Casey Wagner

Ben Strack

Welcome to the On the Margin Newsletter, brought to you by Ben Strack and Casey Wagner. We hope our US readers are enjoying Labor Day. Here’s what you’ll find in today’s abbreviated edition:



<ul class="wp-block-list">
<li>The September events that could move markets — from a debate, to a rate cut. </li>



<li>What’s going on in the euro-backed stablecoin market? </li>
</ul>



<h2 class="wp-block-heading">Significant September in store?</h2>



If August was a vacation-laden month within the so-called “summer doldrums,” it seems September could be the opposite.



Though September is historically a bad month for bitcoin, several potential crypto market-moving events this month could change that.&nbsp;



Let’s start with the Bureau of Labor Statistics’ jobs report on Sept. 6. We know these can have an impact. Bitcoin and ether <a href="https://blockworks.co/news/july-disappointing-jobs-report">dropped</a> about 4% and 6%, respectively, in the 90 minutes after the BLS published their last report on Aug. 2 — showing slowed job growth and higher-than-expected unemployment.



But those jobs reports come out every month. A unique event will be the first presidential debate between Kamala Harris and Donald Trump on Sept. 10.



Exactly how presidential candidate-related developments could move crypto markets over the next couple months feels a bit up in the air. Though Trump got a head start <a href="https://blockworks.co/news/donald-trump-speaks-bitcoin-2024">positioning</a> himself as the pro-crypto candidate, a Harris adviser told Bloomberg News last week the vice president would “support policies that ensure that emerging technologies and that sort of industry can continue to grow.”&nbsp;



Still, Corestone Capital founder Will McDonough said he believes many crypto folk have picked a side.&nbsp;



“People are confident in Trump&#8217;s position on embracing digital assets,” McDonough told Blockworks. “If they come out of that [debate] even feeling like he will win, I can see a strong run up in bitcoin.”



SEC Chair Gary Gensler has been viewed as negative for the crypto industry, the Corestone Capital founder added. Thus, any mention during the debate about a need for change in that office will affect the market. (Trump already noted he would fire Gensler <a href="https://blockworks.co/news/on-the-margin-newsletter-trump-crypto-promises">during a speech</a> at the Bitcoin 2024 conference in July.)&nbsp;&nbsp;



From there, we jump to Sept. 18 — the day the market expects the Federal Reserve to cut interest rates by either 25 or 50 basis points.



OTC Capital CEO Brian Dixon said he expects a cut of 25 basis points. Many agree, with the probability of a 25 bps cut at 67.5%, according to CME Group’s FedWatch <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html">tool</a>.&nbsp;



The market would likely view this as a normal rate cut and therefore react positively, he noted.



That said, Dixon added: “If the Fed comes out with a surprisingly large rate cut, such as 50 bps, then this could spook the market into thinking that the Fed is fearing worsening unemployment and, in turn, a potential recession. So a bigger-than-expected rate cut would be bearish.”&nbsp;



A few days later, Bloomberg Intelligence analyst James Seyffart <a href="https://x.com/JSeyff/status/1821627790065799634">said</a> he expects an SEC decision related to long-awaited options on spot bitcoin ETFs. Such derivatives, if approved, “should bring more market participants and will deepen liquidity,” McDonough noted.



The bottom line: Mark your calendars and buckle up. 



— Ben Strack



<h2 class="wp-block-heading">Euro-backed stablecoins make slow entrance to market&nbsp;</h2>



It’s been about two months since parts of <a href="https://blockworks.co/news/micar-foreign-stablecoins-advantage-in-europe">MiCAR</a> aimed at regulating stablecoins took effect in the EU.&nbsp;



The euro-backed stablecoin market is still minuscule compared to the USD-backed market ($309 million market cap vs. $169 billion), but there has been some growth this summer.&nbsp;



Here’s a breakdown of the latest developments:&nbsp;



<ul class="wp-block-list">
<li>Luxembourg-licensed Banking Circle last month announced the launch of EURI, its new euro-backed stablecoin. The non-retail bank primarily provides correspondent and payment services to companies, including Stripe. Officials say it’s one of the first MiCAR-complaint stablecoins to hit the market and will be used for settlements outside of normal business hours. </li>



<li>Shortly after EURI was unveiled, Binance said it would be listing the token with both USD and euro trading pairs available. Binance is also offering zero fees for EURI trades for a limited time. </li>



<li>In the same vein, Coinbase recently enabled no-fee trades between euros and EURC, Circle’s euro-backed token. The exchange also unveiled a new trading pair: EURC-USDC. </li>



<li>Asset manager DWS is working on a euro-backed stablecoin that execs say will launch in 2025. The token will be issued under DWS’s “AllUnity” venture arm, which is a collaboration with Galaxy and Flow Traders that the companies launched last year. </li>
</ul>



Things may not be happening super fast on the euro stablecoin front, but they are happening.&nbsp;



Regulators seem keen on bringing the market to the EU, but given the already crowded USD-backed stablecoin market — and USD’s dominance more broadly — it does make me wonder if euro stablecoins are really filling a void. 



— Casey Wagner



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The September events that could move markets

Prices in the US rose slightly less than anticipated in July, the latest Consumer Price Index report shows.&nbsp;



The annual rate of inflation is now below 3% for the first time in more than three years.&nbsp;



Consumer prices increased by 2.9% in the 12 months ending in July, according to the Bureau of Labor Statistics. Analysts had expected a 3% year-over-year increase. Month over month, prices rose 0.2% in July after declining 0.1% in June.&nbsp;



Odds of a 25 basis point interest rate cut in September from the Federal Reserve jumped to 56% following the release of Wednesday’s report, according to Fed fund futures data from CME Group. On Tuesday, markets were calling for a 47% chance of a cut at the next meeting.&nbsp;



BTC and ETH initially dropped on the news. Bitcoin lost as much as 4% in the two hours after the CPI report was published while ether slid close to 5%, according to data from Coinbase.&nbsp;



Even so, Eliézer Ndinga, vice president and head of strategy and business development of digital assets at 21Shares, said interest rate cuts in the fall will help to shift investor sentiment back to risk-on.&nbsp;



“We expect this to benefit the crypto industry in the long run, particularly if inflationary pressures are maintained in the short-term, which could result in further rate cuts this year,” Ndinga added. “Rate cuts generally lead to more liquidity in the markets, thereby encouraging investors to seek higher returns in risk-on assets, like bitcoin and ethereum.”&nbsp;



US equities also stumbled at the open before paring losses later in the trading session. The S&amp;P 500 slid as much as 0.5% in the first hour of trading before rallying. The index is now up 0.3% over the session as of 11:30 am ET.&nbsp;



Similarly, the tech-heavy Nasdaq Composite lost more than 1% in the first hour after the open but was trading flat at time of publication.&nbsp;



While a hotter inflation print likely would have pushed stocks and risk assets much lower, investors now are left wondering why inflation appears to be cooling, according to Sevens Report Research founder Tom Essaye. If prices are only coming down because economic growth is cooling, markets will not react well in the long term.&nbsp;



“The bigger question is whether inflation is falling because growth is&nbsp; stalling,” said Essaye. “If that is true, then falling inflation will turn from&nbsp; a tailwind to a headwind in the coming months and&nbsp; you’ll likely hear a term from the past: deflation.”



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.

US equities trim losses after initial dip on cooler CPI report

The US economy added 272,000 jobs in May, much higher than analysts’ expectation of 190,000 additions.&nbsp;



Unemployment rose to 4% in May — also higher than expected — marking its highest point since January 2022, data from the Bureau of Labor Statistics released Friday showed.&nbsp;



American equities initially dipped on the news before paring losses slightly. The S&amp;P 500 and Nasdaq Composite indexes were trading 0.2% and 0.3% lower, respectively, at time of publication.&nbsp;



Bitcoin and ether similarly dipped in the hour following the report’s release. Bitcoin recovered to trade around 0.3% higher to $71,500 at time of publication while ether lost around 0.8% and was hovering around $3,800, according to data from Coinbase.&nbsp;



Although the headline figure of 272,000 may suggest a labor market too hot for the Federal Reserve to consider interest rate cuts in the fall, the report overall was still fairly hawkish, according to Michael Brown, senior research strategist at Pepperstone.&nbsp;



Average hourly earnings increased 0.4% month over month in May and 4.1% year over year, suggesting that the labor market is actually relatively tight, Brown said. 



“The May employment report seems unlikely to be a game-changer in terms of the Fed policy outlook,” Brown said. “[Federal Open Market Committee] members continue, unsurprisingly, to place greater weight on the inflation side of the dual mandate, and are likely to reiterate next week that they are yet to obtain the &#8216;confidence&#8217; being sought on a return towards the 2% target to enable the first rate cut to be delivered.”



Rate cut expectations for September remained largely unchanged Friday after the report dropped. Fed fund futures showed a 52% chance that the first rate cut will come early this fall, about the same odds markets had earlier this week, according to <a href="https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html?redirect=/trading/interest-rates/countdown-to-fomc.html">data</a> from CME Group. 



The Fed’s June FOMC meeting will begin Tuesday and central bankers will reveal their interest rate decision on Wednesday. Committee members will also report projections next week, including their target interest rate for December 2024 and predicted inflation figures.&nbsp;



Ahead of the interest rate decision, markets will also get the latest Consumer Price Index figures, scheduled for Wednesday morning. The inflation figures will be a “much more significant event,” according to Brown, as central bankers will be looking to see core CPI declining on an annual basis.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.

Hotter-than-expected jobs report shows mixed bag, markets dip

<div id="highlights-block_63209009ff134" class="highlights">
 <ul>
 <li>Bitcoin and equity markets dropped sharply shortly after the inflation numbers’ release</li>
 <li>Futures markets forecast a 82% chance of a 75 basis point rate hike on Sept. 21</li>
 </ul>
 
</div>



Inflation rose more than expected in August, posting an 8.3% year-over-year increase, <a href="https://www.bls.gov/news.release/cpi.nr0.htm" target="_blank" rel="noreferrer noopener">data</a> from the Bureau of Labor Statistics showed Tuesday. 



Tuesday’s inflation reading came in <a href="https://cms.blockworks.co/inflation-is-cooling-but-rally-in-crypto-stocks-may-not-last/" target="_blank" rel="noreferrer noopener">lower than July’s</a>, but higher than analysts’ expectations. July’s CPI <a href="https://www.bls.gov/news.release/pdf/cpi.pdf" target="_blank" rel="noreferrer noopener">report</a> was 0.2% lower than projected, showing an 8.5% increase in prices across the board year over year.



Cryptocurrencies fell on the news, and equities opened lower following the report. Bitcoin lost as much as 6% while ether fell around 8%, extending its decline from earlier in the week as the Merge looms closer. The S&amp;P 500 and the Nasdaq index opened 2.3% and 3% lower, respectively, as traders speculated about what the data means for the future of monetary policy.&nbsp;



The Federal Reserve will meet on Sept. 21, and analysts are largely confident that the central bank may opt for yet another 75 basis point rate hike.&nbsp;



“Fed tightening cycles have led to so many recessions because they’re always looking in the rearview mirror,” Danielle DiMartino Booth, CEO and chief strategist at Quill Intelligence LLC, said Tuesday during a panel discussion at the <a href="https://cms.blockworks.co/events/digital-asset-summit-2022-nyc-agenda/" target="_blank" rel="noreferrer noopener">Digital Asset Summit</a> in New York. “That’s why the modern Fed has started to look at financial conditions as a bridge from the real economy, to the markets and stock prices.” 



The Fed’s key priority has traditionally been employment numbers over inflation, but the current situation is creating a unique challenge for central bankers, Michael Green, portfolio manager and chief strategist at Simplify, said during the panel. Continued tightening could result in inflation readings lower than the Fed’s target rate of 2%, he added.&nbsp;



“It’s highly likely we actually end up blowing way through the 2% and end up with deflationary conditions that then persist,” Green said.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">“We’re going to have tight financial conditions for an extended period of time, and that’s likely to manifest itself in all sorts of problems,” he said. </blockquote>



The reading comes weeks after Fed Chair Jerome Powell took a more hawkish stance during his Jackson Hole remarks, sending markets and cryptos sliding.&nbsp;



“Estimates of longer-run neutral are not a place to pause or stop,” Powell said during his speech on the second day of the <a href="https://www.kansascityfed.org/research/jackson-hole-economic-symposium/" target="_blank" rel="noreferrer noopener">Economic Policy Symposium</a> in August, hosted by the Kansas City Federal Reserve. “Our decision at that September meeting will depend on the totality of the incoming data and the evolving outlook,” he said. 



Futures markets are now predicting an 82% chance of a 75 basis point rate hike later in September following the release of the CPI report, according to <a href="https://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html" target="_blank" rel="noreferrer noopener">data</a> from CME Group. Following the Jackson Hole meeting, the probability of a third consecutive 75 basis point increase sat at 55%.



The dollar rallied sharply relative to other major currencies on the CPI release, with the DXY jumping over 1.5% in the hour that followed.



<hr class="wp-block-separator has-alpha-channel-opacity"/>



Start your day with top crypto insights from David Canellis and Katherine Ross. <a href="https://blockworks.co/newsletter/empire">Subscribe to the Empire newsletter</a>.



Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. <a href="https://blockworks.co/newsletter/onthemargin">Subscribe to the Forward Guidance newsletter</a>.



Get alpha directly in your inbox with the <a href="https://blockworks.co/newsletter/research">0xResearch newsletter</a> — market highlights, charts, degen trade ideas, governance updates, and more.



The Lightspeed newsletter is all things Solana, in your inbox, every day. <a href="https://blockworks.co/newsletter/lightspeed">Subscribe to daily Solana news</a> from Jack Kubinec and Jeff Albus.

Bitcoin Loses 6%, Equities Fall as Inflation Exceeds Estimates

<div id="highlights-block_616075b83ef17" class="highlights">
 <ul>
 <li>The US nonfarm payroll report showed 194,000 jobs were added, less than half of expectations </li>
 <li>Economists say we are in a recession, according to consumer sentiment data </li>
 </ul>
 
</div>



With consumer expectations and third-quarter earnings estimates on the decline, September’s jobs data brought more of the same.&nbsp;



The US economy added just 194,000 in nonfarm payrolls in September, compared with 366,000 in August, coming in less than half of the Dow Jones estimate of 500,000, the Labor Department <a href="https://www.bls.gov/news.release/pdf/empsit.pdf">reported</a> Friday.&nbsp;



September’s unemployment rate came in at 4.8%, a decline from August’s 5.2%. Wages increased despite the jobs numbers, the average hourly earnings year-over-year in September increased 4.6%, compared with 4% in August.



<div class="embed-container"><iframe src="https://fred.stlouisfed.org/graph/graph-landing.php?g=IPyf&amp;width=670&amp;height=475" scrolling="no" frameborder="0" style="overflow:hidden;" allowtransparency="true" loading="lazy"></iframe></div><script src="https://fred.stlouisfed.org/graph/js/embed.js" type="text/javascript"></script>



Friday’s report also included revision data, which increased previous months’ reports. August’s disappointing numbers were revised up by more than 100,000 to 366,000 from the initially reported 235,000.



“It actually was better than it appeared, to be honest,” said Tom Essaye, founder of Sevens Report Research. “If you look at the revisions for August, the revisions were pretty positive.”&nbsp;



Leisure and hospitality once again led to jobs gains, adding 74,000 positions to the sector. Transportation and warehousing, construction, and manufacturing also saw high gains.&nbsp;



The education sector saw the largest decline in terms of job growth. Local government education employment decreased by 144,000 in September and state government education positions declined by 17,000. Experts are largely attributing the decline to covid-related issues and do not expect the trend to continue.&nbsp;



“That&#8217;s sort of a weird anomaly, that&#8217;s not something that people think is structurally going to continue,” Essaye said. “I don&#8217;t want to say it&#8217;s a good number, certainly we would have liked something much higher, but it&#8217;s not quite as bad as sort of was made out to be when the number first came out.”&nbsp;



New research released Thursday from David Blanchflower of Dartmouth College and Alex Bryson of University College London suggests that even with revisions and increases in wages, America is still likely in a recession. The two economists point to consumer expectations indexes from the Conference Board and <a href="https://cms.blockworks.co/inflation-heats-up-as-economic-data-comes-in/">University of Michigan</a>, both of which revealed declining sentiment in recent months, as a key indicator of American economic downturns.&nbsp;



“These surveys are much more important than anything macro forecasters are doing,” <a href="https://www.youtube.com/watch?v=_-jmDyg0AcE">said Blanchard</a> of the two reports.&nbsp;



The Conference Board consumer confidence index declined for a third straight month in September. University of Michigan’s preliminary consumer sentiment index inched slightly higher in September but remained near a decade low.&nbsp;



“However, downward movements in consumer expectations in the last six months suggest the economy in the United States is entering recession now,” Blanchflower and Bryson said in the report.&nbsp;



Regardless of the disappointing data, Essaye remains confident that we should expect to see some sort of tapering from the Federal Reserve before the end of the year.&nbsp;



“I think definitely the Fed will taper by the end of the year,” he said. “In order for the Fed not to taper, I think that the data would have to turn down really hard.”&nbsp;

bureau of labor statistics