✋ 5MF: METAMASK’S BIG MOVE, ACCOUNTING RULES TO IMPACT FIRMS HOLDING BTC, MORE

Five Minute Finance

Published in

InsiderFinance Wire

12 min readSep 8, 2023

The 5-minute newsletter on the important stuff in finance — explaining what’s going on, and why.

Let’s see what’s going on this week:

Self-Custody to Banking Railway Opens Up
Corporate Crypto Treasuries Made More Attractive
Is “September Effect” a Cause for Concern?
AMC Apes About to Close Shop
On-Chain Data Boosts GBTC Confidence

Web3 to Mainstream Milestone

MetaMask Adds an Off-Ramp for Certain Countries (source)

Crypto Landscape Is Coalescing

If there’s a one hope “crypto bros” have, it’s that crypto-to-fiat bridge is made convenient and simple.

This itself could be a fortified bridge to mainstream adoption.

Leading the way, MetaMask, with its 21 million users, takes a step towards this goal. How does it work?

Let’s break it down:

Previously, users could fund their MetaMask wallets with third-party services partnered with Consensys, the firm behind the wallet. These providers, MoonPay, Transak, Sardine or Mercuryo, will now interface with users’ banks for crypto-to-fiat conversion as well.

The new feature simply called “Sell” would then remove the need to sell coins on an exchange. Imagine if Sell had been present before the FTX went down…

The convenience of instant sales is a major reason many prefer keeping coins on exchanges.

Image courtesy of MetaMask.

As important a milestone as this is, it has major restrictions:

Only available for three target fiat currencies: USD, EUR and GBP.
Likewise, it is only available in the US, per certain states, in the UK, and in some EU countries.
Its availability varies based on third party partners.
Presently, only ETH-to-fiat is available for selling.

This also means that the user will have to pay multiple fees:

Ethereum’s gas fees.
Third party fees for bank interfacing.
MetaMask 1% fee.
Conversion fees for crypto-to-fiat.

Considering that Ethereum’s gas fees depend on daily network congestion, it could be enormous. In the present stagnating crypto market, the fee is half a dollar.

The more complex Ethereum transaction, the heavier the fee. Simple ETH transfer is now between $0.48 and $0.80. Image courtesy of @kroeger0x via Dune analytics.

To prepare for the future, MetaMask devs plan to support Ethereum’s layer 2 networks (Arbitrum, Polygon, Optimism) to cut gas fees to negligible levels.

As it stands now, the overall fee is prohibitively expensive.

User S4mmy.eth, who first went viral showcasing the Sell feature, had to spend 9% on a £65 GBP withdrawal, netting him £59.42 GBP at the end of the conversion.

Image courtesy of Twitter

While the fee is over-double than the ones for MasterCard/Visa cards, it bears keeping in mind that such a low ETH amount would exert a minimum trading fee. In turn, this would spike the overall withdrawal percentage.

More importantly, MetaMask is the only game in self-custody town with this feature. It is always the case that pioneers get to reap the benefits before competition shows up.

Nonetheless, having crypto funds land from a self-custody wallet directly to your bank as fiat is a game-changing moment in crypto history.

Crypto Corporate Accounting Milestone

Change to US Accounting Rules Will Be a Boon to Companies Holding Crypto in 2025 (source)

Bullish Corporate Treasury Clarity

The MetaMask milestone is joined by the FASB’s game-changing update this week.

The Financial Accounting Standards Board (FASB) is a non-profit organization that makes accounting rules for publicly listed companies in the US. If you’ve ever heard of Generally Accepted Accounting Principles (GAAP), FASB is the one that developed it.

Starting from 2025, corporations will get to list their crypto assets at fair value. Why is that a big deal?

Because the current standard makes companies only report the historical price at the time of purchase. From 2025, both crypto recoveries and losses will be accounted for.

In public earning disclosures, investors would now have a more accurate picture. Right now, even if there is a temporary quarterly dip, such losses would be recorded as impaired. And they remain so until sold.

Otherwise, the books keep impairment as a loss.

For Bitcoin maximalist companies like MicroStrategy, this paints a poor picture. For this reason, MicroStrategy’s CFO, Andrew Kang, wrote to FASB in May, explaining that:

“Fair value is a more useful and balanced accounting model for investors than the current model, whereby only decreases in fair value are recognized, and subsequent increases are not.”

With fair value on the table, companies won’t have to worry about misconstrued earnings and subsequent non-flattering headlines.

Bloomberg in February 2023, prior to the Bitcoin rally amid the US banking crisis.

Of course, that all depends on what kind of crypto assets companies hold. Likely, they might lean towards treasury assets with a large market cap and reliable reputation, like Bitcoin.

On the other hand, investors will be in a better position to compare financial statements across firms. To ensure the fair value is accurate, companies will have to disclose how they came up with it, under the existing rule ASC 820.

It will be interesting to see how this plays out. No doubt, corporate execs are watching carefully how MicroStrategy’s all-in-BTC strategem is unfolding.

MicroStrategy (MSTR) made its first Bitcoin acquisition in August 2020. Since then, its market cap nearly quadrupled, presently holding at $4.9 billion. Image courtesy of ycharts.

Should Bitcoin ETFs receive the green light, they could usher in a new wave of Bitcoin investments. This could lead to massive corporate adoption of Bitcoin, potentially even before 2025.

State of the Economy through the September Effect Prism

Stocks Likely to Avoid the “September Effect” as AI Hype Continues (source)

As Nebulus As September Effect Is, How Does It Stack Up Now?

It’s that dreaded time of the year, September.

The month gained a bad rep thanks to Jeremy Siegel, a finance professor at the Wharton School of Business Administration.

By observing market trends, Siegel noticed that the Dow Jones industrial average dropped in 63 Septembers from 1890 to 1994, compared to rises in 41 Septembers.

If that doesn’t seem as damning enough, it’s worth noting that this trend hasn’t been as consistent in recent years.

Considering current market trends where stocks rise until July and soften in August, the past 11 Septembers paint a neutral picture.

Image courtesy of Yahoo Finance

Nonetheless, the September Effect remains as a negative market expectation.

After all, the fiscal year ends on September 30. During this period, both the federal government and organizations lock-in profits and profits, potentially leading to asset liquidations.

But what if the anticipation is just that — an anticipation? And what forces could counteract this perceived effect?

Interestingly, the now retired Siegel, noted in last Friday’s Behind the Markets podcast presented a rather optimistic view. Drawing from a number of factors, he argued that the stock market might hold some positive surprises:

The housing market is more resilient than expected, with home prices actually increasing by 0.7% in June, despite the above-7% mortgage interest rate. That’s because the majority of homeowners are locked into mortgages under 5%, which keeps the supply lower than demand.
Although the inflation shows signs of reheating, Siegel doesn’t believe that the Fed is going to incur more interest hikes.

“The likelihood that the Fed will raise in September is now almost nil, and in fact it puts the November increase in doubt,”

The main reason for that expectation is that the labor market is finally showing signs of loosening. This was demonstrated by latest JOLTS data, showing a drop of 338,000 job openings in July.

A flexible market is crucial for Jerome Powell’s agenda. Fewer earnings can lead to controlled inflation.

The signs to prepare the public in this direction are already popping up.

Image courtesy of Wall Street Journal

This may seem inverted but it makes sense in the world of state capitalism, underpinned by central banking. If inflation is bound to go down, courtesy of a loosened labor market, the Fed will not need more interest rate hikes.

Both banks and the stock market are terrified of a more expensive capital. In other words, the inherently bearish job loss is overshadowed by that fear.

On top of that, the AI hype is still ongoing. If anything has enough force to upset historic trends, it is a historic novelty. Nvidia (NVDA), Meta (META), Microsoft (MSFT) and Apple (APPL) are all heavily AI-invested, altogether representing $7.2 trillion market cap.

Apple may even surprise us on September 12th with new product launches and potential Ajax AI news. Considering Apple already lost $200 billion market cap this week, Tim Cook is bound to feel the pressure to impress.

If not, Siegel’s new-found optimism for this September may end up being misplaced.

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Big Lesson from Meme-Stock Trading

AMC Falls 19% as Firm Offers to Sell 40M Shares (source)

AMC Meme Trading Exhausted

AMC retail investors, commonly referred to as “apes”, are in the disillusionment stage. Over the week, AMC shares took a -40% dive, now at $7.86 per share.

Image courtesy of TradingView

This is nearly 10x lower from the legendary short-squeeze in January 2021, carrying over to the now-fantastical price of $322 per share in June 2021.

The most recent devaluation culprit is the announced agreement to sell 40 million AMC shares to financial giants such as Citigroup Global Markets, Barclays Inc., B Riley Securities, and Goldman Sachs.

Adding to investor concerns, there was a delisting APE units on August 24th, reversing the stock split at 1-for-10 ratio. Apes perceived this as major dilution of value, just as a shady crypto token would suddenly unlock millions of tokens.

Reflecting on the meme stock phenomena, one might ponder: was it a good idea to buy hyper over-valued stock for a company that was on the verge of bankruptcy, just to spite Wall Street hedge funds?

Does counting on the loosely defined “community” sound like a solid investing strategy? The entire meme stock craze depended on herd mentality so that more buying pressure piles up.

But this can only last for so long before professional investors use it as an exit liquidity strategy.

In fact, the entire dynamic has been eerily reminiscent of Dogecoin holders. A quick look at Elon Musk’s Twitter timeline will show them begging Musk to say something Dogey, in hopes of spiking the price so they can sell their bags.

It might serve us better to reorient and view both instances as impulsive gambling, instead of strategic investing.

Grayscale Bitcoin Trust (GBTC) Finally revealed

Breaking: Arkham Has Identified the Grayscale Bitcoin Trust’s Holdings on Chain (source)

On-Chain Transparency for the Largest BTC Holder

In the realm of Bitcoin, both Grayscale and MicroStrategy have consistently made headlines, establishing themselves as significant players.

While MicroStrategy is a publicly listed company, GBTC is an over-the-counter (OTC) trust. It represents Bitcoin exposure as shares trading under the ticker GBTC. Those shares were purportedly 100% backed by on-chain Bitcoin (BTC).

Yet, the authenticity of this BTC backing has been a hot topic of debate. Digital Currency Group (DCG) runs Grayscale, which operates GBTC. Barry Silbert’s DCG is the same one that owns bankrupt Genesis Trading market maker, leaving creditors without at least $3 billion.

This dynamic inevitably sparks speculation if DCG could tap into GBTC. Those familiar with the FTX fraud situation can imagine it. The key question being, what could happen to the cryptomarket with that much selling pressure?

Or, if GBTC is even truly 100% backed by BTC?

Grayscale didn’t help matters by refusing to reveal their Bitcoin wallet addresses.

Image courtesy of Twitter

Well, the speculation is over thanks to Arkham’ research. The blockchain analytics firm sleuthed the real state of GBTC. Thankfully, it is as legit as it appears.

Across 1,750 wallets, GBTC holds 627,779k BTC, valued at around $16.48 billion. Each wallet address is limited to storing up to 1,000 BTC.

GBTC inflows and outflows are now visible on Arkham Intelligence. Expectedly, Binance holds most addresses, collectively accruing $6.53 billion in BTC, followed by Bitfinex and Robinhood.

This transparency boost is another tailwind in the trust’s back, right after winning a lawsuit against the SEC that prevented it from becoming a true Bitcoin ETF.

As an established BTC holder, GBTC may even get ahead of BlackRock’s ETF application. As of Tuesday, Grayscale Investments lawyers are pushing to make it happen.

“Each day that passes without listing the Trust’s shares on NYSE Arca is another day when the Trust’s existing investors bear unjustified harm,”

Joseph Hall, attorney from Davis Polk law firm

Tweets of the Week

The number of new billion dollar start-ups globally has declined from 67 in December 2021 to just 3 in July

@WClementeIII

I continue to believe that #bitcoin’s 4 year cycles are just coincidences and have little to do with the halvenings.
Global M2 money supply has actually been having its own “4 year cycles” as of late, and those cycles have been reflected in most risk assets, including bitcoin

@Pledditor

I keep hearing analysts assert that we have dodged the recession this time, and that the inversion of the yield curve did not matter. This misunderstands the 15-month lag.

@McClellanOsc

Retail money market funds continue to rise aggressively
Sharp rises often precede recessions since 1990

@GameofTrades_

deposited more eth into lido because of all the silliness on the timeline.
how about people stop painting lido as one evil centralized entity? you can’t meme into existence what’s simply not true.
the largest single validator operator in lido only has 1.16% stake.
it’s less than ledger, unknown whale, okex, celsius, bitcoin suisse, kraken, binance, coinbase, all of which are very much real centralized entities.
unlike them, lido dao can’t force their operators’ hand. and you do everyone a disservice spreading narratives that imply otherwise.

@bantg