On the Margin Newsletter: A look at crypto’s performance halfway through 2024

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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:

• We are halfway through the year! Here’s where crypto markets stand.
• Initial jobless claims came in higher than analysts expected, a sign the labor market isn’t as strong as the Fed would like.
• Soft data got you down? Don’t worry, we also break down the latest economic indicators.

Crypto’s wild year is only half over

The first half of 2024 is officially in the books, and with a fresh set of tailwinds and hurdles, the next six months should be pretty interesting for the crypto industry.

A potential Federal Reserve rate cut, and of course the US presidential election, are among the catalysts that could move crypto markets later this year.

Not to mention the impact of potential regulatory progress and/or more SEC lawsuits.

But let’s look backward for a moment.

Bitcoin’s price is up 36% year to date despite declining from its $73,000-plus all-time high hit in mid-March.

ETH has similarly risen 40% from the start of 2024 despite a price setback in June that saw it lose 10% over the month.

US spot bitcoin ETFs have seen $14.5 billion of net inflows since launching in January. Their ether counterparts are expected to debut shortly, bringing more investors into another segment of the space via traditional vehicles.

Then there were the filings for spot Solana ETFs (by VanEck and then 21Shares) last week.

VanEck’s crypto research head confirmed in an X post that the firm’s plans are essentially a bet on Donald Trump (a potential pro-crypto candidate) winning the presidency.

The reality of soon having two crypto assets with their own US spot ETFs (and a potential third in SOL, even if unlikely to gain approval for now) highlights the growing interest/adoption by TradFi service providers and investors, noted Fineqia International analyst Matteo Greco.

“This trend projects a positive outlook for the digital assets market in the mid- to long-term, with increased establishment in financial markets accompanied by rising inflows, liquidity and transparency,” he added.

It appears TradFi service businesses are not just eyeing investments into crypto assets (or the ETFs holding them) — with industry watchers expecting such firms to buy into the sector via M&A.

“[They] continue to be inhibited by regulatory uncertainty,” Architect Partners managing partner Eric Risley told Blockworks. “However, Robinhood’s acquisition of Bitstamp is evidence of ‘bridge transactions’ on the horizon.”

As TradFi and crypto get more tangled, macroeconomic forces — and how they impact the sector — will be key.

Fed funds futures data suggests the market is still expecting and pricing in two rate cuts in 2024, according to Bitfinex derivatives head Jag Kooner.

“The Fed’s statements and a possible continuation of a more hawkish stance are important factors to watch,” he added.

We also shouldn’t forget the historical price peaks that can come as far as 12 to 18 months after a halving (the last of which occurred on April 19).

Price uptrend in crypto bull markets typically resumes within 10 to 12 weeks from the event, Kooner said. That timeline colliding with potential US spot ETH ETF launches could offer an additional catalyst.

Aside from all that, regulation continues to weigh on the space — in both good ways and bad. While crypto lawmaking efforts have lulled after bipartisan progress, post-election efforts could prove pivotal.

Then, there’s seeing who the SEC might choose to sue next following its recent actions against Consensys and Silvergate Bank, launched just days apart. The agency’s progress in greenlighting crypto funds has not exactly lightened them up on the enforcement side.

A lot is uncertain, but that’s part of the fun. I guess it was a good time to start this newsletter.

— Ben Strack

$3.2 billion

The amount of capital venture investors put into crypto companies during the second quarter of the year, according to a new report from Galaxy Digital Research. This is an increase from the first quarter, when VCs allocated $2.5 billion to the sector.

Deal count decreased slightly in the second quarter, dropping from 603 to 577.

Disappointing report shows labor market is slowing

US initial jobless claims came in higher than expected last week, the latest report from the Labor Department shows.

First time unemployment applications hit 238,000 last week, up from 234,000 the week prior. The print marks the ninth straight week of increases in initial claims.

Continuing jobless claims increased to 1.86 million in the week ended June 22, the highest recorded figure since November 2021. An increase in recurring applications shows labor demand easing as the economy slows.

The report comes a day after Fed Chair Jerome Powell said he’s hopeful the economy is headed in a “disinflationary” direction. He noted that additional data is needed before central bankers can commit to a rate cutting schedule.

The Fed finds itself in a difficult position, he added.

“We’re well aware that if we go too soon, we could undo the good work we’ve done in bringing down inflation, and if we go too late, we could unnecessarily undermine the recovery and the expansion… we’re aware that we have two-sided risks now, more so than we did a year ago,” Powell said Tuesday.

On Friday we’ll get the monthly employment report from June, which analysts expect will show an increase of 190,000 nonfarm payrolls. The economy added 272,000 jobs in May, Labor Department data shows.

Stocks rose and bond yields fell on the report. The S&P 500 and Nasdaq Composite indexes posted gains of around 0.2% each at the open. Markets closed early Wednesday ahead of the July 4 holiday, and trading will resume Thursday.

Bitcoin and ether slipped following the release of the report, losing 3% and 2.7%, respectively, according to Coinbase.

— Casey Wagner

How do we deal with conflicting soft data?

ISM Services printed a 48.8 today, much lower than the expected 52.5.

At the same time, however, we received data from S&P Global US Services PMI, which rose to 55.3 from 54.8.

These two data points attempt to do the same thing: provide a leading forecast of economic activity in the services sector. As a quick reminder, the remainder of inflation is largely driven by services. Goods have been deflationary on a month-over-month basis for several months now.

So while one print is screaming that this economic slowdown is about to accelerate and lead to further services disinflation, the other is screaming that we have a resilient economy and people should continue to spend on services like crazy.

If your head is spinning trying to figure out which way is up based on what economists call “soft data” (survey-based data points that are inferred, not observed directly from the economy), I don’t blame you. So is mine. We’ve been in a weird business cycle ever since coming out of COVID, which has led to weird soft data like we’re seeing today.

I generally believe that markets are somewhat efficient, so to understand which way these prints are leaning, I’m deferring to the bond market to tell me what to make of things. With the US 10 year yield lower by 8.5 basis points, it’s clear that the ISM Services print wins today.

— Felix Jauvin

Bulletin Board

• Odds that President Joe Biden drops out of the presidential race increased to 75% on Polymarket Wednesday after the New York Times reported that Biden was weighing whether to continue. Betters have wagered $9.9 million on Polymarket so far.
• A federal judge has agreed to consider the “merit” of the SEC’s case against Consensys. The question on the table is whether the agency has Congressional authority to regulate MetaMask as a securities broker and issuer.
• We hope our US readers enjoy the July 4 holiday tomorrow! We’ll still be sending out our newsletter on Thursday and Friday, so keep an eye on your inboxes. In the meantime, catch up on the latest On the Margin Podcast episodes on YouTube, or wherever you get your podcasts.

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