Ben Strack & Casey Wagner welcome you to the On the Margin Newsletter. What’s in the latest edition?
- Casey discusses what crypto enthusiasts should know and the reasons why they are disappointed.
- Ben explains the PCE Report and explains why the Fed is likely to adopt a more dovish stance.
- Have a great Friday! Here is our summary of the week’s economic data.
US v. Storm goes to jury trial
A federal judge decided yesterday that the US Government’s case against Tornado Cash Founder Roman Storm would proceed to jury trial.
In August 2023, Storm and Roman Semenov, another Tornado Cash founder were both indicted. They were both charged on three counts, including conspiracy to launder money and commit sanctions violations.
Storm, in March 2024, filed a motion to dismiss all charges — arguing that simply building the protocol is not money laundering, which requires a “financial transaction involving a financial institution.” The protocol is not able to be used because users retain control over their assets and there are no charges. “financial institution,” Storm’s team claimed.
Prosecutors — in their opposition to the motion — argued that Tornado Cash was a money transmitting business and, therefore, a financial institution.
Storm has also requested that the Dutch authorities and federal agencies hand over communications relating to Storm and Semenov.
The judge Katherine Polk Failla is overseeing Coinbase’s SEC lawsuit. She denied the motions during a phone conference on Thursday. Trial by jury is set to start on December 2. The jury trial is scheduled to begin on Dec. 2.
“At this stage in the case, this court cannot simply accept Mr. Storm’s narrative that he is being prosecuted merely for writing code,” Failla said. “For starters, that’s an overstatement of what’s actually charged in the indictment.”
Storm’s legal team claimed that the charges violated his First Amendment right, arguing that computer code was speech, and thus protected under the Constitution. The judge and prosecutors were ultimately in disagreement.
“It is true that computer coding can be ‘expressive conduct’ protected by the First Amendment,” Failla said. “But when a programmer is using a code to direct a computer to perform various functions, that code is not protected speech.”
Failla added that the government had also shown itself to be able “substantial interest in promoting a secure financial system by combating money laundering,” Unregistered money transmission services, and sanctions evasion.
Among Storm’s supporters are three crypto-focused advocacy groups: the Blockchain Association, Coin Center and the DeFi Education Fund — each of which filed amicus briefs last spring in support of the defendants.
The decision of Thursday disappointed these parties as was expected.
“Judge Failla’s ruling denying [Storm’s] motion to dismiss the indictment is an assault on the freedom of software developers everywhere,” Jake Chervinsky is a lawyer in the DeFi Education Fund team. He wrote X. “This will go down in history as a perversion of law and a travesty of justice.”
Amanda Tuminelli also represents DeFi Education Fund. She added that Failla’s decision of dismissal on the basis of a “matter of law,” Consider the issues as they are, rather than focusing only on facts. “offensive.”
The ruling on Thursday comes after Pertsev was found guilty by a Dutch Court of laundering $1.2 Billion in crypto via Tornado Cash.
Storm’s Attorney did not immediately respond to Blockworks request for comment.
— Casey Wagner
$83 Million
The assets under management (as of Sept. 26) in the T-Rex 2x Long MSTR Daily Target ETF (MSTU) — only about a week after the fund hit the market.
REX shares launched MSTU in September, following Defiance ETFs launch of Daily Target 1,75X Long ETF MSTR (MSTX). Last night, assets in the latter product topped $300 million.
Bloomberg Intelligence analyst Eric Balchunas stated that the T-Rex Fund’s AUM places it among the top 20% of 515 ETFs released this year. The evidence is clear. “just how much ‘need for speed’ there is out there,” He added.
At 2 pm ET, MSTR shares were trading at $177.79 — up 7% from 24 hours ago.
Bitcoins break $66k in the wake of PCE data
Bitcoin reached $65,000 yesterday and went above $66,000 Friday morning ET — the latter level being a first since late-July.
The latest Personal Consumption Expenditures data (PCE), in short, reinforced expectations for a continued dovish Fed stance.
This break of $66,000 came just a few minutes after the US Bureau of Economic Analysis (BEA) published its August PCE report, showing a small increase of 0.1% over July (2.2% on a year-overyear basis). This report is Fed’s preferred measure of inflation.
Casey pointed out in yesterday’s issue that Morningstar Senior Economist Preston Caldwell had predicted an increase of 0.15% on a month-overmonth basis for PCE. FactSet’s consensus estimate had expected a 2.7% annual increase.
Derren Nathan wrote in an Friday note that any significant increase above expectations could have dampened prospects of future rate cuts from the Fed.
Now we know it didn’t.
“Today’s lower-than-expected PCE numbers have strengthened the dovish sentiment sparked by last week’s rate cut, fueling optimism that inflation pressures are cooling faster than anticipated,” Matt Mena, the 21Shares Crypto Research Strategist.
Nathan explained that according to the US Central Bank’s latest forecast, another half point reduction is expected by the year 2024.
The probability of a Fed rate cut amounting to 50 basis points at its November meeting was at nearly 57%, as of 2 pm ET — up from about 49% a day ago, CME Group data shows.
There is an extra opportunity for the Fed in December to lower interest rates.
All things considered, Mena expects the stage is set for BTC to possibly retest the range between $68,000 and $70,000 — noting China’s recent liquidity injection as well.
Mena had noted that as of early Friday, the CoinDesk 20 Index was up nearly 8% this week, compared to a less than 1% gain by the S&P 500.
BTC’s price was about 1% higher at 2 pm ET than it had been 24 hours earlier. The S&P 500 was roughly flat over that span.
Mena added “This highlights the growing confidence in BTC and digital assets as investors increasingly seek alternative stores of value and high-yield opportunities amid a favorable macroeconomic backdrop.”
— Ben Strack
Did you Notice?
Enjoy your Friday! Ben has already broken down the PCE Print, this week’s economic headline report. There were also some notable data from the last few days. Let’s recap.
- Reports released on Thursday show that US initial claims for unemployment fell by another 2,000 during the last week of September, to 218,000. The economists predicted that 223,000 new claimants would be filing for the first time. Initial claims are at their lowest level in four months. This is a good sign for those who hope for the Fed to cut interest rates by 50 bps in November.
- Thursday’s Durable Goods Orders report showed annual orders for durable goods (defined as long-lasting items, ranging from computer equipment to industrial machinery) were virtually flat in August — posting a very modest $100 million increase. The report shows that orders for durable goods (defined as long-lasting items, ranging from computer equipment to industrial machinery) were virtually flat in August — posting a very modest $100 million increase. The report highlights that the Fed can still achieve its desired soft landing, as the decline of orders signals an economic slowdown.
- Consumer Sentiment Index final revision came out at 70.1, compared to the 69.3 expected and previous reading of 67.9. This report doesn’t usually move the market (especially not when it is released at its latest version), but now we have reached our highest level of consumer confidence in five months. In contrast, consumer confidence continues to decline. Tuesday’s survey showed the level of confidence at its lowest in three years. The Conference Board conducted the latter survey, which likely showed a slight decline because consumers were growing more concerned with stagnant wages and the state of labor markets.
Bulletin Board
- Shigeru Shiba, the leader of Japan’s ruling party, was elected as prime minister. Ishiba’s support for the Bank of Japan interest rate increases helped boost confidence in the market, even though his win surprised investors. Ishiba’s victory boosted the yen by as much as 1,4%.
- This week, the US House Foreign Affairs Committee advanced a Resolution demanding that Nigeria release Binance executive Tigran Gamaryan. A full vote on the resolution is possible, but has yet to be scheduled. The House of Representatives is currently in recess before the elections.
- Permissionless III will be here in a little more than a week. Blockworks in Salt Lake City features congressional leaders, lawyers and some of the most prominent names in crypto. Casey, Ben, and Felix are all on the ground. Buy your tickets now!
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