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A note to our readers: Felix has taken over Blockworks’ Forward Guidance podcast, and Casey and Ben are going with him. Starting Oct. 1, the trio that brought you the On the Margin newsletter will now pen Forward Guidance editions.

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You can still expect ample insights on the growing intersection between crypto, macroeconomics, policy and finance. We hope you’ll continue reading!

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:

• Casey tries to read the Q4 tea leaves as we head into the end of 2024. 

• Ben unpacks where some of the top crypto-exposed products in the US stand. 

• It’s jobs week! Get a recap on which reports to watch out for and what analysts are expecting.

(Attempting to) answer the Q4 Qs 

We’ve just about made it to the final quarter of 2024. With the rate-cutting cycle underway, the election looming and geopolitical tensions rising, there’s a lot to keep an eye on these next three months. 

Here’s an overview of where economic forecasts currently stand and what we can learn from historical data:

Recessionary fears are still present, but generally not increasing 

Analysts from S&P Global are keeping their probability for a recession beginning in the next 12 months unchanged at 25%. 

“For now, near-term recession fears appear overblown,” they wrote, adding that the recent increase in unemployment is largely due to labor force expansion rather than layoffs, which would be more indicative of a looming recession. 

Analysts from Russell Investments mostly agree, adding that declining inflation, modest wage growth and cooling labor market pressures all bode well for avoiding a recession. They say the most important figure to watch will be weekly initial jobless claims. Should first-time claims continuously come in above 260,000, a “more painful” adjustment would likely follow.

Initial claims came in at 218,000 for the week ended Sept. 21, a 4,000 decrease from the week prior. The four-week moving average currently sits at 224,750. 

A 90s-style soft landing 

90s fashion is back — according to Gen Z at least — so let’s hope the economic conditions that allowed for a soft landing in 1994/1995 are also making a comeback. 

The Fed’s 1994 rate-raising cycle saw rates go from 3% to 6% over seven increases. The central bank cut rates by 75-basis points the following year and held them there for over a year. Economic growth did slow, but did not dip into recession-territory. The S&P 500 ended 1995 34% higher. 

The end-of-year outlook 

Bitcoin and ether are currently around 43% and 14% higher, respectively, year to date. The gains were largely made in the first quarter of the year, but some analysts insist there is still room left to rally. Bitcoin particularly is looking to close September higher than it has in months, at about 7% in the green. 

“We anticipate a constructive Q4 2024 due to US rate cuts and significant fiscal and monetary stimulus from China, which should enhance market liquidity and support BTC performance,” analysts from Coinbase Institutional wrote in a recent report.

Tom Dunleavy, partner at MV Capital, says risk assets currently have “almost the perfect setup,” citing data showing that when the Fed cuts rates when stocks are already up, the rally tends to intensify. 

The case for volatility 

The summertime volatility that saw the VIX hit 38 in August could be mostly behind us, analysts from BlackRock suggest in the Q4 outlook report. Most of the uncertainty in the third quarter was due to the variability around Fed policy, but now that the rate-cutting cycle has begun, this should ease. 

Still, Q4 brings its own set of unpredictable conditions. But BlackRock analysts say this is no reason to panic; when volatility is driven by sentiment and technical factors, it can provide a healthy reset for the market.

— Casey Wagner

The percentage of crypto owners that live in one of seven swing states (AZ, GA, MI, NC, NV, PA and WI) this election cycle, according to a new report from Coinbase and Morning Consult. 

95% of crypto owners are expected to vote in the upcoming election, the report added. 

The survey did not include information about how many crypto owners intend to be so-called “single-issue crypto voters,” but it did find that crypto owners appear to be evenly split between both major candidates, with Kamala Harris and Donald Trump each polling at 47% among the demographic.

The Forward Guidance crew is hitting the stage at Permissionless next week!

Don’t miss the chance to catch the bullish takes and high-fashion of guy’s emporium IRL.

As we’ve written about before, ETF powerhouse State Street chose to enter the crypto ETF arena with Galaxy Digital at its side, and the pair is taking an active focus. 

State Street’s thought was that many investors want more than just spot crypto exposure, or they wish to stray from some of the existing passive equity fund offerings.

A quick recap of the new products: The Digital Asset Ecosystem ETF (DECO) holds crypto equities, futures contracts and ETFs. Another fund — the Transformative Tech Accelerators ETF (TEKX) — expands that equities universe by also investing in AI-related companies. 

Finally, the Hedged Digital Asset Ecosystem ETF (HECO) is like DECO, but manages volatility via covered call options and protective put options. 

The latter strategy has so far won out from an asset-gathering perspective. DECO and TEKX each have just $6 million assets under management, while HECO leads the way with $115 million in assets.

Top holdings in the three companies currently include bitcoin miners like Terawulf, Cipher Mining and Core Scientific. Chris Rhine, Galaxy’s head of liquid strategies, noted the “huge opportunity” for miners with the infrastructure to build out their high-performance computing (HPC) and AI verticals.

“The reason bitcoin miner stocks are so volatile is because the price of bitcoin is volatile,” Rhine told Blockworks. “But if you can create a 10- or 15-year contract with steady revenues, it really will reduce the volatility of the equity. And typically what happens [is]: As the volatility of the equity comes down, the multiple of the equity goes up.”

In addition to HECO’s literal hedging efforts, the ability for TEKX, for example, to invest in “downstream” industries (like electrical equipment providers, power companies, etc.) can contribute to risk mitigation during rocky times for crypto-specific bets.  

I was curious how many more active crypto ETFs State Street and Galaxy could look to launch going forward, and where they see the white space in this segment. 

Anna Paglia, State Street Global Advisors’ chief business officer, didn’t get too specific — telling me in an email that the firm “[does] not discuss product development ideas under consideration.” Still, SSGA is “always evaluating” opportunities to launch more products.

Rhine said there will be a period of just trying to deliver results and prove these three ETFs are ones investors want to own. 

But longer term, he said, an expanding universe of public crypto companies (and firms adjacent to the industry) could spur ideas for new funds. Some crypto players are clearly eying IPOs.

“There’s a lot of optimism that the regulatory landscape is going to improve a bit over the next 12 months, and I think that’s going to be regardless of which candidate wins the presidency,” he added. “That could enable a whole new group of companies to go public.”

The seemingly imminent listing of bitcoin ETF options is also likely to spur more product development. 

All is to say, the ways for investors to get exposure to the crypto industry will only continue to evolve — with smaller crypto-focused firms and the State Streets of the world likely to each play a big part.

— Ben Strack

Happy Monday! Last week’s lower-than-expected inflation data may have increased the odds of another more aggressive rate cut from the Fed come November, but it remains to be seen whether the coveted soft landing can actually be achieved. This week’s data will give us a better picture of where we stand, particularly in terms of labor conditions. 

Here’s what’s on tap:

• It’s a big week for jobs data. On Tuesday the August JOLTS report drops, which is expected to come in relatively flat from July at 7.67 million. Remember: July’s figure came in lower than expected and showed a 2.16 million decline from June, so another miss will be disappointing for markets. 

• Jobs week continues on Wednesday with the ADP employment report for September slated to drop. August’s figure showed that nonfarm private payrolls increased by just 99,000, coming in far below the forecasted 145,000 and marking the smallest gain since 2021. Wednesday’s report is expected to show a 110,000 increase. 

• Finally, on Friday, we’ll get the September US labor report. Nonfarm payrolls are expected to increase slightly to 144,000, compared with 142,000 in August. The unemployment rate is forecast to remain unchanged at 4.2% and analysts are calling for hourly wages to have increased 0.3%, down slightly from August’s figure of 0.4%.

— Casey Wagner

• It’s looking like longshoremen on the Gulf and East Coasts will begin a strike Tuesday as union members and employers continue struggling to reach a contract agreement. The walkout would halt most activity at some of the busiest US ports, potentially creating supply chain issues that could lead to higher prices on many goods. 

• Digital asset investment products posted a third-straight week of inflows last week, bringing in a total of $1.2 billion in capital, data from CoinShares shows. 

• The Blockworks Permissionless III conference is only 10 days away. Get your tickets now to connect with Felix, Casey and Ben onsite, plus hear from some of the leading names in crypto and macro.