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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:

• A look at what the Treasury department is up to, and how it’s impacting markets.

• New economic data has dropped, and it features a “real shocker.”

• The top asset-gathering ETH ETFs after two days of trading, and which are well positioned going forward. 

Is the Treasury manipulating the yield curve?

If you missed the most recent episode of the Forward Guidance podcast, you may be unaware that a seminal piece of work related to the tug of war between fiscal and monetary policy was published this week.

Written by renowned economists Nouriel Roubini and Stephen Miran, the economic paper discusses the recent rise of what they call activist Treasury issuance, or ATI.

“By adjusting the maturity profile of its debt issuance, [the] Treasury is dynamically managing financial conditions and through them, the economy — usurping core functions of the Federal Reserve,” the economists wrote.

“By manipulating the amount of interest rate risk owned by investors, ATI works through the same channels as the Fed’s quantitative easing programs,” they added. 

Simply put, despite the most aggressive rate hiking cycle in history, the economy has been staying afloat and markets keep hitting new highs each week. This is because the Treasury is doing “hidden QE” by restricting supply of available long duration debt, making for less duration that the market needs to absorb.

Whereas QE through the Fed works on the demand side, ATI reduces supply of duration at the onset. 

The Treasury department has done this by tilting its maturity profile towards short-dated T-bills. It is effectively running policy often used during emergencies such as the 2008 financial crisis — but during a time of little strain on the economy:

By tilting issuance towards the front end of the curve in recent years, the Treasury is now guiding to run above their long-term average of % of bills issued for the foreseeable future:

Many market experts have discussed this emerging dynamic. But what makes this paper so interesting is the quantitative approach the authors have taken to understand its impact on markets. 

Dr. Roubini and Dr. Miran surmised that ATI has led to a lowering of long-term interest rates by 25 basis points, which is the equivalent to 100 bps in rate cuts on the Federal funds rate. 

Essentially, this activist Treasury policy has nullified 100 bps of rate hikes from the Fed through this cycle!

Suddenly, the economy’s apparent strength and the labor market remaining secularly tight starts to make sense.

To me, it seems the Treasury has undertaken a soft version of yield curve control. It is attempting — through an activist approach — to directly influence yields in the long end of the yield curve and ensure they do not rise to where they would naturally move.

This entire dynamic has led to stickier inflation and a drawn-out tightening cycle from the Fed. Another result is a roaring stock market that is keeping higher income classes from feeling financial strain from this hiking cycle. 

With the Treasury publishing its quarterly refunding announcement next week, the big question on everyone’s mind is what’s next. Will it continue to run this ATI policy or try to pivot back to a normalized maturity profile of issuance? We’ll soon find out.

— Felix Jauvin

The value of bitcoin miner Marathon Digital’s latest BTC purchase. The company now holds more than 20,000 BTC on its balance sheet. 

Marathon revealed it had bought the dip, saying it would be reverting to “a full HODL strategy.” The company cited increased institutional support and an improving macro environment. 

"We believe bitcoin is the world’s best treasury reserve asset and support the idea of sovereign wealth funds holding it,” Marathon CEO Fred Thiel said in a statement. “We encourage governments and corporations to all hold bitcoin as a reserve asset.”

The institutions are here and they're coming to Permissionless.

Everyone doubles down on crypto from traditional banks to crypto-native VC funds.

Don’t miss this chance, ticket prices will increase again soon.

US spot ETH ETFs have completed their first two days of trading, and the world’s largest asset manager is — unsurprisingly — looking good out of the gate.

The flow data shows themes we have seen play out after six-plus months of US spot BTC funds on the market — with BlackRock’s strength being just one. 

The firm’s iShares Ethereum Trust (ETHA) has so far attracted $284 million of net inflows, edging the Bitwise Ethereum ETF’s (ETHW) second-place two-day total of $234 million. Fidelity’s Ethereum Fund (FETH) has brought in $146 million.  

Does anyone else have déjà vu?

On the BTC side, BlackRock’s IBIT has blown competitors out of the water with $19.6 billion of inflows since January. Fidelity — the other financial services titan — has watched $10 billion enter its bitcoin fund.

“Mainstream investors are more comfortable with the likes of BlackRock and Fidelity,” said Neena Mishra, director of ETF research for Zacks Investment Research. “BlackRock’s excellent distribution network and marketing power will ensure that ETHA will continue to remain ahead of its peers.”

Outside of BlackRock and Fidelity, Bitwise appears to be the smaller, crypto-focused firm of choice for many. The latter company’s bitcoin ETF (BITB) has tallied $2.6 billion of net inflows — good enough for third-best in that category. 

Another similar theme this time around? Big outflows from Grayscale’s more expensive trust-converted-ETF. 

Its bitcoin version (aka GBTC) has bled $18.7 billion since January. The Grayscale Ethereum Trust (ETHE) — priced at 2.5% — has watched $811 million exit the product in its first two days. That has dragged down the category’s net flows into the red (-$27 million) after two days. 

But there was a difference this time around. Grayscale planned for those outflows by offering a “Mini” ETH Trust — featuring the category’s cheapest price point (0.15%) and a liquidity headstart amounting to about $1 billion in assets.

That potential advantage has so far resulted in $61 million of net inflows for the Mini Trust, putting it in the middle of the pack.

It’s still early, sure. And Mishra told Blockworks she is not giving up on Grayscale’s cheap option — noting its “ultra-low” price “should attract some younger investors.”

VanEck, Franklin Templeton, 21Shares and Invesco/Galaxy all have catching up to do. 

But at the end of the day, the real winners are the investors that finally have all these options.

— Ben Strack

We’ve made it to Thursday, and as a little treat ahead of tomorrow’s PCE report, we got a slew of economic data this morning.

Second quarter GDP grew an estimated 2.8% year over year, the Bureau of Economic Analysis reported. This blows the expected 2% mark out of the water. The reading is also much higher than the first quarter’s figure of 1.4%. 

But the “real shocker” of the day, to quote David Rosenberg, was the core PCE, which rose 2.9% between Q2 2023 and Q2 2024. 

This is a decline from the Q1 2024 annualized rate, which was 3.7%. The second-quarter figure is a tad higher than expected, but so far hasn’t been enough to quell market expectations of a September rate cut. That sat at 89%, as of this afternoon. 

But it’s not exactly smooth sailing. Rosenberg said tomorrow’s PCE monthly figure could show an increase of 0.3%, a bit higher than the expected 0.2%. This could have a more detrimental impact on rate cut expectations. 

Meanwhile, initial jobless claims fell more than expected. In all, 235,000 people filed for unemployment benefits last week, coming in lower than the anticipated 245,000. 

All eyes turn to tomorrow’s PCE print and then Wednesday’s FOMC results. We feel a bit more optimistic than Rosenberg seems to be, but we’ll just have to wait and see.

— Casey Wagner

• Galaxy Digital has secured $113 million for its latest crypto venture fund. Mike Novogratz’s firm is hoping to hit $150 million, so if you’re interested, now apparently is the time. 

• The Trump campaign notched another $1 million in crypto donations since the start of the second quarter, bringing its grand total to $4 million, CNBC reported. We’re curious to see if the former president’s speech to bitcoiners in Nashville this weekend will inspire others to open their pocketbooks. 

• Speaking of Nashville, Casey is on the ground at Bitcoin 2024. It is, as expected, a bit of a circus. More on that tomorrow. Say hi if you’re around!