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

• What we learned from the Q2 results of COIN, MSTR, MARA and GLXY, and where those companies are headed.

• The lower-than-expected figures in the July jobs report, and why markets are panicking 

• What you might have noticed (but maybe didn’t) during a data-filled week.

Crypto stocks down after Q2 prints  

It was a week chock-full of crypto stock earnings, with industry heavyweights Coinbase, MicroStrategy, Marathon and Galaxy Digital among those detailing their Q2 results. 

The biggest takeaways?

Coinbase was set to post lower revenue than Q1, and did, at $1.4 billion — though that number slightly beat estimates. Net income was $36 million, falling from nearly $1.2 billion the quarter before. 

COIN shares were down about 4% on Friday, as of 2 pm ET.

The crypto exchange’s trading volumes fell 28% quarter over quarter, with transaction revenues falling a similar amount. But its subscription and services revenue grew to $599 million (up 17% from Q1), thanks to higher stablecoin revenue and blockchain rewards. 

Another notable stat: The number of Q2 transactions on Coinbase’s L2, Base, was up 300% from the prior quarter. 

Speaking of Base, Coinbase in June partnered with Stripe to allow USDC transfers on the L2. Bitwise crypto equities specialist Alyssa Choo called it “a huge opportunity” for Base, which she noted is already the second largest L2 on Ethereum. 

She added: “This is incredibly exciting for the growth prospects of Coinbase and for Ethereum to become the ultimate settlement blockchain for mainstream commerce.”

Beyond that, Coinbase’s global expansion continues. The company’s International Exchange added 25 perpetual futures contracts, Choo pointed out. Coinbase also looks to close on a MiFID license acquisition this year, which would allow it to unlock derivatives in more than 20 EU markets. 

Then there was MicroStrategy, which notched a $103 million net loss in the second quarter. MSTR shares were down 4% on Friday.

Still, the company has bought 12,222 BTC since the end of Q1 and currently holds 226,500 BTC. MicroStrategy bought its total stack of bitcoin for $8.34 billion; those holdings are currently worth roughly $14.3 billion.

The world’s largest corporate holder of BTC, MicroStrategy identifies as a “Bitcoin development company” that seeks to continue accessing capital markets to create “intelligent leverage” via more BTC buys.

The company introduced a new KPI called BTC Yield: the period-to-period percentage change in the ratio of its total BTC holdings to its assumed diluted shares outstanding. TD Cowen analysts said this metric should “broaden the stock’s appeal” as it helps investors compare MSTR shares to bitcoin ETPs (which carry a negative yield, given the fee).

Similar to MicroStrategy, mining giant Marathon said last month it would return to its HODL strategy after buying $100 million worth of BTC. It now holds more than 20,000 bitcoin. 

The company’s revenue missed estimates after dropping 12% from the prior quarter.

Joe Flynn, an analyst at Compass Point Research & Trading, questioned Marathon’s HODL strategy in a research note, pointing out the company is mining at a loss. 

Though Flynn reiterated the stock’s buy rating, he cut the price target from $27 to $21. Marathon’s share price had dropped about 4% to below $17.40 on Friday afternoon.

Finally, Galaxy Digital posted a $177 million net loss — compared to its net income of $422 million in Q1. The stock declined by more than 13% in the hours after publishing the results Thursday morning.

Benchmark analyst Mark Palmer noted the company’s existing and potential power capacity at its Helios bitcoin mining site offers it “upside optionality.”

Indeed, the buzzy acronyms HPC and AI (for high-performance computing and artificial intelligence, if you’ve been living under a rock) came out on the earnings call. Galaxy President Chris Ferraro said the firm was evaluating how to capitalize on “an insatiable demand” for low-cost data center capacity. 

These stocks taking a hit after the prints shows their continued correlation to BTC and the broader crypto markets — also down in Q2 — even as they continue to diversify their businesses. 

The question is how the upside opportunities — via international expansion, more bitcoin buys, an HPC pivot, etc. — play out in Q3 and beyond. You know we’ll be watching.

— Ben Strack

The amount of crypto — predominantly BTC and ETH — bankrupt crypto lender Genesis Trading moved on Friday, according to data from Arkham Research. The funds were likely sent to satisfy creditor repayments, analysts say. 

Similar to Mt. Gox repayments last month, Chimp Exchange founder Akshay Nassa says Genesis’ movement could be a driving force behind Friday’s selloff in crypto markets. As of 2 pm ET, bitcoin and ether were down 0.3% and 3%, respectively, from 24 hours prior.

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In Wednesday’s newsletter I talked about the July jobs report, which came out this morning. 

Here’s what I wrote two days ago: 

“A ‘bad’ labor report is ‘good’ for markets, since it all but guarantees a rate cut, but when will bad data just be bad? Hopefully not on Friday.” 

Well, I may have jinxed things. As fellow On the Margin writer Felix Jauvin said, we are officially in a “bad news is bad news” regime. 

The July jobs report revealed a slew of disappointing figures: 

1. Unemployment is at 4.3% (remember, the Fed’s year-end projection was 4.1%).

2. Job market gains slowed significantly, with only 114,000 jobs added last month (analysts expected 185,000).

3. Hourly wages increased 0.2% month over month and 3.6% year over year. 

Stocks tumbled. An hour after the report dropped, the S&P 500 and Nasdaq Composite indexes were down 2.4% and 3.1%, respectively, for Friday. That figure held for the S&P 500 as of 2 pm ET, while the Nasdaq Composite was trading 2.8% lower on the day. 

The Sahm rule recession indicator, which we’ve mentioned before, is now flashing red.

Established by former Fed economist Claudia Sahm, the Sahm rule states the US economy is headed for a downturn when the three-month moving average of the national unemployment rate is higher than the lowest three-month moving average in the past year by 0.5 or more. As of Friday, we’re sitting at 0.53. 

It’s worth noting that Sahm on Friday said the ongoing impact of the pandemic may have skewed unemployment data enough over the past year that the rule may not apply. Regardless, it’s safe to say we’re in a bad spot. 

We hope our readers can unplug this weekend; the doom and gloom can wait until Monday.

— Casey Wagner

• The FOMC opted to hold interest rates Wednesday in a decision that surprised no one. But now that we have a better view of the current labor market situation, it appears the central bankers’ choice may have been a bad call. Odds of the Fed being able to stick to its coveted “soft landing” just got much lower. 

• We’ve already talked about the headliner jobs report. We also got the ADP employment report on Wednesday, which similarly showed a cooling labor market and climbing wages. Private payroll growth slowed to 122,000 in July, missing analysts’ expectations of 150,000. Wages are up 4.8% from a year ago, which is higher than the Fed would typically like. Still, it’s the smallest increase in three years, so that’s something. 

• This was a big week for tech earnings, and the numbers left much to be desired. Microsoft revenue came in lower than expected, Tesla reported its lowest profit margin in more than five years and Apple’s iPhone sales are at their lowest in almost four years. Google parent company Alphabet may have beat on earnings (thanks to its growing AI tool), but the stock still lost more than 3%.

— Casey Wagner

• Morgan Stanley is set to soon allow its financial advisers to offer the spot bitcoin ETFs by BlackRock and Fidelity to certain clients, CNBC reported. BlackRock’s iShares Bitcoin Trust (IBIT) and the Fidelity Wise Origin Bitcoin Fund (FBTC) have notched net inflows of $20 billion and $9.9 billion, respectively, since launching in January. 

• Speaking of ETFs, four of the nine US spot ether products have posted at least $200 million of net inflows (BlackRock, Bitwise, Fidelity and Grayscale’s “Mini” trust) after eight days of trading. While BlackRock’s ETHA is solidly in the lead with positive flows totaling $713 million, the higher-cost Grayscale Ethereum Trust (ETHE) has watched more than $2 billion of investor capital exit the product.  

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