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Welcome to the Forward Guidance newsletter, brought to you by Casey Wagner and Ben Strack. Here’s what you’ll find in today’s edition:

• A federal appeals court sided against the US Treasury in this crypto case. 

• A look at the latest “healthy” BTC correction, and the subsequent price jump. 

• Inflation is still on the rise, but the latest figures met economists’ expectations.

OFAC loses on Tornado Cash in appeal 

In another big win for the crypto industry, a panel of federal judges last night sided with Tornado Cash users. They ruled the US Treasury Department unlawfully sanctioned the cryptocurrency mixing service back in 2022. 

There’s nothing like a rare loss for the government heading into a long holiday weekend. 

A quick refresher: The Treasury’s Office of Foreign Assets Control (OFAC) sanctioned Tornado Cash in August 2022, claiming the mixer had been used to launder more than $7 billion in cryptocurrency. 

In September 2022, six Ethereum blockchain users (with financial backing from Coinbase) filed a lawsuit against OFAC, challenging its authority to designate Tornado Cash as a specially designated national (SDN). A Texas federal judge eventually sided with the Treasury, ruling in September 2023 that the sanctions were permitted, as “person” is defined as an “individual or entity.” 

Coinbase and the Tornado Cash users appealed the decision to the Fifth Circuit Court of Appeals, which brings us to last night’s ruling. 

Judge Don Willett — one of three circuit judges on the panel — wrote that Tornado Cash, which operates by executing immutable smart contracts, cannot be considered “property.” It is therefore outside OFAC’s authority, he added. 

The Treasury has not yet commented on the decision or revealed whether or not it intends to appeal, in which case the Supreme Court could weigh in. 

Willett did concede that there are “real-world downsides of certain uncontrollable technology falling outside of OFAC's sanctioning authority.” But even so, he added, Congress is responsible for updating the legislation. 

Tuesday’s decision notably follows a loss in another Tornado Cash-related case. A bid from Tornado Cash co-founder Roman Storm to dismiss the US government’s case against him was denied last September. Judge Katherine Polk Failla rejected the defense’s narrative that the founders were being targeted simply for “writing code.” 

“As I understand the charges in the indictment, the Tornado Cash enterprise was not an altruistic venture,” Failla added during a telephone conference in September. “Among other things, the indictment alleges that Mr. Storm and other Tornado Cash founders solicited approximately $900,000 in financing from a venture capital fund in exchange for an expectation that the funds would receive a share of future profits from the Tornado Cash service.”

Two Tornado Cash founders, Storm and Roman Semenov, were charged in August 2023 with money laundering and sanctions violations related to their role in creating the mixing service. Storm is scheduled to be arraigned on Dec. 9, according to a scheduling ruling earlier this month. However, the latest development in the case against OFAC could impact this timeline and/or the charges. 

Storm’s legal team did not immediately respond to our requests for comment. That’s not shocking, given that it’s Thanksgiving Eve and a late-night ruling from a higher court may have just upended the entire case. 

We look forward to providing you with more updates after the holiday. For now, we (well, Casey at least) revel in the fact that there’s yet another legal saga to discuss at the dinner table tomorrow.

— Casey Wagner

BTC’s returns in November 2024 so far, CoinGlass data shows. That is up from the nearly 10.8% rise the asset’s price saw in so-called “Uptober” the month before.

November has the highest average monthly return for BTC — in part given the 449% growth seen during the month in 2013. The asset also notched returns of 53% and 43% in November 2017 and November 2020, respectively.  

We will check back in on Monday to report where the final return figure landed.

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Bitcoin’s drop below $91,000 yesterday (those words would have spurred a double-take a month ago) felt rather substantial. 

Perhaps because of the anticipation of BTC hitting the six-figure mark for the first time — followed by a dip after falling just short (around $99,800).

“However, bitcoin’s -8% dip over the last week barely rates when compared to the volatility during the 237 days of downward channel chop between Mar. 14, 2024 and Nov. 6, 2024,” Galaxy Digital research head Alex Thorn pointed out in a Tuesday note.

Over that span, there were at least seven drawdowns larger than that, and five of 15% or more, Thorn found.

Most recent BTC movements have involved coins created (via the so-called unspent transaction output metric) between $56,000 and $72,000, Galaxy data indicates. 

“Rather than whales from eons ago dumping coins, the sell pressure appears to be coming primarily from 2024 buyers taking profits off the back of this move towards $100k,” Thorn wrote.

The Galaxy research head went as far as to say corrections are “healthy.” While the global rates environment and money supply could present headwinds for risk assets, Thorn added, there are also plenty of catalysts.

In fact, there were reports yesterday that the Trump Administration could look to give more crypto regulatory power to the CFTC, potentially reducing the SEC’s influence in the segment. An SEC spokesperson declined to comment.

“This move…involves expanding the CFTC's role to include oversight of digital assets, regulating crypto exchanges and spot markets as commodities — potentially creating a supportive framework for the industry's growth in the US,” Wintermute OTC Trader Jake O. said in an email. “Sea change.”  

BTC’s price was roughly $96,270 at 2 pm ET Wednesday — up 4.7% from 24 hours prior.  

We’ve talked here about the other apparent tailwinds for BTC heading into 2025, whether it be greater regulatory clarity, institutional adoption or a possible US strategic bitcoin reserve. All is to say, buckle up.

— Ben Strack

The Fed’s preferred inflation gauge rose as expected in October, showing that prices increased 0.2% from September and 2.3% annually. The year-over-year increase is a slight uptick from September’s annual PCE figure of 2.1%. 

Core PCE, which excludes volatile food and energy prices, came in 0.3% higher month over month in October and 2.8% higher annually. It’s the highest annual core PCE reading since April. In the 12 months ended September, core PCE increased 2.7%. 

Odds of a 25-basis point interest rate cut in December increased on Wednesday’s PCE report (coming in at 66.5%, up from 59% on Tuesday). Minutes from the Fed’s last meeting, released Tuesday, showed that committee members are open to easing interest rates at a slower pace if inflation proves persistent. 

Still, some economists anticipate FOMC officials will pump the breaks, opting to hold off on any more cuts this year. 

"We're still running a bit hot, so the result of that is we're going to have inflation higher than target," S&P Global chief economist Paul Gruenwald told Yahoo Finance this morning. "So, the Fed's going to keep the foot on the break and keep rates higher for longer."

Today’s PCE report comes as the labor market continues to show strength. Initial jobless claims once again came in lower than expected last week at 213,000, marking the lowest level since April. The figure for the week ended Nov. 16 was upwardly revised from 213,000 to 215,000. 

Fed officials had originally expected to end 2024 25bps lower than where interest rates currently stand. But given these latest data reports, we wouldn’t be shocked if they opted to pause. 

On the other hand, committee members are likely starting to consider how a second Trump term is going to impact the economy, so perhaps they feel more inclined to head into 2025 a bit lower. We’ll have to wait and see.

— Casey Wagner

• As bitcoin’s price rose Wednesday, ether too joined in on the uptrend. ETH was trading  at about $3,590, as of 2 pm ET — 8% higher than 24 hours ago. 

• Citing crypto price movement after previous Thanksgivings, 21Shares exec Federico Brokate told Ben last week that the holiday could spur a move upward for BTC as investors discuss their investment journeys and gains. We will see.

• A Financial Services Committee hearing — called Innovation Revolution: How Technology is Shaping the Future of Finance — is slated for Dec. 4. Witnesses include the CEOs of the Stellar Development Foundation and Anchorage Digital.

• Enjoy time with your family and friends over what is (for many) a long weekend. If you need an escape, the Forward Guidance newsletter will be in your inbox on Thursday and Friday :)