Jerome Powell is ‘dovish across the board’: Unpacking the Jackson pivot

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

• Felix breaks down charts from the latest OTM podcast weekly roundup, which you can listen to here.
• Securities regulators went after another crypto lending platform, but this company seems to have come out on top.
• A look at the crypto asset manager that has revealed two acquisitions a week apart.

Rounding out the roundup

For those who missed this week’s On the Margin podcast roundup, we’re once again rounding out the episode by outlining some of the key charts and insights discussed.

Enjoy!

The Jackson pivot

The talk of the week was Fed Chair Jerome Powell’s speech at Jackson Hole. This tweet from the WSJ’s Nick Timiraos best summed up the key takeaways:

What this means is Powell has struck the Fed put and anchored it to the labor market. By mentioning that the Fed does not welcome any further cooling in labor market conditions, he is making it explicit that any further weakening would be matched with further easing of monetary policy.

What Powell did not do, however, was provide explicit guidance on the size of the cut in September. As it stands today, markets are pricing in an implied probability of 34.5% regarding a 50 basis point cut:

Plaza Accord 2.0?

A couple of weeks ago, it looked like the Asia Dollar Index was about to break out amidst a dovish tilt to the US dollar.

USDJPY was also causing major shake-ups in the FX landscape as the yen strengthened after the Bank of Japan’s first rate hike in years.

Suddenly, however, the FX volume diminished and the margin calls stopped.

One theory, as proposed by Michael Howell of Crossborder Capital (who just so happens to be appearing on the On the Margin podcast tomorrow), is that an “in the shadows” agreement was struck between policymakers to increase US dollar liquidity and get the BoJ to ease its hawkish rhetoric.

As surmised in the chart below, this could well pave the way for a simple liquidity situation to the last major FX agreement — the Plaza Accord:

Credit spreads aren’t stressing

For weeks now we’ve been banging the drum that most of the recent market volatility is not fundamental-based, as credit spreads were not showing the strain they would during such situations. As seen in the JPM high yield index below, things remain muted:

As long as credit spreads remain contained, the fears of a looming recession and continued market downturn should be faded.

That’s it for the rounding out of the roundup. Don’t miss the show airing every Saturday morning.

— Felix Jauvin

1/50 of one bitcoin

The size of the new micro-bitcoin futures product CME Group plans to launch at the end of September, pending regulatory approval. Dubbed Bitcoin Friday Futures, or BFF, the contracts would settle at 4 pm ET every Friday.

New BFF contracts are set to be listed on Thursday at 6 pm ET, and market participants would be able to trade them on the nearest two Fridays at any time, CME said Tuesday.

The SEC is not a fan of ‘Earn’ anything

Crypto platform Abra has settled charges with the SEC relating to its Abra Earn product, regulators said Monday.

In what should come as a surprise to no one, the SEC claimed Abra Earn — a platform that came with big returns for customers willing to lend their assets — was an unregistered security. Regulators noted that at its peak, Abra Earn held around $600 million in assets. Roughly $500 million of that total was from US investors.

We know the SEC is not a fan of these lending platforms, especially those with “Earn” in the name.

Securities regulators in March announced a $21 million settlement with Genesis over its Gemini Earn product. The state of New York also took action against Genesis and Gemini, revealing in June it had recovered $50 million for what Attorney General Letitia James’s office referred to as “defrauded” investors.

Crypto exchange Kraken last year settled charges with the SEC and agreed to discontinue its staking-as-a-service program, which regulators alleged qualified as unregistered investment contracts.

The terms of Abra’s settlement are not yet fully determined. The SEC said Monday that Abra has not admitted or denied the allegations (typical of these settlements) and has agreed “to an injunction prohibiting it from violating the registration provisions of the Securities Act and the Investment Company Act.”

This is regulator-speak for “Abra wound down Earn,” which CEO Billy Barhydt confirmed in an X post Monday. He added that customers of Abra Private (its SEC-registered investment advisor arm, available to high-net-worth investors and family offices) can still access yield and staking services.

A DC federal court will determine the civil penalties owed, which will likely take months.

All in all, it’s not a terrible outcome. Barhydt even said so himself, although he questioned whether the investigation and charges were really a “positive use of taxpayer funds.”

Still, we imagine Abra saved a lot of money and time by opting not to fight this in court (which likely wouldn’t have ended in its favor anyway). Plus, it seems its retail business is alive and well outside of the US, at least for now.

— Casey Wagner

Bitwise has come to play

Bitwise has revealed its second acquisition of the month as part of an apparent push to maintain its solid position in the crypto ETF arena.

About a week after acquiring London-based ETC Group (complete with its nine Europe-listed crypto ETPs), the firm said Tuesday it would take over the assets (currently worth about $120 million) within the Osprey Bitcoin Trust.

For Osprey shareholders, this deal “will lower costs and increase liquidity while providing continuity to their investment,” Bitwise CEO Hunter Horsley told Blockworks.

Bitwise has name recognition in the crypto fund space, sure. It launched the Bitwise 10 Crypto Index Fund in 2017 — a product that manages more than $900 million in assets.

But when launching its US spot bitcoin and ether ETFs in January and July, respectively, the firm started going up against the biggest of the big. We’re looking at you, BlackRock and Fidelity.

Even before the milestone US spot bitcoin ETF launches, Bitwise came out swinging with ads featuring The Most Interesting Man in the World. In the months since, Bitwise has held its own in the fight for crypto ETF assets.

Net inflows into the Bitwise Bitcoin ETF (BITB), at about $2 billion since launch, rank fourth — behind BlackRock, Fidelity and Ark Invest/21Shares. Bitwise trails only the former two companies when it comes to net money entering its spot ETH offering, reeling in $312 million during the products’ first month on the market.

Grayscale is of course another one of Bitwise’s crypto-centric ETF competitors, particularly as its newer “Mini” BTC and ETH trusts gain traction.

Whereas Bitwise buying ETC Group was a bid to boost its European presence, the purchase of Osprey assets is set to bolster the US-listed BITB’s current $2.4 billion asset base. The deal is expected to close later this year.

Such deals mark a continuation of M&A within the crypto ETP realm. As you may recall, Europe-focused CoinShares acquired Valkyrie’s US-centric ETF business in March.

Whether Bitwise and CoinShares perpetuate this trend so as to grow even larger — or others make moves to become a top player in the space — remains to be seen.

“We have a lot to do in the US and Europe,” Horsley said. “But we will always be open to new opportunities where they make sense.”

— Ben Strack

Bulletin Board

• CF Benchmarks has licensed out the Bitcoin Reference Rate New York variant (BRRNY) to Nasdaq for the exchange’s proposed cash-settled bitcoin options. The launch of such options — subject to SEC approval — would “build upon the hugely successful BTC futures and options contracts offered by CME,” CF Benchmarks CEO Sui Chung said in a Tuesday statement.
• Hilbert Capital has partnered with Xapo Bank to create a BTC-denominated hedge fund. Set to launch next month, the fund is expected to receive roughly $200 million from Xapo Bank and other investors. It will offer professional investors a chance to generate returns in BTC from “institutional-grade structured credit arrangements,” the companies said Tuesday.
• US spot bitcoin ETFs on Monday notched collective net inflows (amounting to $203 million) for an eighth straight day, according to Farside Investors data. On the flip side, Monday marked the eighth straight day of net outflows ($13 million) for the spot ether funds trading in the US, showing a demand divergence for the two types of products.

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