🔵 No surprise CPI

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Welcome to the On the Margin Newsletter, brought to you by Ben Strack and Casey Wagner. Here’s what you’ll find in today’s edition:

• The last big inflation print ahead of the Fed’s interest rate decision is in.

• After no crypto chatter during last night’s debate, one exec says “we shouldn't pin all our hopes on politics.” 

• The newest US-licensed SPBD said it will list its own stock as a digital asset security first. 

CPI shows no surprises 

We are one week out from the Fed’s next interest rate decision, and the data is making a strong case for a 25-basis point cut. Those hoping for 50 bps, I wouldn’t hold your breath. 

Today’s consumer price index (CPI) report showed inflation is rising right in line with expectations (+0.2% in August). The annual inflation rate came in at 2.5% in the 12 months ending in August, the lowest year-over-year rate since February 2021. 

Core CPI, which excludes volatile food and energy prices, rose slightly more than expected over the month — coming in at +0.3% in August compared with the expected +0.2%. Twelve-month core CPI sits at 3.2%, again, in line with expectations. 

Even as the data came in more or less as predicted, markets were not thrilled, at least initially. 

The S&P 500 lost as much as 1.6% in the hours after the report was published. The index later pared losses and was trading 0.2% higher on the day at 2 pm ET. 

The Nasdaq Composite similarly posted an early slip, falling as much as 1.5% this morning. The tech-heavy index bounced back though, and was trading 1% higher at 2 pm ET. 

Bitcoin and ether, on the other hand, were mixed. Bitcoin was in the green, posting a gain of 0.2% over 24 hours at 2:10 pm ET, according to Coinbase data. Ether was down 1.3% at the same time. 

It’s not enough (for me, at least) to confidently say risk-on is back (BTC is down over the week and month), but it’s an encouraging sign. If the Fed opts for a cut of 50 bps or higher (humor me here), risk-on is going to unwind, and fast. 

“Investors would trade cautiously to weather market conditions, which could hurt risk-on assets in the short-term,” 21Shares research analyst Leena ElDeeb said of a more aggressive rate cut. “However, it doesn’t change the long-term prospects of Bitcoin, whether fundamentally or even in relation to macroeconomics.”

In terms of future market moves, Michael Brown, senior research strategist at Pepperstone, said it’s important to remember how low the Fed could go. 

“With 500 bps of room to reduce rates, as well as the potential to bring quantitative tightening to an end were conditions to require it, the ‘Fed put’ remains as strong and as forceful as ever,” Brown said. “In turn, this should see equity dips remain relatively shallow in nature, and give investors confidence to continue positioning themselves further out on the risk curve.”

Data from CME today shows an 87% chance of a 25 bps rate cut next week and a 45% chance of another 25 bps decrease in November. 

In terms of predicting the rate cut size, we know the labor data is really the more important factor given we can now surmise the Fed is confident inflation is trending toward the coveted 2% level. Remember, the August jobs report showed that job gains missed by almost 20,000, and we got a significant revision for July and June’s figures. 

More disappointing data in September could be enough to sway central bankers to act more aggressively. My money (and it seems like most people’s) is on a 25 bps cut next week, but more rapid cuts down the line are very much still on the table.

— Casey Wagner

The price Michael Saylor expects bitcoin can hit 21 years from now. In case you missed it, he said this during a Monday interview on CNBC.

The value is more than four times the $2.9 million BTC price prediction (by 2050) VanEck analysts made in July, citing “its adoption as a global medium of exchange and a reserve asset.”

We know there are a lot of huge bitcoin price predictions out there and that Saylor is about as big a bitcoin bull as they come. So feel free to take what anyone says with a full shaker of salt. 

But I guess the point is that it’s still very early days for an asset that appears on a path to become much more entrenched in the financial system.

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While some were hopeful we would hear a crypto question at last night’s debate, that clearly didn’t happen. 

Questions focused mainly on inflation, immigration, abortion and foreign policy — all hot-button issues deserving attention. 

Yes, maybe crypto should be more top of mind than alleged pet murders. But perhaps it’s a wake-up call that it may take awhile before the largest political bigwigs get into the crypto policy weeds.

Tim Kravchunovsky, founder of decentralized telecommunications network Chirp, said the lack of crypto discussion during the debate was disappointing, but not surprising. 

“It was simply proof that crypto is nowhere near as important to either presidential candidate as it is to us in the Web3 world,” Kravchunovsky said in a statement.

In terms of crypto market reaction to the debate, bitcoin had dipped by about 2% during and immediately after the debate before moving back upward Wednesday.

BDE Ventures CEO Brian Evans had told Blockworks that because Harris hasn’t made the type of crypto comments Trump has, any pro-crypto debate remarks from the VP in particular “might cause a bit of a market bounce.” 

We already know that didn’t happen. Though Harris did note “a policy about China should be in making sure the United States of America wins the competition for the 21st century,” mentioning the importance of winning the race on AI and quantum computing. (So in some ways similar to what a Harris campaign adviser told Bloomberg News about Harris looking to grow “emerging technologies” in relation to a prior crypto-related question.)

Some industry execs also had predicted positive movement for BTC if Trump performed especially well. Many viewers didn’t agree that was the case, with data from Polymarket showing the odds of a Harris debate victory (according to polls) quickly rising above 90% during the event (and landing at 99% on Wednesday morning).

The odds of Trump and Harris winning the election now stood at 49% each, Polymarket showed Wednesday morning, as Harris closed Trump’s pre-debate lead.

While more crypto policy details from both candidates could come over the next two months (on a debate stage or otherwise), “we shouldn't pin all our hopes on politics,” Kravchunovsky noted in the statement.

He added: “The outcome of the US election will for sure have an impact on crypto, but it may not be as profound as many seem to think.”

— Ben Strack

tZero Group Inc. has earned its special purpose broker-dealer license in the US, the company said Tuesday, becoming the second ever to do so. Blockworks spoke with CLO Alan Konevsky to hear about what’s next. 

“This is a unique opportunity for us to develop the infrastructure to support regulated digital assets in the United States,” Konevsky said. 

The license permits tZero to custody digital asset securities, similar to Prometheum Inc., which became the first digital asset firm to obtain this type of license last year. Both companies must treat any custodied tokens as securities, regardless of how issuers themselves identity them. 

Konevsky hopes the license, which took tZero three-plus years to earn, will create a path forward for safe, regulated digital asset securities trading in the US. 

“It's fine to say that a number of these assets should be treated as securities,” Konevsky said. “What's not fine is to take that position and not permit the marketplace to develop the right kind of regulated infrastructure to support digital asset security trading.” 

He added: “That's not really consistent with the position and objective that these are regulated assets and you need to treat them that way.” 

tZero plans to launch its custody service early next year, the company said. Its first asset is set to be the firm’s own preferred stock, TZROP, which has been trading since 2019. 

“We look forward to uplifting it to a full digital asset security and then custodying it onchain with our new special purpose broker-dealer license,” Konevsky said. 

tZero, Konevsky noted, “will support custody of any digital asset security that it can lawfully custody, pursuant to guidance from the SEC and FINRA.” This includes potential assets that were not initially issued as registered securities but ones “the SEC now deems to be securities,” he added. That is, provided regulators create a “pathway” for how these assets can be legally traded by a broker-dealer.

— Casey Wagner

How are crypto venture capital and growth equity markets faring? 

Hear some of the leading investors in the digital assets space in Salt Lake City at Permissionless.

• The total value of crypto activity reached higher levels between Q4 of 2023 and Q1 of 2024 than those reached during the 2021 bull market, according to the latest Global Crypto Adoption Index published Wednesday by Chainalysis. India ranked first, the index showed, with Nigeria, Indonesia, the US and Vietnam rounding out the top five. The January bitcoin ETF launches in the US triggered more bitcoin activity across all regions, with particularly strong year-over-year growth in North America and Western Europe.

• US-listed bitcoin ETFs saw net money flow in on Tuesday, amounting to $117 million, according to Farside Investors data — the highest positive total in about two weeks.  The country’s ETH funds also saw inflows (albeit small) of $11 million, marking the first day of net inflows in September. Tuesday was just the third day that the higher-priced Grayscale Ethereum Trust (ETHE) saw zero flows (rather than net outflows) since converting to an ETF on July 23.   

• Bitcoin miner CleanSpark has agreed to acquire seven more facilities in Tennessee for cash payments totaling $27.5 million. Expected to close on these sites later this month, the company expects the facilities to ultimately increase its hash rate by 22%.