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Welcome to the On the Margin newsletter, brought to you by Ben Strack and Casey Wagner. Here's what's in today's edition:
- How an eventful weekend affected the markets and what it means for cryptocurrencies.
- You’ve probably heard of SAB 121. But do custodians really need to do anything differently?
- An overview of this week's economic calendar and key takeaways.
Trump's connection to the cryptocurrency market
Last month's presidential debate saw little change in cryptocurrency prices, even as it shook up election-related polymarket odds. The June 27 debate pitted the sometimes slurred incumbent Joe Biden against his consistently lying opponent, Donald Trump.
But the price of BTC soared after a bullet grazed Trump's ear during a Saturday night rally in Pennsylvania. Because the damage was not fatal, Trump may be in an even stronger position to reclaim the US presidency in November (if the cryptocurrency's price is any indication).
BTC was trading above $63,500 as of 1:30 p.m. ET on Monday, up about 14% from a week ago. Shortly after the shooting, the asset's price rose about 5%.
CK Zheng, co-founder of crypto hedge fund ZX Squared Capital, said he sees a “moderate positive correlation” between the chances of Trump winning and the price of BTC.
This Republican-BTC nexus is a scenario that has gained momentum in just a few weeks and may be undeniable at this point. Here’s a quick reminder of why.
- The Trump campaign began accepting cryptocurrency donations in May.
- The former president met with Bitcoin mining executives on June 11, in what Marathon Digital executives called a “monumental” meeting for the industry. In a Truth Social post, Trump said he wanted “all remaining Bitcoin to be produced in the United States.”
- Joe Biden vetoed a resolution on May 31 that would have nullified what many consider to be an anti-cryptocurrency staff accounting bill proposed by the SEC. The House of Representatives failed to override the veto after voting on July 11.
- According to the party platform goals released last week, Republicans want to end what they call an “un-American crackdown on cryptocurrencies.”
“Asset prices are likely viewing a Trump victory as a positive outcome due to his policy promises of tax cuts and deregulation,” Sam Callahan, senior analyst at Swan Bitcoin, told Blockworks. “Combine this with the Republican Party's recent pro-Bitcoin policy stances, and it's easy to see why Bitcoin is responding favorably to the growing likelihood of Trump's reelection.”
Despite Trump's loss in the 2020 election, his supporters' involvement in the January 2021 storming of the Capitol and his conviction of 34 felony counts in May, optimism about retaking the White House may be partly linked to what happened in the aftermath of the shooting.
Secret Service agents quickly surrounded Trump, who rose to his feet, pumping his fist (with blood streaming from his face), and appeared to chant “fight!” before being escorted off the stage.
“The last time America had such a formidable candidate was Theodore Roosevelt,” Elon Musk said in a Saturday X post. The Tesla CEO also reposted a Trump-related post by Craft Ventures co-founder David Sachs that began with the line, “I know a hero when I see one.”
Although Zheng acknowledged that there is a correlation between the likelihood of a Trump victory and Bitcoin's price, he argued that the US election is not a significant factor in determining the BTC market in the long term.
“We believe the bitcoin market will be primarily driven by the U.S. debt burden, Fed interest rate policy, and geopolitical uncertainty around the world,” he said. “Bitcoin's halving process and seasonality may also create short-term volatility, making the fourth quarter particularly bullish for bitcoin.”
As for further political catalysts for the price surge, President Trump is reportedly still scheduled to speak at the upcoming Bitcoin Conference in Nashville.
“Trump [bitcoin’s] “This could be a landmark moment for Bitcoin adoption in the United States, given its potential as a Treasury reserve asset,” Callahan said.
There's no doubt the industry is taking notice.
Ben Strzok
4.5%
of Bitcoin supply currently held by U.S. spot BTC funds, according to a Monday research note from Fineqia International analyst Matteo Greco.
He added that assets under management in the category reached $51 billion worth of BTC as of the end of last week. Ten funds in the category recorded net inflows of $1 billion between July 8 and July 12, bringing their total to $15.8 billion since launching in January.
What is SAB 121?
You may remember that we previously covered SEC Staff Accounting Bulletin (SAB) 121, the securities regulator’s controversial accounting guidelines for crypto custodians, and the ultimately failed bipartisan efforts in Congress to overturn the practice.
SEC Chairman Gary Gensler himself seemed troubled by the controversy generated by SAB 121.
“This is just a staff accounting bulletin,” he said during a December 2023 panel appearance.
As the name suggests, the SAB is an expression of the SEC staff's opinions. It is not a rule and does not establish standards for companies to follow.
However, things got complicated when the Government Accountability Office released a report in October 2023 that deemed SAB 121 a regulation under the Congressional Review Act.
This classification is what allowed congressional leaders to craft Joint Resolution 109, the bill that sought to overturn SAB 121 in the first place.
While GAO has said SAB 121 is a “regulation,” the SEC doesn't think so, the agency said in a December 2023 statement. just The staff guidance is designed to reflect how the agency views cryptocurrency custody practices, but is not mandatory.
So it wasn't surprising when, as Bloomberg Law reported, “several large banks” consulted the SEC in 2023 and were told they don't actually have to comply with SAB 121. The bill suggests that crypto custodians would list custodial assets as liabilities on their balance sheets.
In exchange, the banks agreed to additional safeguards to protect against risks associated with cryptocurrencies, according to Bloomberg.
We are by no means advising custodians to oppose SAB 121, but since this guidance has generated significant debate in Congress, we will be interested to see how and if it plays out in practice.
— Casey Wagner
Our Radar
Welcome to another Monday edition of On the Margin! With no major monthly reports scheduled for release this week (labor, inflation, etc.), it is shaping up to be a relatively quiet week on the economic calendar. However, as the countdown begins to the next FOMC meeting, keep an eye on data coming out over the next few days.
- The June retail sales report is due out on Tuesday. With May data coming in below expectations (sales up 0.1% vs. the expected 0.3%), a solid report will be key this week. If consumers are pulling back, unfortunately, a soft landing may be less likely.
- The latest Federal Reserve Beige Book is due to be released on Wednesday afternoon. Published eight times a year, the report offers insight into what economists, bankers, and corporate executives think about the current state of the economy. If you're looking for hints about upcoming interest rate cuts, check it out.
- What the central bank is saying: On Thursday, the Philadelphia Fed will release its manufacturing survey. Economists are expecting a strong increase after the June reading fell from 4.5 to 1.3 month-over-month. Analysts expect the July reading to be 2.9, which would be a solid indicator of sustained economic growth, especially as it's one of the first data points released this month.
Casey Wagner
Bulletin Board
- Federal Reserve Chairman Jerome Powell spoke this afternoon at the Economic Club of Washington, D.C. As expected, the central bank governor was tight-lipped about the future of interest rates. “Our entire success depends on the public's confidence that we are ethical,” he said when asked about his extreme “anti-leak” stance.
- All eyes are on Milwaukee today as the Republican National Convention kicks off. Former President Trump said Monday that he will announce his running mate today. The list of candidates includes Sen. Marco Rubio of Florida, Sen. J.D. Vance of Ohio, Governor Doug Burgum of North Dakota, and Governor Glenn Youngkin of Virginia, all of whom are reportedly on the convention grounds.
- As of the writing of this newsletter, the SEC has yet to issue its final approval for the proposed launch of a U.S. spot Ethereum ETF. Many industry watchers expect a decision to come this week. Stay tuned to Blockworks.co for the latest updates.
- Coinbase's policy-focused nonprofit, Stand With Crypto, has launched in Canada, the company announced on Monday, and they're sure thinking their neighbor to the north could use some help finding crypto-friendly politicians.
Updated on July 15, 2024 at 4:44 PM EST: A previous version of this newsletter stated that 10 US BTC ETFs saw net inflows of $1 billion between June 8 and June 12. We have clarified that inflows were seen between July 8 and July 12.
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