On the Margin Newsletter: Coinbase adds to crypto’s war chest

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:

General election season is well underway, and crypto companies are opening their checkbooks. A sign the bull market is truly upon us afterall, perhaps?
A $1.6 trillion asset manager came out swinging in the ether ETF fee war, but a competitor could be positioned to one-up them.

109

As promised, President Joe Biden on Friday vetoed H.J.Res. 109 — a pro-crypto bill that attempted to overturn the SEC’s Staff Accounting Bulletin (SAB) 121. The veto comes after a rare show of bipartisan support and cross-chamber cooperation required to even get this bill to the President’s desk.

It’s virtually unheard of for a president to not back up their head of agency (i.e. Gary Gensler), so we saw this one coming. All eyes shift to the Senate, which should be voting on a couple other crypto-related bills any day now.

So everyone has $25 million laying around?

Coinbase this morning became the latest crypto company to give $25 million to crypto-focused super PACs, bringing this cycle’s total fundraising amount to more than $160 million so far.

Coinbase’s donation follows those of a16z and Ripple. Those two companies said last week they would be giving $25 million each to Fairshake and associated super PACs Protect Progress and Defend American Jobs.

Fairshake had more than $52 million in cash-on-hand, as of April 2024 — not including any of these latest donations. The super PAC has only deployed around $11 million since January 2023, according to the latest filings.

The vast majority of that ($10 million) went toward Fairshake’s successful campaign against former Senate-hopeful Katie Porter, a Democrat from California.

Porter, currently serving in the US House for California’s 47th district, lost in the March primary to Rep. Adam Schiff, D-CA. Schiff will face Republican Steve Garvey in November.

Of the super PAC trio, Defend American Jobs — the Republican crypto-focused effort — donated to the most candidates during the primaries. It spent roughly $4 million to back four Republicans, filings show.

The super PAC spent more than $1.5 million backing Rep. James Banks, R-Ind., before an Indiana Supreme Court ruling kicked his only opponent off the ballot. Defend American Jobs put another $1.5 million behind West Virginia Governor and US Senate-hopeful Jim Justice.

Defend American Jobs additionally spent $500,000 each on North Carolina state legislators Tim Moore and John Bradford. Moore currently serves as speaker of the House and is looking to take a seat in the US House, while Bradford is a General Assembly member who lost in the March primary.

Coinbase’s latest donation comes after it was Fairshake’s largest contributor in 2023, giving a total of $46.5 million under the company’s name, per Federal Election Commission filings.

Coinbase-initiated nonprofit Stand With Crypto launched its own PAC. Stand With Crypto has not yet filed contribution or distribution disclosures with the FEC, but as an associated PAC, only individual Stand With Crypto members can contribute up to $5,000 each.

It seems investors may be glad the exchange is looking to maximize its political influence. Shares of Coinbase jumped as much as 4% this morning after the opening bell before paring gains later in the session. COIN is still up more than 40% year-to-date.

— Casey Wagner

Stage set for another heated crypto ETF fee battle

Franklin Templeton has kicked off the US spot ether ETF fee war, but one of their rivals could be especially well-positioned to win this round.

The TradFi giant, with $1.6 trillion in assets under management, has come to play again, revealing a planned 0.19% fee for its spot ether ETF. Competitors have not yet shown their cards in their latest fund proposal amendments.

This 0.19% mark would match the price of the firm’s bitcoin ETF. Franklin Templeton made a splash in January by undercutting Bitwise’s then-cheapest BTC fund a day after those products launched.

Flashy a move as it was, it hasn’t been a winning strategy so far. The Franklin Bitcoin ETF (EZBC) has gathered just $415 million — well behind flow-gathering leaders BlackRock and Fidelity. Even Bitwise’s product, as well as the one offered by Ark Invest and 21Shares, has that AUM total handily beat.

But we know price is a factor that investors consider. Just ask Grayscale, who has watched nearly $18 billion of net assets leave its Bitcoin Trust (GBTC) since that trust converted to an ETF in January. The product carries a 1.5% per-year fee.

Grayscale may have some moves up its sleeve though. The company has prepped “Mini” versions of GBTC and its Ethereum Trust (ETHE).

“I’d expect that the firm will now try to launch its cheaper, mini version of its ether ETF sooner so that it can maintain ETHE as a cash cow while still capitalizing on the broader growth of ether ETFs,” said ETF.com senior analyst Sumit Roy.

The big revenues from GBTC and ETHE indeed allow the firm to potentially “go for the jugular” in how they price the offshoot funds, according to Nate Geraci, president of The ETF Store.

Grayscale’s decision there remains “a huge wild card” in this expected price battle, he noted.

“I could envision a scenario where they significantly undercut on fees in an attempt to make competitors’ life even more miserable in the ETF Terrordome,” Geraci said.

— Ben Strack

On Our Radar

Happy Monday! It’s a major week for job market metrics. Here’s what you should be watching:

Wednesday: ISM Services Report at 10 am ET. Economists are calling for a slight increase here after last month’s report came in just under 50%. Moving back into the above 50% range would be ideal to calm market concern that an economic slowdown is upon us.
Friday: US Employment Report drops at 8:30 am ET. This is the big one. A not-too-low unemployment read should be enough to reassure markets that we could still be getting a rate cut from the Fed in 2024.
We’re also keeping an eye out for bitcoin miner consolidation after Riot Platforms made it known that it seeks to buy competitor Bitfarms. Riot is not the only interested party, Bitfarms says.

Bulletin Board

Bitcoin bull Michael Saylor — founder and executive of MicroStrategy — is set to pay $40 million to resolve a tax fraud case. DC Attorney General Brian Schwalb called it “the largest income tax fraud recovery” in DC history.
3Fourteen Research founder Warren Pies will be joining the On the Margin podcast this week to discuss this month’s FOMC meeting and inflation forecasts. Catch it Wednesday on YouTube, or wherever you get your podcasts.

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