On the Margin Newsletter: Fed leaves interest rates unchanged; expects cuts by end of year

As market digests a rate decision that many priced in, the key figure seems to be committee members’ long-term outlook

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Welcome to the On the Margin Newsletter, brought to you by Ben Stack, Casey Wagner and Felix Jauvin. Here’s what we unpack today: 

  • The Fed just shared its rate decision, and more importantly, its end-of-year projections. Let’s dive into what this means and how markets are reacting. 
  • Planned spot ETH ETFs saw some movement, but then things seemed to stall. In case you lost track, here’s where we stand. 
  • Bitcoin miner Core Scientific re-listed earlier this year after emerging from bankruptcy. It’s up 170% year to date.

It’s Fed Day! 

The Federal Open Market Committee wrapped this afternoon — revealing interest rates would remain unchanged at 5.25% to 5.5%. Projections from central bankers show the committee expects rates to fall to between 4.9% and 5.4% by the end of 2024. 

The largely anticipated decision comes hours after the latest CPI figure dropped ahead of this morning’s market open. Inflation is up 3.3% year over year in May, and prices on all goods excluding food and energy rose 0.2% during the month. 

The CPI print was, by most accounts, great. Both headline figures came in below expectations and were enough to assure markets that a rate cut could come as soon as September. The likelihood of a September rate cut increased to 63% following the release of the FOMC statement, according to CME Group data. 

The S&P 500 and Nasdaq Composite indexes loved the inflation-related numbers too, rallying as much as 1.3% and 2%, respectively, during the first few hours of trading. 

Crypto also rode the wave. Bitcoin and ether each gained about 4% after the CPI report. BTC briefly moved back into the $70,000 range before paring gains to hover around $69,500 by early afternoon. 

Following the Fed’s rate decision, bitcoin traded flat, still sitting just below $70,000. 

After the Fed relieved their interest rate decision and projections, equities held steady. The S&P pared gains slightly but was still trading 1% higher over 24 hours. Meanwhile, the Nasdaq maintained a 1.7% rally over the trading session in the moments following the release. 

While markets may be digesting the already-priced-in rate decision well, the key figure is committee members’ long-term outlook for interest rates. 

“While there are high hopes that the Federal Reserve can find a balance in reducing inflation without stalling economic growth, market shocks could still occur in the coming months,” said RAW Capital Partners managing director Ben Nichols.

Last week’s jobs data came in a bit too hot for comfort, spiking Treasury yields and causing investors to rethink how many rate cuts — if any at all — we might see before the end of the year. Committee members today confirming that they see interest rates ending 2024 lower should come as a relief. 

Today’s decision comes after the European Central Bank last week opted to cut rates, even amid persistent inflation. The Bank of England is next up, with its rate decision expected next week. 

Now’s the time for investors to branch out, Nichols said. 

“For investors, the focus must remain on ensuring that portfolios can endure any turbulence that may stem from central bank action around the world,” he noted. “So we expect to see many opting to continue diversifying investments across uncorrelated asset classes, regions and sectors, as well as a mixture of traditional and alternative investments.”

Remember, you heard it from him, not me! No investment advice here.

Casey Wagner

48%

The percentage of surveyed Fortune 500 executives saying crypto can increase access to the financial system and allow the underbanked to create wealth.

So basically half. Also roughly half of small business owners say they’re likely to seek crypto-familiar candidates when hiring finance, legal or tech pros, the recent Coinbase report found. Banks can find more ways to work with crypto companies and encourage innovation, one Fortune 500 exec said as part of the survey.

It’s a trend we’ve already started to see. Citi and JPMorgan collaborate with Avalanche, for example — among other TradFi blockchain trials in recent months. And there isn’t much signaling it will slow down.

What’s up with the ether ETFs?

The SEC does not appear to be in a particular rush to get ether ETFs to market.

Though to be fair, it hasn’t even been two weeks since the prospective fund issuers filed their latest amended registration statements, aka S-1s.

As a reminder, the securities regulator approved so-called 19b-4 proposals. A separate division of the SEC now needs to sign off on the S-1s, which could take a couple rounds of comments and edits.

Bloomberg Intelligence analysts had noted that while a speedy process to approve S-1s (two or so weeks) was possible, they and others were not ruling out a several-month ordeal.

After all, the SEC’s Division of Corporation Finance is tasked with ensuring the proper disclosures are in place for the investing public. 

Still, a source familiar with the filings told Blockworks on Tuesday that issuers were informally told to expect comments on amended S-1s by June 7. 

That did not happen — signaling patience could be the name of the game.

It hasn’t been all quiet here. ProShares — a fund firm known for its BITO bitcoin futures ETF that also offers an ether futures-focused fund suite — threw its hat in the spot ETH ETF ring on June 6. 

The SEC acknowledged on Monday it was considering the 19b-4 proposal for that fund. ProShares published an S-1 for its planned Ethereum ETF on Tuesday.

Theoretically, there should be less to look at as a whole given the SEC’s approval of ether futures ETFs and spot bitcoin ETFs in October 2023 and January 2024, respectively. Nate Geraci, president of The ETF Store, thus believes a straightforward approval should come soon.

While eyes remain on this, the “when, not if” vibes for spot ether ETF launches seem to stymie any potential for major tension in crypto hearts.

Ben Strack

Keep an eye on this miner

Core Scientific remains a crypto stock to watch.

Definitely no price predictions from this journalist, but I’ll be eyeing with interest what the bitcoin miner’s share price does in the coming months. 

The Texas-based miner’s story is fascinating. It grew fast, then had to file for bankruptcy in December 2022 after having trouble covering debt obligations.

Core Scientific (CORZ) came out of bankruptcy in January — its stock price dropping 30% immediately upon its re-listing on the Nasdaq. Its shares spent the first few months of the year under $4.

It then made a 12-year deal with CoreWeave last week to offer 200 MW of infrastructure to host the cloud-provider’s high-performance computing (HPC) services. 

The deal confirmed Core Scientific’s commitment to HPC and the potentially bigger opportunity — serving a growing market while “diversifying our top line,” according to CFO Denise Sterling. The high-margin revenue from the CoreWeave deal is estimated to total $290 million per year.

CORZ stock was sub-$5 on June 3. It was at $9.41 at 2 pm ET Wednesday.

The company has mined 35,000 or so bitcoin since 2021 — more than any other North American public rival. “We believed that bitcoin mining was the start of a larger business, but necessarily the end,” Sullivan said during an investor call Wednesday. 

Still, executives stressed the company is not ditching the self-mining business line. HPC is set to make up about 500 MW of the company’s 1.2 gigawatts of capacity.

Compass Point Research & Trading analyst Joe Flynn increased his CORZ price target from $8.50 to $12.50. The price target could go as high as $17.50, he added, upon more HPC announcements.

 — Ben Strack

Bulletin Board

  • The SEC and Terraform reached an agreement Wednesday. The former stablecoin issuer will pay nearly $4.5 billion, according to the latest filings.
  • Bitcoin miner Riot Platforms on Wednesday came out against what it called a “shareholder-unfriendly poison pill” proposal from Bitfarms. Riot tried to acquire the company in April, and Bitfarms has claimed the rival firm seeks to “undermine” its strategic review process.
  • Joseph Wang is set to break down the latest FOMC meeting and other macro developments during this week’s On the Margin podcast. Catch it Thursday on YouTube, or wherever you get your podcasts.

Start your day with top crypto insights from David Canellis and Katherine Ross. Subscribe to the Empire newsletter.

Explore the growing intersection between crypto, macroeconomics, policy and finance with Ben Strack, Casey Wagner and Felix Jauvin. Subscribe to the On the Margin newsletter.

The Lightspeed newsletter is all things Solana, in your inbox, every day. Subscribe to daily Solana news from Jack Kubinec and Jeff Albus.

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