Welcome to the On the Margin Newsletter, brought to you by Ben Strack and Casey Wagner. Here’s what you’ll find in today’s edition:

• How markets are reacting to the latest inflation print that was just in line with expectations.
• Ben unpacks what’s happening — or not happening — with bitcoin ETF (and other crypto) options.
• It was another volatile week for markets, even as data points showed few surprises. We break down what happened.

Markets react to final PCE before anticipated FOMC

We are 19 days out from the next policy-setting Fed meeting and the latest inflation numbers are in.

The personal consumer expenditures (PCE) price index dropped this morning, showing that inflation is rising exactly as expected. Prices rose 0.2% between June and July and 2.5% in the 12 months ended July, today’s report showed.

So-called core PCE (excluding volatile food and energy) rose 0.16% month over month.

The PCE is the Fed’s favorite inflation gauge. It’s a better measure than the CPI given it is broader and considers consumer behavior. (As fellow tennis fans in NYC may appreciate, my preferred measure of inflation is the Honey Deuce cocktail at the US Open — up 4.5% from last year — but I digress.)

Markets reacted well to the news initially before paring gains later in the session. As of 2 pm ET, the S&P 500 was up 0.11% over the day and the Nasdaq Composite had gained 0.2%.

Stocks are poised to end August in the green for the first time in years. The S&P 500 is currently up 2.8% since the first of the month, while the Nasdaq Composite has gained 1.9% over that span. In 2023, the S&P 500 and Nasdaq Composite indexes closed August 1.6% and 2.1% lower, respectively.

Bitcoin and ether, on the other hand, are deep in the red. Bitcoin has lost close to 12% over the past 30 days while ether is down more than 25%, according to data from Coinbase. Bitcoin was down 3.2% and ether was trading 4.2% lower over the past 24 hours at 2 pm ET.

Today’s data bodes well for a September rate cut, which we already knew was coming after Powell’s Jackson Hole remarks last week. But added reassurance is never a bad thing. When exactly risk assets will bounce back, however, remains more of a question.

“With Powell and the Fed signaling the start of a rate-cutting cycle, we anticipate increased global liquidity will eventually lift risk assets,” analysts at Ryze Labs wrote in a Friday note. “There are early signs of this: the People’s Bank of China injected a substantial RMB 1,042 billion ($150 billion) into Chinese money markets this week, boosting liquidity in global manufacturing, industrial sectors and commodity markets.”

Next week we will get the August employment report, another data point that will be a key piece to the puzzle when trying to determine if central bankers will go for a cut of 25 or 50 basis points.

— Casey Wagner

12

The number of percentage points by which Donald Trump leads Kamala Harris among likely voters who own crypto, according to a poll published Friday by Fairleigh Dickinson University.

Fifty percent of crypto-owning likely voters polled sided with Trump, while 38% prefer Harris. The vice president leads by 12 points among those who say they don’t own crypto (53% to 41%).

“Trump has been reaching out to the crypto community, and it seems to have paid off,” FDU professor Dan Cassino said in a statement. “It might be easy to dismiss them as insignificant, but I don’t think people realize exactly how widespread crypto ownership is.”

More investor ‘options’

Though the SEC has not yet allowed options on the US spot bitcoin ETFs, the agency’s decision on that is expected next month.

In the meantime, Nasdaq earlier this week proposed Bitcoin Index Options (XBTX). The final settlement value would be determined by CF Benchmarks’ Bitcoin Reference Rate New York variant (BRRNY).

A quick refresher on options: They’re contracts representing the right to buy or sell a financial product at a certain price within a specified period.

CF Benchmarks CEO Sui Chung said he can’t comment on discussions with regulators. He did, however, point out: “XBTX is structured like many foreign exchange index options that already trade: options are cash-settled to a spot reference rate.”

To that point, the SEC would have no rational basis to deny this proposal, said Patrick Daugherty, a partner at law firm Foley & Lardner who also teaches about digital assets at Cornell Law School.

“Like foreign currency, bitcoin is liquid and markets for bitcoin demonstrate significant volume and turnover,” he told Blockworks. “The existing markets readily inform the spot market price of bitcoin, and the sufficiency of market surveillance for bitcoin products is now well-established.”

The Nasdaq index options product would give investors another way to hedge, or speculate on, the market risk associated with spot bitcoin exposure, Daugherty added.

“These index options could be used for a wide range of activities such as asset valuation, settlement of financial risk, risk management, NAV calculation, unit creation and unit redemption,” he said.

The proposal came the same week CME Group plotted other crypto derivatives called Bitcoin Friday futures — set to go live on Sept. 30, “pending regulatory review.”

So if these new offerings are coming, what about options for the spot bitcoin ETFs? After all, there are options available on bitcoin futures ETFs — and even on leveraged crypto funds.

Those too are a matter of time, Bloomberg Intelligence analyst James Seyffart has said:

Spot commodity products are registered under the Securities Act of 1933 and therefore must receive individual review and approval from the SEC, Grayscale Investments has noted. That is unlike the futures funds registered under the Securities Act of 1940.

Not to mention the CFTC would also need to OK the spot bitcoin ETF options, perhaps further explaining the hold-up.

I feel like this patience-is-a-virtue trope is becoming an industry (and newsletter) theme.

— Ben Strack

Did You Notice

Happy Friday! It was a volatile week for markets even as data came in more or less as expected. Here’s what to know heading into the long weekend:

• As Felix wrote about yesterday, investors were unimpressed with NVIDIA’s historic earnings report on Wednesday afternoon. The AI chipmaker once again beat analyst expectations, reporting more than $30 billion in sales (a 122% year-over-year increase) and $16.6 billion in profit (projections called for $15 billion). Still, shares fell as much as 5% after hours Wednesday and are still down about 2.5% from Wednesday’s close. It was enough to bring down Big Tech (XLK is down 2.3% over the week). I’d expect the rotation out of tech into cyclicals to continue for now.
• Initial jobless claims fell by 2,000 the week ended Aug. 24, Thursday’s report showed. It was on par with expectations and should be a positive sign for FOMC members, who are hoping to prevent further tightening in the labor market. Odds of a 25-basis point interest rate cut next month now sit at nearly 70%, according to CME Group data.
• The GDP got an upward revision to 3% on Thursday after the Commerce Department previously estimated that economic growth increased at a rate of 2.8% during the second quarter. It’s a big acceleration from Q1’s GDP, which was 1.4%, showing that consumers are feeling resilient. Soft landing here we come?

— Casey Wagner

Bulletin Board

• The US spot bitcoin ETFs saw a third straight day of net outflows on Thursday, according to Farside Investors data — totaling roughly $300 million over that span. Net flows for ether funds were nearly non-existent yesterday as seven of the nine US spot products saw zero flows.
• Check out Blockworks reporter Donovan Choy’s latest story about what some have deemed a lack of transparency around the Ethereum Foundation’s spending. The Empire newsletter team most recently dug into stablecoins.
• Despite the holiday weekend, there’ll be an On the Margin newsletter in your inbox on Labor Day. We’ll be discussing September’s possible market movers and the evolving euro-backed stablecoin scene. If you’re reading this on blockworks.co, make sure to subscribe to the OTM newsletter here.