Is the Fed Finally Embracing Crypto?

Fed Governor Waller calls it a “new era” for payments, but what does that really mean for crypto, markets, and the so-called “Wild West” of digital assets? Scott Bauer from Prosper Trading joins host Jeff Praissman to break down the Fed’s surprising tone shift, earnings season trends, and whether the Magnificent Seven can keep driving the market.

Summary – IBKR Podcasts Ep. 311

The following is a summary of a live audio recording and may contain errors in spelling or grammar. Although IBKR has edited for clarity no material changes have been made.

Jeff Praissman

Hey everyone, this is Jeff Praissman with Interactive Brokers. It’s my pleasure to welcome back to our podcast studio Scott Bauer from Prosper Trading Academy. Hey Scott, how are you? 

Scott Bauer

Great, Jeff. It is busy. How are you?

Jeff Praissman

I’m good. I’m good. Yeah, it’s always great to have you here on these Wednesday mornings when we do a little brief summary of the market in the past week and then the look ahead. But like you said, it is busy, and we are in the middle of earnings season with a lot of major companies — Netflix, Coca-Cola, and GM — already reporting earnings this past week. I saw GM and how that flew up. But how are these reports influencing market sentiment, and what patterns are emerging for Q3 earnings that might signal broader economic trends? 

Scott Bauer

Overall, I think the experts, the analysts out there, were looking for a pretty decent earnings season overall. Certainly GM and Coca-Cola fit into that. The banks last week, for the most part, were pretty positive. But then we get Netflix, and we see Netflix down almost 10% here, and Texas Instruments, which we got, was a disappointment. We get Tesla today, and next week are all the Mag Sevens. So I really think, from talking to traders and talking to other big people on the institutional side, people are cautiously optimistic. But right now, the tone is a little pessimistic overall. This is going to be an interesting one because we know, looking at these results, that they can absolutely influence market sentiment — and market sentiment, as we’ve seen, can change on a dime. So I think there is some concern, but people are still looking and hoping for the best.

Jeff Praissman

Got it. Got it. And I want to switch courses here a little bit — actually a lot — because yesterday Fed Governor Waller spoke at the Payment Innovation Conference. He spoke on tokenized assets and stablecoins and really seemed to embrace them for the crypto road for payments, and in my opinion, recognized the new reality. How do you think this relatively new embrace of digital assets potentially will impact the markets long term? 

Scott Bauer

Yeah, and I think this was actually a watershed moment yesterday that may have not even hit the mainstream — at least among people that I’m talking to. What Waller talked about — this is massive. The Fed is no longer treating crypto rails just as a fringe; they’re inviting them right into the payments area. And I think Waller said — and I think I have to quote, maybe I’m misquoting a little bit — but “a new era for the Fed in payments is here,” right? And they’re even talking about something like a lighter-weight, a “skinny” master account. So they have totally embraced this. Now, where do we go from here? I think the whole crypto space, honestly Jeff, is still the Wild West, and we’ve been talking about that for a very long time. But you absolutely have now the people making decisions who have embraced this. And like I said, I think it’s a watershed moment. We won’t really know the consequences of this maybe for years to come, but it’s certainly something that, in my estimation, a year, two, three years down the road from now, we could see the whole landscape of the payment ecosystem changed.

Jeff Praissman

Yeah, it’s almost like, if you can’t beat ’em, join ’em. 

Scott Bauer

Exactly. 

Jeff Praissman

And then the advanced estimate, or the first reading of Q3 GDP, is scheduled for October 30th. For those of our listeners who don’t know, there are really three readings, right? There’s the advanced estimate, then there’s reading two, and then the third revision or second revision. Typically, how much does the market care about the first look versus the second and third revisions? Or is it a wait-and-see? 

Scott Bauer

I do think it’s important now, just based on what’s happened over the last several months with questioning some of the data that’s coming out. I get it — there’s a little pessimism as to maybe what the street and retail believe in. But typically, that first look at GDP is pretty important. It can really influence investor confidence and market sentiment. We know there are always revisions — that’s just part of the process — but if there’s a big surprise, either positive or negative, that can absolutely and immediately impact the market. So I do think it’s a critical number we’re going to look at, especially because we haven’t had a lot of data come out recently.

Jeff Praissman

Okay, and I want to wrap it up where we started today — with the Mag Seven. You had mentioned it when we were talking about earnings. And obviously, five of the seven — Tesla’s really six of the seven — have been out, but Tesla’s coming out tonight. The other five — Apple, Microsoft, Amazon, Meta, and Alphabet — will come out next week. You mentioned there’s a little bit of a pessimistic tone, but is that really regarding these, or is that just a general market outlook? And is there anything these companies could come out with that could really rattle the market or shock it? Or is it like, “Oh, they’ll come out, it’ll be good, and business as usual”? Or is there something that could be completely mind-blowing? 

Scott Bauer

It is incredibly important, and Mag Seven is not just a cute, catchy name, because we’re talking about a massive part of the overall S&P 500 from these particular stocks. When these companies report, I would say what they report is not as important as what they say about the future. What do they say about AI? Is there still going to be growth? Is the whole tech bubble that people are talking about — is that something that’s just for headlines and rhetoric, or is there possibly a little bit of truth to it? So 70% of the S&P 500’s expected growth — which I believe is about 8% for the quarter — comes from all the Mag Seven, with the exception of Tesla. That’s why this is so critical. I think there’s, again, that cautious optimism out there — how long can these companies drive the market? 

Jeff Praissman

Got it. This was great, Scott. Always love having you come by the studio. And for our listeners, you can catch more from Scott at prospertrading.com. Also, on our website we do a bi-monthly podcast on the markets and tons of other educational material that Scott and Prosper Trading supply. Until next time, Scott, thank you for swinging by. 

Scott Bauer

Jeff, always appreciate it. Thanks so much. 

Jeff Praissman

Yep.