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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:

• Why a look at the housing market offers incredible insight into where the economy is headed.

• A US solana ETF proposal is on the table, though getting SEC approval is another story.

• Coinbase probably had enough litigation on its hands. But why not add a couple more suits?

The slowdown finally hits housing

They say that housing is the business cycle. And it makes sense! Think about all the components that fall into the process of building and selling a home:

• Labor: Many people are needed to build a house. Carpenters, electricians, architects, etc.

• Commodities: A lot of resources are needed to build a house. Lumber, metals, energy, etc.

• Mortgage rates: A mortgage is often the largest expense on an individual’s balance sheet every month. Moreover, that expense is extremely sensitive to changes in interest rates. That is, unless you’re American and were smart enough to lock in a 30-year fixed mortgage at generational lows a couple years ago.

• Land value: It is one of the few things we cannot make more of. People need to live somewhere and sleep under a roof every night.

Simply put, analyzing the housing market provides an excellent mirror into the health of land, labor and capital — the three tenets of an economy. By understanding the linkages between the three, you can get a pretty good idea of where the economy is headed:

1. As mortgage rates rise, the interest payments on new mortgages, refinanced mortgages and variable mortgages rise. As this occurs, consumers who were previously able to afford their mortgage on the margin now may be squeezed, forcing them to downsize and list their house. Further, no one wants to buy houses during this time given that rates are rising.

2. The supply of available housing to purchase therefore increases, making it a “buyer’s market.” Additionally, fewer new homes are being constructed, which leads to a downcycle in homebuilders (in both resource use and labor requirements).

3. Eventually, as the supply of available housing grows — much like an NFT project where everyone is listing at the floor hoping to get liquidity — all it takes is a few owners to undercut the floor price to trigger a downward spiral in prices. 

4. As this downward spiral in house prices occurs, the equity that many people anchor their wealth to these days (often directly through something like a home equity line of credit) gets impaired, leading to a lower consumption, especially on discretionary items. This leads to a ratcheting down of economic growth until a recession occurs. 

See? It’s a mirror of a classic business cycle.

Looking at the housing market in the US today, it feels like we’re seeing a regime shift.

Due to the fact that so many Americans have been sitting on their sub-3% 30-year fixed rate mortgage, it took longer than most expected to go from step 1 to step 2. But we are getting there now. 

New home sales came in at -11.3% this week — versus an expected -0.2%. A huge miss! 

With that, we are seeing inventory pile up as sales crater.

From there, we look to see when step 3 will arise. Looking at the National Home Price Index, not a whole lot is happening quite yet.

Aside from its impact on housing prices, this miss in new home sales also has implications for home building labor and therefore the unemployment channel.

If new home sales continue to slow down, layoffs in the sector will bump up the unemployment rate, which (as previously explained through the Sahm rule) is key to understanding the Fed reaction function.

— Felix Jauvin

The value of bitcoin miner CleanSpark’s pending all-stock deal to acquire GRIID Infrastructure. 

Still subject to GRIID shareholder approval, the pending transaction sets up the chance for CleanSpark to build its presence in Tennessee.

The company ultimately seeks to have more than 400 megawatts (MW) of infrastructure in the state, matching the type of expansion it has executed in Georgia.

The merger would mark one of the first significant M&A deals between public companies in the sector after April’s Bitcoin halving.

Unlike Riot Platforms’ apparent ongoing attempt to acquire rival miner Bitfarms, the CleanSpark-GRIID agreement is not of the so-called hostile takeover variety.

Thank you to our sponsor:

From modularity to restaking, to the intersection of AI and crypto, to the long-awaited consumer-facing apps to the most recent Bitcoin-related innovations.

We’ll be breaking down all of these and more with the help of a few of the thought leaders in crypto at Permissionless.

With US spot ether ETF launches imminent, fund group VanEck is now also eyeing a solana product. 

The investment firm’s Thursday filing for a spot SOL ETF comes a week after Canada-based 3iQ revealed plans to bring North America’s first solana ETP (if permitted by the Ontario Securities Commission) to the Toronto Stock Exchange. 

To be clear, the proposed products are different.

3iQ’s planned fund is closed-ended, meaning it would offer a fixed number of shares. It also seeks to stake its solana holdings. While VanEck’s fund would not stake the SOL it holds, its authorized participants would continuously create and redeem shares based on market demand.

Put another way, the VanEck fund would be akin to the types of ETPs many American investors are used to (like the spot BTC funds and imminent ETH ETFs). The 3iQ product would only be a step in that direction.

Chris Matta, president of 3iQ Digital Assets, said last week he did not expect regulators to allow an open-ended solana ETF yet given there is no regulated solana futures market (like CME offers with BTC and ETH).

“Frankly, I think that’s why there haven’t been filings in the US for solana ETFs,” he noted.

Other industry watchers agree, telling Blockworks last month they didn’t expect the current precedent (the SEC needing to see regulated futures markets before approving spot products for that asset) to change in the near-term.

A Trump win in November and possible subsequent SEC shake-up could change that down the line.

Also, while SEC Chair Gary Gensler has acknowledged bitcoin as a commodity (rather than a security), the agency left the status of ETH pretty unclear until last month’s spot ether ETF 19b-4 proposal approvals. But you might remember the SEC labeling SOL as a security in lawsuits against Coinbase and Binance last year.

Matthew Sigel, VanEck’s head of digital assets research, argued in an X post that “SOL’s decentralized nature, high utility, and economic feasibility align with the characteristics of other established digital commodities.”

We have our eyes peeled to see if other US issuers follow VanEck’s lead with similar filings. If not, that likely signals they believe that the regulatory uphill battle is currently too great.  

— Ben Strack

As if it didn’t have enough litigation on its hands, Coinbase is initiating legal action against the SEC and the Federal Deposit Insurance Corporation. 

The lawsuits, filed in Washington DC Thursday, come after Coinbase and its consultancy firm, History Associates Incorporated, were denied a series of Freedom of Information Act (FOIA) requests in 2023. History Associates is the plaintiff in both lawsuits and Coinbase is listed as an interested party. 

The SEC and FDIC unlawfully withheld the requested information, according to Coinbase. Now, the exchange is asking the court to force the federal agencies to produce the documents.

Neither the SEC nor the FDIC returned Blockworks’ request for comment. 

The FOIA requests — filed by History Associates on behalf of Coinbase last year — were for documents pertaining to the SEC’s views on Ethereum. That includes copies of the so-called “pause letters” the FDIC sent to supervised financial institutions asking them to stop engaging in digital asset-related activities. 

The SEC and FDIC in their denials of the FOIA requests cited federal exemptions intended to protect information that could threaten national security or would harm an ongoing investigation. Coinbase and History Associates say both agencies improperly cited exemptions as a reason to keep information private. 

As a journalist, I get it. It’s pretty rare to have a FOIA request granted, especially from the SEC. It’s an interesting case with some potentially big implications; we might see the SEC and FDIC release these documents, or see a new precedent set around FOIA policies. 

This is now Coinbase’s third legal entanglement with the SEC. The crypto exchange sued the securities regulator after the SEC denied Coinbase’s formal petition for rulemaking in 2022. That case is now in the US Court of Appeals for the Third Circuit.

The SEC sued Coinbase in June 2023 for alleged securities violations. Coinbase mostly lost its petition to toss the lawsuit in March, and the case has proceeded to the discovery phase.

I think the true sign of a bull market is a trifecta of lawsuits. Coinbase’s legal bills must be through the roof. 

— Casey Wagner

• State Street Global Advisors and Galaxy Digital said Wednesday they are linking up to launch “the next generation of digital asset-based strategies.” An initial proposed Digital Asset Ecosystem ETF would invest in crypto equities and futures contracts, as well as in ETFs that hold spot crypto or futures.

• The Supreme Court on Thursday ruled 6-3 to allow defendants sued by the SEC to have a jury trial in federal court, as opposed to in-house adjudication. It’s the latest decision from the conservative-majority court that challenges the powers of federal agencies. 

• More than $570 million was lost to hacks and fraud across the Web3 ecosystem during the second quarter of 2024, according to a new report from security services platform Immunefi. The figure is a 112% increase from the second quarter of 2023, researchers said.