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Welcome to On the Margin, brought to you by Ben Strack, Casey Wagner, and Felix Jovin. Here’s what you’ll find in today’s episode:
- We will review the Fed’s latest economic forecasts ahead of next week’s FOMC meeting.
- There’s a new name on Trump’s list of candidates, and many cryptocurrency fans are excited.
- Sources point to a possible launch date for spot ETH ETFs in the US.
Did the Fed just secretly raise its target?
I’ll be honest. When the FOMC met last month, I was caught off guard.
In the days leading up to the meeting, it seemed like all the economic data was headed down, culminating in a weak May CPI reading on the day of the June meeting.
When the Fed statement was released at 2:00 PM ET, it seemed like the dovish dot chart forecast was a foregone conclusion.
To my surprise, the Summary of Economic Projections predicted only one rate cut in 2024, and they raised their full-year Core PCE forecast to 2.6 from 2.4. On the margins (wink wink, nudge nudge), it was hawkish.
In the days following the meeting, I had the feeling that there were two possibilities:
- The Fed, after it had experienced an unexpected rebound in inflation in the first quarter of 2024, wanted to buy optionality ahead of the next few FOMC meetings, but was still leaning dovish. They just wanted optionality.
- The Fed has once again made its classic policy mistake of taking too tough a stance at a time of economic slowdown and has just opened the door to a hard landing.
As the weeks went by, I began to realize I was missing something. The unemployment rate forecast for the end of this year had been cut to where we were already: 4% from 4.1%.
Because of this change, if the unemployment rate had risen at all in June, we would have been immediately above the Fed’s full-year forecast. And that’s exactly what happened: it was 4.1%.
Finally, back to today, we now have inflation prints that are short of the downside and unemployment prints that are above the Fed’s forecast. This combination sets the Fed up perfectly for a rate cut in September.
This mechanical game of central bank chess was interesting. But it felt like they were betting everything on updating a single dot chart, and that seemed risky. However, the light bulb really went on when I came across an analysis by Warren Pais (a recent guest on the On the Margin podcast). He mentioned the following:
Simply put, it looks like the Fed simply tweaked its summary of economic projections (SEP) to raise its inflation target to 2.8% without openly admitting it. Now that’s a gambit worth betting on.
— Felix Joven
13,000
The estimated number of creditors who received Mt Gox payments in BTC or Bitcoin Cash, according to data filed Tuesday.
Some view these payments as bearish for BTC, given that those receiving the funds may decide to sell, causing BTC to decline. Alex Thorne of Galaxy Digital doesn’t necessarily buy that story.
According to Arkham Intelligence, Mt Gox still holds around $9 billion worth of BTC, despite billions of dollars worth of assets being moved to various wallets this morning.
You’ve been hired!
Former President Donald Trump received the Republican nomination yesterday and announced his running mate: Ohio Senator J.D. Vance.
Vance, author of the 2016 memoir Hillbilly Elegy and former Trump critic, won his 2022 U.S. Senate seat on a pro-crypto platform. He campaigned against President Biden’s infrastructure bill, which included new tax reporting requirements for cryptocurrency exchanges. Vance also cited the Canadian government’s efforts to freeze and close bank accounts as “why crypto is taking off” in 2022.
Vance, along with Sen. Thom Tillis, R-N.C., sent a letter to SEC Chairman Gary Gensler in January after the regulator’s X account prematurely said the agency had approved a bitcoin ETF. Gensler noted that the account was “compromised” at the time.
Vance and Tillis called the violation “unacceptable” and a “colossal mistake.”
As a venture capitalist, Vance has significant crypto assets. As of December 2022, the senator held between $100,000 and $250,000 in BTC on Coinbase, according to federal filings.
Of the four finalists on Trump’s vice presidential shortlist, Vance is the youngest (by nearly two decades). In fact, Student The former president, as per tradition, summoned each vice presidential contender to Milwaukee and then eliminated them from the race one by one.
If Trump wins the election, Ohio Gov. Mike DeWine will have to appoint a replacement to fill Vance’s Senate seat. DeWine’s only parameters are to find someone “suitable” and “qualified.”
Given his status as a Republican, he is expected to choose a fellow GOP member. A special election for the seat, in which an appointed senator may or may not run, will be held in 2026.
Let’s see how (and whether) the cryptocurrency discussion continues in the Trump campaign in the months leading up to the election.
— Casey Wagner
ETH ETF has a possible launch date, sources say
Last week, fund companies filed revised applications for their planned U.S. spot ether ETFs and eagerly awaited the SEC’s next steps.
Blockworks sources said they have already arrived.
The securities regulator has asked issuers to file final registration statements by Wednesday, according to two people close to the filings. The disclosure documents are expected to include fees for the funds and all other details that have not been previously disclosed.
Issuers must then request that these documents become “effective,” which is expected by next Monday. That would set a potential launch date of July 23, the sources added.
An SEC spokesman said the agency does not comment on individual claims.
July 23 is exactly two months after May 23, the day the SEC approved 19b-4 proposals for exchanges that would trade ETH funds.
A separate division of the SEC, the Division of Corporate Finance, was tasked with working with issuers to finalize disclosure documents prior to their issuance.
We discussed expected revenues for products (less than for BTC, but not that much).
Investors will be able to choose from ETH funds from BlackRock, Fidelity, VanEck, Grayscale, 21Shares, Bitwise, Franklin Templeton, and Invesco/Galaxy.
And it looks like we’ll know all the price points for these offerings by around 5:30 PM ET on Wednesday, although a few basis points may not make much of a difference.
US spot crypto ETFs have been a mystical end goal for some time, and now they are becoming reality. BTC funds began trading in January, and six months later, we are about to have ETH offerings.
So the checkered flag for this listing process is done and then a new race (for ETH ETF assets) will begin.
It reminds me a bit of a line from the Semisonic song:
“Time of closure. Every new beginning comes from the end of some other beginning.”
– Ben Strack
Bulletin board
- Bitcoin, after falling from around $65,000 to $63,000 in the hours following its transfer to the Mt Gox wallet this morning, was hovering around $64,550 as of 2 p.m. ET. The price of ether was around $3,460 at the time.
- The latest campaign finance documents show that the Trump campaign received about $3 million in cryptocurrency donations — mostly BTC and ETH. The PACs that received the funds quickly converted various digital assets into USDC, the disclosures say.
- U.S. retail sales data came in better than expected on Tuesday, boosting stocks and bolstering hopes for a Fed rate cut in the fall.
