Brought to you by:

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:

• A look at where we stand headed into next week’s Federal Reserve interest rate decision. 

• Bitcoin ETFs have been on the US market for 8 months. Let’s look at the numbers to see how they’re doing. 

• Happy Friday! We break down some economic data from this week.

Anyone have a Magic 8 Ball? 

The countdown to the Fed’s next interest rate decision is on. Markets, meanwhile, are showing some new uncertainty. 

On Friday morning, federal funds futures showed a 45% chance of a 50-basis point cut next week — up from around 18% on Thursday morning. 

What changed? 

Well, for starters, Chair Timiraos (Nick from the WSJ) published a report yesterday afternoon claiming that FOMC members are still debating whether to cut rates by 25bps or 50bps. 

Initial jobless claims on Thursday also showed that the labor market may be tightening. First-time unemployment filers increased by 2,000 to 230,000 in the week ended Aug. 31 and continuing claims also saw a bump, coming in at 1.85 million. 

Hiring in June and July was also weaker than we initially thought, thanks to revisions made in August’s jobs report.  

Fed Chair Powell has made it clear that he hopes to time rate cuts to avoid additional job market deterioration, but he still hasn’t given any hints about the size of the upcoming cut, or just how bad the labor market would have to get to warrant a more aggressive cut (50bps)

“​​We do not seek or welcome further cooling in labor market conditions,” Powell said last month in Jackson Hole. 

It’s generally accepted that should the Fed go for a 50bps cut next week, it means the central bank is worried about the economy, and in turn, markets will slump. 

As Nicholas Colas, founder of DataTrek Research, wrote this week, the Fed has made an initial 50bps cut twice since 1990: once in January 2001 and again in September 2007. Both of these preceded a recession (the 2001 dot com bubble-fueled downturn kicked off in March 2001 and the Great Recession started in December 2007). 

Two data points may not be a ton to go off of, but I found Nick’s case pretty compelling. Afterall, Powell and the FOMC are certainly hyper-aware of the history here. 

We will also get central bankers’ quarterly economic projections next week, which will reveal how many rate cuts committee members anticipate before the end of the year. We only have three meetings left: next week, November and December. Even if the committee opts for 25bps in September, this doesn’t mean a larger move is off the table down the line, especially if economic data continues to come in lackluster. 

Either way, next week is likely going to be volatile leading up to Wednesday afternoon (and probably after, too). Get some rest this weekend and unplug, we will see you on Monday.

— Casey Wagner

The price XRP hit on Thursday following Grayscale’s announcement that it would add an XRP Trust to its product suite. 

Ripple’s native token gained as much as 9% yesterday, and while $0.58 may not seem like much, it’s the first positive movement the coin has seen in weeks. 

As Ben covered yesterday, you shouldn’t hold your breath for an XRP ETF any time soon. Although based on these market moves, that’s what the XRP army appears to be doing.

Brought to you by:

MANTRA is a purpose-built RWA layer-1 blockchain capable of adherence and enforcement of real world regulatory requirements. As a permissionless chain, MANTRA empowers developers and institutions to seamlessly participate in the evolving RWA tokenization space by offering advanced tech modules, compliance mechanisms, and cross-chain interoperability.

Key Features:

• Built using Cosmos SDK, IBC compatible, with CosmWasm supported

• Secured via a sovereign PoS validator set

• Scalable up to 10k TPS

• Built-in Modules, SDKs and APIs to create, trade and manage regulatory compliant RWAs

• Improved User Experience to onboard non-native users and institutions to Web3

Wednesday marked eight months since the ETFs holding BTC directly launched in the US. 

We know the roughly $17 billion of capital that has poured into these new products is unprecedented. We also realize the ETFs have recently gone through a rough patch of outflows (totaling about $1.2 billion from Aug. 27 to Sept. 6).

Perhaps it’s a good time to tally up the segment’s net flows by month using Farside Investors data (shown in $ millions). January and September are not full months, so consider that as you digest this data. 

Though April and August have been the only full negative net flow months thus far, the funds have so far endured more outflows in September than those periods.

We’ve heard September is historically a bad month for bitcoin (and for the stock market, which BTC is increasingly linked to).

Franklin Templeton’s Christopher Jensen told Blockworks in the midst of April outflows that the spot bitcoin ETF flows weren’t done. He was right of course, as the next three months saw net money pour in.

Platforms and institutions interested in the asset class continue to educate themselves, he noted — adding: “You’re in the whale-hunting business rather than just opening it up and letting lots of small fish come in.”

To that point, Bitwise research director Ryan Rasmussen said in a Thursday X post that a registered investment adviser (RIA) confirmed they’re adding a 6% allocation to crypto ETFs to their model portfolios (4% BTC and 2% ETH).

Rasmussen declined to name the RIA, but told me they are based in the US and manage more than $250 million in assets.  

“Oh, and they sold the Nasdaq 100 (tech stocks) to buy Ethereum,” he added on X.

More money managers are likely to do the same over time as they learn more about BTC and ETH. That’s why those bullish on the long-term growth of such investment products — or simply familiar with ETF flow patterns — don’t sweat short-term outflows. 

— Ben Strack

Happy Friday! We’ve made it to the end of the last week ahead of the Fed’s next FOMC meeting. Unfortunately, we are headed into next week as uncertain as ever. 

Given Powell’s general goal to never surprise the market, it’s possible we may get some signaling from the central bank head on Monday ahead of the two-day policy meeting. So keep your eyes and ears open. 

For now though, here’s a recap of this week’s data: 

• The headline figure this week was, of course, the CPI print. As we covered on Wednesday, the reading came in mostly in line with expectations, not hot enough to guarantee a 50bps rate cut and certainly not cool enough to change any expectations that we’ll be getting at minimum a 25bps cut. Markets have since recovered from their mild dip on Wednesday and even pared losses. The S&P 500 and Nasdaq Composite are poised to end the week 4% and 5% higher, respectively. 

• Initial jobless claims inched higher for the first time in three weeks on Thursday. 230,000 people filed for unemployment for the first time in the week ended Aug. 31, up 2,000 from the week prior. Continuing claims also increased to 1.85 million. A weakening labor market is a tick in the “the Fed will cut rates by 50bps” column, but there’s one caveat to remember: Claims data is historically volatile around holidays, and this latest batch of data included the Labor Day long weekend.

— Casey Wagner

How are crypto venture capital and growth equity markets faring? 

Hear some of the leading investors in the digital assets space in Salt Lake City at Permissionless.

• Coinbase’s new wrapped bitcoin token, cbBTC has reached a market cap of more than $100 million in its first day of trading. The current circulating supply is around 1,700, with 42% on Coinbase’s own Base and 58% on Ethereum. 

• Caroline Ellison, SBF’s former girlfriend and CEO of Alameda Research, has been spending her time volunteering and writing (both academic works and pieces of fiction), her lawyers told the court this week. Ellison will be sentenced for her role in FTX’s collapse on Sept. 24. She’s asking for no prison time. 

• It’s Friday, so you know what that means! Another weekly roundup episode of On the Margin is coming to your podcast channels soon. Tune in tomorrow morning to start your weekend off right.