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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:

• Risk-on, risk-off, who knows! We break down analysts’ thoughts on H2.

• The number of ways investors can dabble in crypto continues to grow.

• A Binance exec has been detained in Nigeria for months. Here’s the latest.

Can H1’s momentum last? 

With the first half of the year in the rearview mirror, investors are weighing whether some top-performing assets can maintain their runs. 

Gold is on track to beat its 2023 returns, up about 16% year-to-date. Silver, which ended 2023 in the red, has been on a tear in 2024, rallying 27% since January.  

The S&P 500 and Nasdaq Composite indexes, bolstered by big tech, have notched year-to-date returns of 18% and 22%, respectively. 

And, of course, there’s crypto. Bitcoin and ether, even after a relatively lackluster performance over the past quarter, still emerged as winners. BTC is up more than 45% since the start of the year while ETH has posted a gain of more than 44%. 

The numbers point to one conclusion: Risk is back, or at least it was during the first half of the year. But some analysts believe there is trouble in paradise. 

The 10-year Treasury constant maturity minus the 2-year (aka 10s-2s), currently around -0.26, is moving in a positive direction, Sevens Report founder Tom Essaye said. This generally isn’t great for markets. 

“The rise in 10s-2s is reinforcing my concern that investors are underappreciating the economic risks facing this market in the coming quarters and instead are viewing the world through positively-tinted glasses,” Essaye said. “I very much hope they are right.”

10s-2s go positive when 2-year Treasurys fall quickly because the market expects aggressive rate cuts from the Fed, which is what’s happening now. Markets love this. But, the Fed lowers rates when they get concerned about slowing economic growth, which, Essaye says, the market is currently underestimating. 

Translation: Risk-on may be over. 

For crypto, analysts say key factors coming up will be regulatory concerns (although the SEC closing two major investigations into Hiro Systems and Paxos was certainly positive), the upcoming US election and macro conditions. Inflation seems to be lowering, the Fed is likely to kick off its rate cutting schedule in the fall, but growth remains a wildcard.  

I haven’t heard the term “digital gold” thrown around a lot lately, but it’s worth noting that the precious metal is hitting all-time highs right now. It’s not the craziest thought that investors may want to park some capital in another safe harbor: bitcoin. 

Or is that an oxymoron? Well, BlackRock CEO Larry Fink doesn’t think it is. 

Bitcoin is “an instrument you invest in when you’re more frightened, an instrument you invest in when you believe your country is debasing its currency,” he said on CNBC last week. 

As for ether, there’s a potentially huge tailwind coming up: the launch of ETH spot ETFs, which could hit the market as soon as next week and bring in a lot of capital. As we previously reported, Globe 3 Capital’s Jeff Embry says a new ETH all-time high above $4,800 is in order.

— Casey Wagner

This number represents the quarter-over-quarter drop in crypto spot trading volume on centralized exchanges, according to a recent CoinGecko report. 

Those Q2 volumes amounted to $3.4 trillion, following volumes totaling $2 trillion in March alone (a month during which bitcoin hit a new all-time high over $73,000). BTC is trading about 12% lower than that peak today.

The dip in centralized exchange spot volumes was countered by a rise on DEXs, which rose by nearly 16% from Q1 to Q2, the data shows. The increase to $370 billion during the April-June period was driven by a surge in memecoins and airdrops, CoinGecko notes.

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With US spot ether ETFs expected to hit the market very soon, other crypto funds launch in the meantime.

Grayscale Investments is one of those set to bring an ETH ETF to market after converting its bitcoin trust to an ETF earlier this year. Today, though, the crypto-focused asset manager unveiled a Decentralized AI Fund, available to accredited investors.

The fund’s largest holdings are near (NEAR), filecoin (FIL) and render (RNDR). It also currently invests in livepeer (LPT) and bittensor (TAO).

Grayscale notes these tokens — early in their development cycle — represent “specialized opportunities” investors can include in a diversified crypto portfolio. The firm adds on its site that each of its products goes through a four-stage life cycle “with the ultimate goal of uplisting the product to an ETF.”

Many dipping their toes into crypto first digest bitcoin, with ether typically being the next asset they gravitate to. This lines up with the spot crypto ETF options available (and soon to be offered) in the US. 

Fund firms appear to view solana as the third asset in terms of investor demand, given recent filings to launch spot ETFs holding SOL. 

Hashdex last month filed for a US fund that would hold both BTC and ETH. Down the line, analysts have said they expect US ETFs holding a basket of crypto assets to play a significant role in crypto investing. 

Also on Wednesday (for those who prefer crypto equities and leverage), asset manager Direxion debuted two funds that seek daily investments results equating to 200%, or 100% of the inverse, of performance of the Solactive Distributed Ledger & Decentralized Payment Tech Index.

With tickers LMBO and REKT, the funds provide “focused exposure for traders to express their short-term conviction on companies building the future of a crypto-driven, decentralized economy,” Direxion Managing Director Edward Egilinsky said in a statement.

The bottom line: The ways to get crypto exposure (and the types of assets wrapped in structured products) continue to increase, bringing a broader set of investors into the mix.

— Ben Strack

Tigran Gambaryan, the head of financial crime compliance at Binance who has been detained in Nigeria since February, appeared in court Tuesday. The judge adjourned the hearing until October. 

Gambaryan, according to reports from Nigeria, appeared on Tuesday in a wheelchair. A herniated disc in his back has left him in intense pain and trouble walking, his family said. He has been held in the Kuje prison, a notoriously dangerous facility, since April. 

Gambaryan returned to Nigeria in February after making a visit the month prior, during which officials reportedly asked the company to hand over around $150 million of crypto within two days. He was later charged, along with Binance, with tax evasion and money laundering. 

Adjourning Tuesday’s hearing to October is a disappointing outcome for Gambaryan and his family, who have said his health has continued to decline since his arrest. 

US lawmakers visited Gambaryan, a former IRS agent, in June. Rep. French Hill. R-Ark., chair of the House Subcommittee on Digital Assets and vocal crypto supporter, made the trip along with Rep. Chrissy Houlahan, D-Penn. 

​​"We have a task force in Congress that is on Americans wrongfully detained abroad, or held hostage. Clearly in our view, Tigran fits in that camp," Hill said in a video message following the visit. "We want him home and we can let Binance, his employer, deal with the Nigerians."

The question remains as to why Gambaryan returned to Nigeria in February after the alleged bribe attempt in January. Binance CEO Richard Teng said in a May blog post that the team had grown “increasingly concerned” about the safety of Binance execs in Nigeria.

“We, of course, declined the payment demand via our counsel, not viewing it to be a legitimate settlement offer,” Teng added.

— Casey Wagner

• The SEC asked issuers seeking to launch spot ether ETFs to submit their finalized registration statements (S-1s and S-3s) by the end of today, people close to the filings told Blockworks. We expect to know the fee each fund will charge once those documents are in, closing one of the few remaining questions in this process.

• State Street is looking to get more involved in settling payments on the blockchain, Bloomberg reported Wednesday. The custodial giant launched a digital finance unit in June 2021 and has labeled asset tokenization a“significant opportunity.” It more recently partnered with Galaxy Digital to launch “the next generation of digital asset-based strategies.”  

• The slate of US spot bitcoin ETFs notched net inflows of $423 million on Tuesday, Farside Investors data shows. It was the highest inflow total in a single day since June 5. The category has welcomed more than $1 billion of investor capital to its coffers in the last three trading days alone.       

A quick note: Ben is doing his civic duty and serving on a jury, so his contributions will be limited in the near-term. Fear not! We’ll keep the content coming and look forward to welcoming him back soon.