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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:

• With a Fed rate decision coming this week, a look at where markets stand, and where they could head.
• Another traditional money manager has hopped aboard the tokenization train.
• The big press conference and other data points Casey thinks you should keep an eye on.

A Fed rate cut looms: Expectations abound

It’s Fed week, folks. You already knew that, but given the anticipation around this rate decision, it felt worth writing out.

This expected cut is happening as bitcoin’s link to traditional assets has recently increased, FalconX research head David Lawant recently pointed out:

Bitcoin rose above $60,000 this weekend but had pulled back to $58,100 by 2 pm ET Monday — 1.8% lower than 24 hours prior. The initial dip coincided with a Sunday report of a second apparent assassination attempt on Donald Trump.

But back to the Fed’s imminent decision, coming Wednesday.

We all know the Fed is set to cut rates, but the question remains by how much. You can almost hear an auctioneer chanting: “25, 25, I’ve got 25 (basis points). Do I hear 50?”

As of 2 pm ET, CME Group’s FedWatch tool showed a 59% probability of a 50bps rate cut (with a 41% probability of a 25bps reduction).

Some analysts have noted that while the market would likely view a 25bps cut as a normal measure (and thus react rather positively), a 50bps cut could spark investor fears of a recession and potentially increase volatility.

Not all necessarily agree.

Matt Lason, CIO of crypto hedge fund Globe 3 Capital, said he’s expecting the Fed to cut by 50bps on Wednesday. Many Fed inflation metrics have been met, he told Blockworks, adding that jobs and other macro data have “softened.”

“This will be very good for crypto and the markets overall,” he argued. “If the Fed only lowers 25bps, it might disappoint some temporarily. But in either scenario we are still very bullish on crypto in the long term.”

Then there were Democratic Sens. Elizabeth Warren, Sheldon Whitehouse and John Hickenlooper, who made the request for a more aggressive 75bps cut in a Monday letter to Fed Chair Jerome Powell.

The trio cited the Fed’s confidence in inflation moving toward its 2% target and data indicating slower job growth.

They noted the Fed should “front-load rate cuts to avoid sliding towards a potential crisis,” adding that high interest rates might even be making worse remaining drivers of inflation, such as housing costs.

Once we learn which route the Fed chooses to take Wednesday, Lawant noted “the more critical question” becomes how large and how long the rate-cutting cycle will be.

To that point, Susannah Streeter, head of money and markets at Hargreaves Lansdown, said in a statement she’s expecting “a quick succession of cuts.”

She added: “Even if a smaller rate cut is delivered, it’ll raise expectations for a more aggressive loosening of policy in November and December, with 100bps of rate reductions by the end of the year priced in by markets.”

While traders brace for the potential positive or negative impact these rate changes have on traditional and crypto markets in the short-term, various segment observers have continued to float lofty year-end price forecasts for BTC — particularly if certain things fall into place.

The wait-and-see game goes beyond Fed rate decisions, as markets appear to be awaiting whether Kamala Harris or Trump (a more vocal crypto supporter so far) will win the November election.

Despite the unknowns, Lason said the fundamental longer-term catalysts for bitcoin remain intact, noting the ongoing institutional demand for the asset, and the bitcoin ETFs.

“With the US national debt crossing $35 trillion and the debasement of fiat currencies across the globe, we expect bitcoin’s upward trajectory to continue,” he added.

Summer had plenty of quiet market moments. But the last week of the season appears set to be anything but.

— Ben Strack

235

The number of S&P 500 companies which mentioned the term “inflation” during their second quarter earnings calls, according to data from FactSet Research. This is a decrease from Q2 of 2023, when 297 of the 500 companies talked about inflation on earnings calls.

Also of note, 210 S&P 500 companies mentioned “AI” during Q2 2024 earnings calls — a massive increase from 2022 (the pre-ChatGPT days) when only around 50 companies talked about AI. This still suggests more than half of S&P 500 companies did not think AI was worth mentioning.

On Our Radar

Happy Monday! We’ve made it to Fed week. While Wednesday’s FOMC interest rate decision and Powell press conference will of course be the main events, other data points are worth keeping an eye on. Here’s what we’re watching:

• On Tuesday we’ll get the August US retail sales report, which is expected to show a 1% month-over-month increase. July’s report showed that retail and food services sales increased 1% from June, coming in higher than the expected increase of 0.4%. Another bump in retail sales from August would be a reassuring data point that implies consumers are feeling healthy. A sharp decline, on the other hand, could signal consumers are pulling back on recessionary fears.
• On Wednesday at 2 pm ET we will get the answer to the question on everyone’s mind: Will the Fed cut interest rates by 25bps or 50bps? Is a bigger cut even possible? We’ll also get a lot more insight into the second-most important question: Is the Fed behind the curve? And, by my ranking, the third-most important question we will see answered on Wednesday is: How many more interest rate cuts do central bankers anticipate this year? Buckle up.
• Weekly jobless claims on Thursday will once again be an important figure to watch. If claims move significantly higher, the odds of a soft landing decreases. The threshold to watch will be 250,000. We know hiring has slowed, but so far, layoffs have been minimal. If that starts to change, it’s a clear sign the labor market is not as healthy as central bankers would like.

— Casey Wagner

Another TradFi player betting on tokenization

Investment firm Janus Henderson is the latest traditional money manager jumping onto the tokenization bandwagon.

This company was one I covered back in the day for another media outlet focused more on the mutual fund space. So to witness its foray into the digital asset realm is particularly interesting to me.

Janus Henderson focuses primarily on equity strategies, but also has fixed income, multi-asset and alternatives products. Managing about $360 billion in assets, it is now set to sub-advise Anemoy Limited’s Liquid Treasury Fund — a tokenized fund on Centrifuge’s public blockchain that gives exposure to short-term US Treasury bills.

Janus Henderson’s corporate strategy operates on many time horizons, the firm’s innovation head Nick Cherney told me. Its dedicated innovation effort specifically targets long-term initiatives the firm is betting will shape the industry’s future.

“Our decision to partner on a tokenized Treasury fund is the direct result of our focus on preparing for a future in which blockchain technology potentially transforms the way in which we deliver investment insights to our clients,” he said.

Cherney added this represents the firm’s first step into the broader nascent movement to bring “robust, transparent, institutional asset management of real-world assets” onto the blockchain.

The company joins some bigger fish in this space — namely BlackRock and Franklin Templeton — which have attracted hundreds of millions of dollars in assets to their tokenized money market funds. State Street wants to get more involved in tokenization, and others continue to test blockchain tech use cases.

“This initial fund could have broad applicability for a wide range of crypto native protocols, from stablecoin collateral to DAO treasury management,” Cherney said. “We will continue to explore how we can deepen this effort in jurisdictions globally where we feel there is robust infrastructure to do so.”

— Ben Strack

Bulletin Board

• Congressional election betting on startup platform Kalshi is still on hold after a federal appeals court sided with the CFTC on Friday. The regulator is attempting to ban election betting, claiming the market decreases voter confidence in the integrity of election results.
• FTX founder Sam Bankman-Fried filed an appeal Friday afternoon to overturn his conviction. SBF is currently serving a 25-year sentence. His attorneys say the presiding judge in the case unfairly blocked the defense team from showing certain evidence, and the jury in turn heard only “one side” of the story.
• The DLT Science Foundation, a global nonprofit organization launched in 2023, today announced its creation of the “MiCA Crypto Alliance.” The initiative is designed to “unite” leading companies in the blockchain industry as new compliance and regulatory guidelines come into effect. Members of the alliance include Ripple, Hedera and the Aptos Foundation.