surround Ukraine, the price of gasoline and the supply chain, David Tawil, president of crypto hedge fund firm ProChain Capital, said.



The Fed does not anticipate inflationary pressures to ease until the middle of the year, Powell said.&nbsp;



“We expect inflation to remain high, through the middle of the year and begin to come down and then come down more sharply next year,” he said.



Even with increasing inflation, Powell does not believe the US is at risk of dipping into a recession, he said, given that households and businesses are currently in a healthy financial state.&nbsp;



“In my view the probability of a recession within the next year is not particularly elevated,” Powell said.



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David Tawil

Fed Raises Interest Rates a Quarter Percentage Point

<div id="highlights-block_619d440c1055f" class="highlights">
 <ul>
 <li>Crypto native and traditional VC firms alike are investing in the space en masse</li>
 <li>Opinions are split on whether this is just what the industry needs or if the dollar flood is a little too frothy</li>
 </ul>
 
</div>



With more than $3 billion in venture capital funding this month alone, there is no shortage of cash in the crypto space.&nbsp;



In the first nine months of 2021, crypto startups raised more than $15 billion in venture funding, nearly five times the total amount for 2020, according to data from <a href="https://www.cbinsights.com/research/report/blockchain-trends-q3-2021/?utm_source=CB+Insights+Newsletter&amp;utm_medium=email&amp;utm_campaign=newsletter_general_thurs_2021_11_18&amp;utm_term=block-1&amp;utm_content=research-public" target="_blank" rel="noreferrer noopener">CB Insights</a>. 



“Early-stage rounds (seed/Series A) dominate the dealmaking, capturing almost 80% of deals in 2021 YTD,” Anand Sanwal, CEO and co-founder of CB Insights, wrote in a recent note.&nbsp;



So far in November 2021, <a href="https://cms.blockworks.co/paradigm-launches-2-5-billion-crypto-fund/" target="_blank" rel="noreferrer noopener">the largest crypto venture fund ever</a> — $2.5 billion — launched, <a href="https://cms.blockworks.co/blockchain-com-gives-bitcoin-mining-infrastructure-company-griid-525m-credit/" target="_blank" rel="noreferrer noopener">over $500 million</a> was invested in a mining infrastructure company and <a href="https://cms.blockworks.co/gemini-aims-to-raise-400m-to-bring-valuation-over-7b/" target="_blank" rel="noreferrer noopener">Gemini secured $400 million</a>, valuing the exchange at over $7 billion. 



“Investors like Coinbase Ventures are also bursting onto the scene — the VC arm was by far the most active blockchain crypto investor with 24 deals in the quarter,” Samwal wrote.&nbsp;



The money isn’t only coming from crypto-native firms, either. Traditional VC groups, from <a href="https://cms.blockworks.co/sam-bankman-frieds-ftx-raises-precisely-420-69m/" target="_blank" rel="noreferrer noopener">Sequoia Capital</a> to <a href="https://cms.blockworks.co/polychain-capital-paris-hilton-and-others-invest-20m-in-swiss-based-origyn-foundation/" target="_blank" rel="noreferrer noopener">Bill Ackman’s Table Management</a>, are beginning to enter the space, and experts are not surprised.  



“Venture capital is a great way for institutional investors to invest in crypto without in fact investing in crypto,” said David Tawil, president of ProChain Capital. “They get the exposure to the asset class in some way, but they don&#8217;t have to deal with the issues of the regulatory environment and compliance issues and risk related issues of Bitcoin or Ethereum and so on.”&nbsp;



<h3 class="wp-block-heading">Venture capital everywhere</h3>



It is no surprise that crypto projects are seeing an increase in funding given the broader success of venture capital investments in recent years, Tawil said, pointing to endowment funds.&nbsp;



“A limitless number of endowments clocked over 50% returns for the year, and the overwhelming majority of the outsized gains was attributable to venture capital-related investments,” Tawil said. “So although at some point, you would think that there would need to be a rotation, at least for now, it seems that there&#8217;s continued investment in venture capital in terms of leading the way for portfolio gains.”&nbsp;



There has also been a significant increase in the number of protocols and projects in the digital asset space seeking funding, Samwal and Tawil agreed. Tawil admitted that with so much money in the space and so many new projects, there are inevitably going to be companies or tokens that don’t succeed, but overall, he is confident that the VC trend will continue for some time.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“I believe that this technology is revolutionary, it has a crazy growth trajectory,” Tawil said. </blockquote>



“Crazy, like parabolic — in terms of what it is going to do for the world, how much revenue it&#8217;s going to generate. It&#8217;s going to take revenue away from other business lines — older line businesses, and so on — but there&#8217;s a ton of value to be generated.”



Others are less certain that the funding is being directed towards the best areas of the market.&nbsp;



“People are trying to put hundreds of millions of dollars into projects that have no product, no roadmap — just a general idea they wanna figure out with like, $1 to $2 [million] in funding,” Meltem Demirors, chief investment officer at CoinShares wrote in a <a href="https://twitter.com/Melt_Dem/status/1462956344403767298?s=20" target="_blank" rel="noreferrer noopener">Tweet</a> on Monday. 



David Pakman, a managing director at CoinFund thinks these seed and early-stage funding rounds are just what many companies in the digital asset space need. Over the last 18 months he has seen many projects develop with the support of small rounds, and now they are ready for larger investments.&nbsp;



Companies that were once largely overlooked are now “getting real revenue, and they&#8217;re accelerating rapidly — basically, they hit product-market fit,” he told <a href="https://fortune.com/2021/11/18/vc-crypto-funds-are-getting-bigger-so-are-the-opportunities/" target="_blank" rel="noreferrer noopener">Fortune Magazine</a>. 



Tawil is confident that even a bear market, which some experts have been calling for in recent months, will not dissuade venture money from entering the space.&nbsp;



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“The VC money and the VC investment is probably going to grow even while cryptocurrencies themselves may swoon or may just stagnate,” he said.</blockquote>



“That begs the question of how there could be such dislocation in terms of pricing trajectory? You would think that things would stagnate on the VC side if they would stagnate on the cryptocurrency side, but if they&#8217;re not, then clearly there are different dynamics driving each one of those markets.”



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David Tawil

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