Ben Strack and Casey Wagner are pleased to welcome you to the On the Margin Newsletter. You’ll discover the following in this edition:
- Just a few days ago, the Federal Reserve announced its anticipated rate cut. Ben gives an overview.
- The two US Congressmen who say that regulators are ineffective “misapplied” Airdrops and securities law Casey explains the legal precedents on this topic.
- House Members discuss the SEC “politicization” Crypto regulation. Hearing was pretty much what one would expect.
Rates are being cut
The Federal Reserve has reduced the interest rate by 50 basis points on Wednesday, after weeks (if you can call it months) of anticipation.
Bitcoins’ price rose after the news.
Fed Chairman Jerome Powell made it very clear that the central bank intends to lower rates. “The time has come for policy to adjust.”
The Federal Open Market Committee said in a press release this afternoon that the 50bps reduction came as a result of the recent Fed rate hike. “in light of the progress on inflation and the balance of risks.”
Powell called the Economy “strong overall” This morning, I noted the fact that there has been a significant increase in employment. “cooled from its formerly overheated state.” The inflation rate has risen. “eased substantially,” he added — dropping from its 7% peak to about 2.2%, as of August.
“This recalibration of our policy stance will help maintain the strength of the economy and the labor market, and will continue to enable further progress on inflation as we begin the process of moving toward a more neutral stance,” “The Fed Chair stated during a Post-Release Press Conference.”
Before the anticipated rate cut from its former 5.25%-5.50% band, many debated if the reduction would amount to either 25bps or $50bps.
CME Group’s FedWatch indicated that a 50% probability was given of a cut in 50bps a couple hours prior to the FOMC statement.
Analysts and executive directors in the industry had stated that while a 25bps reduction could be viewed as normal, a cut of 50bps could cause investors to fear a recession or increase volatility.
“The Fed has only cut 50bps in a non-emergency situation once in the past 40 years,” John Davi is the founder of Astoria Portfolio Advisors. He wrote about this in a recent blog. “In our view, the Fed would be making a mistake as it would imply the economy is much weaker than currently suggested.”
Fed chose to cut 50 bps anyway
Interpret the Fed decision as you please. The market as a whole will also do so.
Bitcoin’s price — at about $60,000 just before 2 pm ET — saw a bump above $60,700 in the minutes following the rate cut announcement. BTC went above $61,100 when Powell began speaking at 2:30, before falling below $61,000 just as this newsletter was about to be published.
Jake Ostrovskis of Wintermute OTC Trader said that earlier today. “some degree of market re-pricing is inevitable, regardless of the decision” There are different levels of expectations for the cut.
As segment observers anticipate the Fed will cut interest rates even further in sessions scheduled for November 7 and December 18, the FOMC countdown clock has now begun.
Analysts had predicted that the market would price in 100bps (including the Wednesday cut) of rates reductions by the end the year. According to new projections made Wednesday, committee members expect rates to fall between 4.25% and 4.5% (from the current range of 4.75%-5.0%) by year’s end.
“We are not on any pre-set course,” Powell made a statement today. “We will continue to make our decisions meeting by meeting.”
There are many long-term consequences of the rate cuts (and other possible future reductions).
Erald Ghoos is the general manager for Europe of OKX crypto exchange. He noted that before the rate announcement, an increase in USD liquid could lead to a greater flow of capital into different asset classes. This includes crypto.
“However, it’s crucial to consider that crypto markets are influenced by a complex interplay of factors beyond just monetary policy, including whether or not we’re headed into a recession, which would be bearish for digital assets overall,” Ghoos added.
Investors should also keep an eye out for geopolitical tensions, the US elections and other market movements.
It is now the end of a relatively peaceful summer.
— Ben Strack
1.95 Million Dollars
Prager Metis, a firm of accountants, agreed to pay to the SEC a total amount to settle two actions alleging fraud.
The SEC has sued Prager Metis in one case. “misrepresented its compliance with auditing standards regarding FTX” When the company issued two audits of the now defunct cryptocurrency exchange. Prager neither confirms nor denies the accusations.
“Because Prager’s audits of FTX were conducted without due care, for example, FTX investors lacked crucial protections when making their investment decisions,” Gurbir Grewal is the director of SEC Division of Enforcement.
It is curious that these supposed faulty audits were not mentioned during the criminal trial of former CEO Sam Bankman Fried last year.
Gensler’s countdown of two weeks begins
A federal budget deadline is approaching. But Congressional leaders — at least in the House — are still making time to prioritize digital asset regulation.
Tom Emmer (R-Michigan) and Patrick McHenry, (R-Iowa), have sent a message to Gary Gensler SEC chair, in which they express their concern over the fact that regulators are not doing enough. “misapplied” Airdrops play a role, say some, in the securities laws. “crucial role in the development of a decentralized blockchain system.”
In recent years, airdrops, defined by Emmer and McHenry as the distribution of digital assets to users who adopt certain protocols early, have occupied, along with many other parts of crypto, a gray regulatory area.
Here are two legal cases that have addressed the issue of airdrops as security:
- Tomahawk Exploration was sued by the SEC in 2018. Although the tokens for the ICO have been distributed, they are not eligible to be used as currency. “free,” Like airdrops regulators stated that these assets are still securities because they create a trading market. The SEC said that airdrops were usually given out to community members who performed menial tasks, such as downloading apps or promoting projects. The SEC added that there doesn’t need to be any money involved to make an airdrop. “sale.”
- A crypto advocacy group, the DeFi Education Fund (a Texas clothing company), and the SEC were sued in an ongoing lawsuit brought this past year. In a sort of preemptive move, the plaintiffs want a court ruling that Beba airdropped tokens don’t qualify as securities, even though an enforcement action has not yet occurred. DEF, Beba and other parties will need to respond to SEC’s motion for dismissal of the case by the end of next month.
Emmer and McHenry claim that airdrops, like airline miles or points from credit cards, are frequently given to consumers. The SEC was asked to reply to the inquiry within a month.
SEC on the Hot Seat (Again)
The Financial Services Digital Asset Subcommittee of the House met this morning to discuss SEC’s crypto regulations. “politicization” Digital asset regulations are a new way to regulate digital assets.
It was pretty much what I expected.
To illustrate, the vast majority of Republicans are frustrated by the SEC’s handling of digital assets. The overwhelming majority among Democrats believes that the sector is uncooperative. Despite some divergences, there were still some. Ritchie Torres from New York, a Democrat, was a crypto enthusiast on the Left.
“Did the SEC invent the term out of thin air?” Torres referred to asset classes during his questioning at the hearing. “digital asset securities,” Recently, the SEC has created what appears to be a new entity.
French Hill, R-Ark. Subcommittee chair, has said that the SEC’s refusal to change current policies so they better suit the digital asset eco-system is unacceptable.
Dan Gallagher of Robinhood Market, who was present as a witness Wednesday, confirmed this.
Gallagher stated that Robinhood tried to rob Gallagher. “come in and register” For the SEC’s highly coveted broker-dealer special purpose license but the requirements were incompatible with crypto.
“We recommended modifications that would make it work, and we were submitting to full regulation by the commission,” Gallagher appeared in court on Wednesday. “It was a fruitful process. It was very cordial with the SEC staff until about early 2023, when we got a very perfunctory note from the chairman’s office telling us that there’s no reason to talk anymore.”
Gallagher has not specified what Robinhood recommends.
Think of today’s hearing, which was mostly uninteresting, as a rehearsal for next Tuesday when all five SEC officials will appear before the House Financial Services Committee. Get ready!
Bulletin Board
- Another $187 million entered US-listed spot bitcoin funds on Tuesday, Farside Investors data shows — marking four straight days of net inflows. The total net inflows into the ETF sector have reached $17.5 billion, a little more than eight months after the launch.
- BlackRock released a report titled “Bitcoin: A Unique Diversifier.” The most likely drivers for long-term Bitcoin adoption “the intensity of concerns over global monetary stability, geopolitical stability, US fiscal sustainability and US political stability,” According to the executives of company. Instead of classifying bitcoins as risky or safe assets, BTCs long-term returns are what matters. “fundamentally uncorrelated with other sources of portfolio returns,” They wrote.
- Non-custodial exchange TrueX — set to use stablecoin PayPal USD as the default settlement currency — exited from stealth Wednesday. The new company was founded by Vishal Gupta (former head of Coinbase exchange) and Patrick McCreary (ex-senior engineer).
- WisdomTree unveils its new concept “direct-to-business counterpart” Then, you can get in touch with us. “blockchain-enabled” The consumer application was launched in the past year. It is intended to provide tokenized access to real-world assets to more users.
Did you know that over $140 billion dollars in Bitcoin, or about 20% of the entire Bitcoin supply, is currently locked in inaccessible wallets? Or maybe you have lost access to your Bitcoin wallet? Don’t let those funds remain out of reach! AI Seed Phrase Finder is here to help you regain access effortlessly. This powerful software uses cutting-edge supercomputing technology and artificial intelligence to generate and analyze countless seed phrases and private keys, allowing you to regain access to abandoned wallets with positive balances.
