The Breakdown - SEC Punts ETF Applications Till October

Episode Date: September 2, 2023

NLW catches up on the late week news including the SEC punting 7 ETF applications, the JOLTS and nonfarm payroll reports, and revised GDP estimates. Enjoying this content? SUBSCRIBE to the Podcast: https://pod.link/1438693620 Watch on YouTube: https://www.youtube.com/nathanielwhittemorecrypto Subscribe to the newsletter: https://breakdown.beehiiv.com/ Join the discussion: https://discord.gg/VrKRrfKCz8 Follow on Twitter: NLW: https://twitter.com/nlw Breakdown: https://twitter.com/BreakdownNLW

Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the Big Picture Power Shifts remaking our world. What's going on, guys? It is Friday, September 1st, and today we are catching up on crypto, on macro, on all the things. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to Bit. slash breakdown pod. Well, friends, the end of the summer, the beginning of the fall is here. We are kicking off the best season of the year with tons of catch up across both macro and crypto. And we're going to start with a follow-up on what is obviously the biggest story and theme of

the week, which was grayscale's defeat of the SEC in their lawsuit and the implications for spot Bitcoin ETF approval. Now, somehow apparently some people thought that just because they lost in court, the SEC was likely to turn right around and approve a new year. ETF. That, of course, was not the case, and the SEC have in fact deferred their decisions on approving spot Bitcoin ETFs until at least October. On Thursday, the agency filed to defer decision-making across all seven ETF applications that were filed in June, including applications from BlackRock, Vanek, and Bitwise. Now, even though they didn't make the decision now, that Tuesday publication of the court order delivering victory to grayscale was widely viewed as moving the needle on the likelihood

of an ETF approval. In the wake of the decision, Bloomberg analysts had bumped up their odds of an ETF approval by the end of this year to 75%. Still, they cautioned that their expectation was, of course, that the SEC would defer decision-making this week. Markets reacted pretty dramatically to the grayscale order on Tuesday, with Bitcoin pumping more than 7.5% on the news. That move has now been completely retraced on the delays, with Bitcoin back trading at around 26,000. Now, one small subpart of this story that some have been interested in is that the dumping began around 1140 a.m. on the East Coast, but the SEC's first decision was released until 3.20 in the afternoon. Coincidental or did someone have advanced information?

That seems like a great thing to speculate about on Twitter. Now, the next decision point for the SEC will be on the week of October 16th, when all seven ETFs have another chance to be approved or delayed. Remember that the SEC is able to delay each application up to three times before making a final decision. If the SEC drags this out to its conclusion, they will have a total of 240 days to make their call, bringing us to mid-March next year for this cohort of ETF applications. Now, in practical terms, we're likely to have a better idea about how this will all play out by January 10th. That's the final date for the SEC to either approve or deny the ARC and 21 shares application, which was filed two months earlier than the others. The pattern is

certainly for the SEC to delay. During the Grayscale application to convert GBT into an ETF, the SEC took each opportunity it had to delay their decision-making. Still, analysts appear convinced that the gray-scale decision leaves little wiggle room for the SEC to deny the current crop of ETFs. Three appellate judges found that the SEC had indeed acted in an arbitrary and capricious manner in denying gray scale. They pointed out the hypocrisy of approving futures-based ETFs, claiming that the two markets had a 99.9% correlation. The judges further said that the existing surveillance sharing agreements with the Chicago Mercantile Exchange, which operates the Bitcoin Futures Market, quote, are identical and should have the same likelihood of detecting fraudulent

or manipulative conduct in the market for Bitcoin and Bitcoin futures. And so now, although the SEC has been ordered to reconsider Grayscale's application, the timeline for that happening is still extremely unclear. Indeed, in an interview with Bloomberg on Wednesday, Grayscale's CEO, Michael Sonenschine said he didn't even know exactly how this process would work. Grayscale isn't even clear on whether it needs to submit a new application. Now, after this ruling, the SEC has the next 45 days to appeal the order. And after that time, the court can provide more detail on how Grayscale's application should be dealt with. When it comes to markets, they are showing an increased conviction that GBT will successfully convert into an ETF. On Tuesday, the GBTC discount closed to 17%, which is

the slimmest margin since late 2021. Since then, the gap has widened by a few percentage points, but it's still a long way from the deepest discount of over 48%, which occurred in December of last year. Moving on to catch up on the latest fud from Binance, yet another senior executive has resigned. Leon Fung, Binance's Asia-Pacific head, has parted ways with the exchange. Fung's resignation was initially leaked to Bloomberg before being publicly disclosed, and a Binance spokesperson declined to elaborate on his departure other than confirming the resignation. Fung had been responsible for Binance's recent push to expand into Asian markets, including Thailand, Japan, and South Korea, but since he maintains no active social media presence,

it's unclear when he joined and left the exchange. Now, one thing we haven't mentioned recently as we've talked about Binance's various issues is that they have actually seen a fairly significant decline in market share over the past six months. In February, Binance enjoyed 63% market share and spot crypto trading volume, but by August that number had slipped to 45%, with the shift mainly being captured by Huobian Polonex. Over in the world of BUSD, its days are numbered with Binance winding down the white label stable coin. In a statement released on Thursday, Confirmed that support for the token would end in February of next year. BUSD was of course kneecapped by New York regulators at the beginning of this year when Paxos was ordered to cease

and desist minting the stable coin. Until now, Binance had not officially commented on the future of BUSD, which was still available on the centralized exchange and Binance smart chain. The decision to end support for BUSD in February is in line with Paxos's commitment to end redemptions at that time. In a statement, Binance encouraged users to convert their BUSD into other stable coins ahead of the sunset date. promoted conversion to FDUSD at no cost and at a one-to-one peg. FDUSD is a new stable coin issued by Hong Kong-based trust company First Digital that was launched in June and is featured in other Binance promotion since then. Staying on the theme of markets, Bitfinex launched a perpetual

futures contract for Binance's B&B token on Thursday as well. And over the first day of trading, B&B fell by more than 4%. Investor Travis Kling tweeted, BNB has been trading for nearly six years, and Paolo and the gang of Bitfinex waited until today to launch a perp on it. Crypto skeptic Crypto Hippo says, Tether is getting ready to obliterate CZ, an unbacked infinite money printing machine versus the biggest wash trading volume crypto exchange in the world. I'm going to put my money on Tether winning this fight. Expect sudden price drops on the Bitfinex BNB perp. Now, the biggest mystery of this week was a sealed filing that showed up on the court docket of the SEC's lawsuit against Binance late on Monday night. We have, it should be

clear no information about the contents of the filing. Speculation on Tuesday covered a wide range of theories. Some thought the filing could simply be related to a dull procedural issue regarding discovery. Others thought the filing might involve sensitive material gathered by a criminal investigation conducted by the DOJ. Andrew at AP Abacus says, update. Sources state that the sealed Binance motions this week are riddled with heavy, heavy claims. One source said, given the natures of the issues here, surprised that we, the SEC, are taking this on, should be in the hands of the DOJ at this point. Andrew adds that he was instructed to go back and look at Bislato claims and indictments and then add scale.

Bislato was, of course, a tiny unknown exchange that engaged in money laundering for Russia dark web markets. Some evidence revealed ties between Bislato and Binance. When the indictment was unsealed, the DOJ treated Bislato as their crowning achievement with a flashy pre-announced press conference. This caused, of course, widespread confusion within the crypto community, who basically without exception, had never heard of the obscure exchange. Now also on Thursday, the old lawsuit between the New York Department of Financial Services and Tether and Bitfinex also saw some action. This is the case which was brought by the regulator in April 2019, with allegations that BitFinex had manipulated Bitcoin markets and Tether's reserves were lacking.

The matter was settled in February 21, with Tether agreeing to publish quarterly reserve attestations over the following two years. The court retained jurisdiction in case the matter needed to be reopened at a later date. This week, the regulator filed a heavily redacted motion with sealed evidence attached, because the filing is. secret, we only have a vague idea of what it relates to. Unredacted parts of the motion appear to relate to accounting irregularities and deficiencies, as well as a lack of clarity around loans between the two firms. The regulator has requested that Bitfinex prepare an unknown witness for testimony. Nap Jenner tweets, it's the anonymous crypto-trader whistleblower from two months back,

who was willing to testify and court docs said something about them being a top-three-tether creator. Could be Sam really trying his cards to get out of jail? Urgent filing two hours after SBF denied out of jail, question mark? Now, of course, Sam's involvement as a potential witness against Heather, against finance, are likely going to be part of the rumor surrounding all of these issues right up until the moment it's either proven true or proven not true. Still, with that, let's shift over for a moment to the macro side of the house. Tuesday's job openings and labor turnover survey showed cracks beginning to open up in what has been a surprisingly robust labor market. Nick Timmeros, the chief economics correspondent at the Wall Street Journal, wrote,

this is a Joltz report the Fed will be pleased to see. Basically, this July, Joltz report indicated that job openings across the U.S. had decreased to $8.8 million from $9.17 million in June. This marks the sixth month of declines in open positions over the past seven months and the lowest level since March of 2021. Compounding the story of a softening labor market, June's job openings number was massively revised. When first reported, the data showed almost 9.6 million open roles across the labor market. That means the Fed is now looking at data that shows around 800,000 fewer job openings than the data available last month. Importantly, job openings has been frequently referenced as Fed Chair Jerome Powell's favorite metric

for gauging the tightness of the labor market. The collapse in job openings over this year and accelerating into the summer should give the Fed some confidence that their policies are beginning to bring supply and demand for workers back into alignment. There are now just 1.5 job openings for every unemployed worker. That ratio peaked above two during May of last year. This means that by this metric, the labor market is now at its weakest point in almost two years. Now this morning, we also got the non-farm payrolls report for August, and Bloomberg summed it up with an article titled U.S. jobs report signals smooth downshift in labor market. TLDR, employers in August added 187,000 jobs, slightly higher than the 170,000 anticipated. In addition to that, hundreds of

thousands more joined the labor force, with a growing number unable to find work right away. As Bloomberg puts it, quote, combined with wage growth running at the slowest pace since early last year, the data illustrate why Americans are a little less upbeat about the job market. While hiring and incomes are still firm enough to bolster consumer spending, job openings have retreated and layoffs are picking up. This Bloomberg says gives the Fed room to pause interest rates later this month while keeping their options open for another rate hike before the end of the year. And that's basically what traders are anticipating at least when it comes to September. Over in GDP land, US GDP for Q2 was revised on Wednesday down to a fairly

middling 2.1%. The second GDP estimate report from the Bureau of Economic Analysis trim the forecast down from 2.4% in the advanced estimate. Both household spending and gross domestic income rose for the quarter, with GDI reversing a negative trend over the previous two quarters. This metric typically tracks GDP closely, but a pretty significant gap has opened up over the past three quarters. Now, while the GDP number isn't stellar, it's also far from the recessionary conditions that were forecast for this year in late 2022. An almost consensus opinion among economics had the U.S. hurtling towards a recession in the latter half of this year. So far, there are a few signs that a recession will actually materialize.

One of the most telling data points that indicates the U.S. may be on track to avoid a recession has been the Atlanta Fed's GDP now forecast. The estimate has Q3 GDP coming in at a blisteringly hot 5.6% currently, which is far above the blue chip consensus forecast, which was last reported at 1.7% in early August. Now, pretty interestingly, some economists believe that Blockbuster entertainment consumption has provided a significant boost to Q3 GDP. Bloomberg Economist wrote in a note this week that the combination of tours from Taylor Swift and Beyonce, as well as the dual-hit movies Barbie and Oppenheimer, are believed to have added $8.5 billion to GDP this quarter. Still, the note

recognized that the economic strength driven by these cultural phenomenon is short-lived. The note said, a large chunk of the strength comes from temporary factors. These factors create a mirage of resilient consumption when, in fact, it's running out of steam. So overall, it feels like the data are showing a leveling off across the board. Nothing is great, but nothing is also dramatically bad. The big question is whether this is moderation into a soft landing or something more of an inflection point. From the Fed's perspective, it certainly doesn't suggest anything alarming that would justify another September hike, but also nothing that would knock them out of the pause stance into actually considering cuts. The bigger questions are what happens in Q4, as things like

student loans restart, employer retention credit might get repealed, and of course, Taylor Swift leaves the country. Just some of the things to watch as we move into this fall season, but for now, I am going to send you off into Labor Day weekend, full of brightness, optimism, and all the possibility that September brings. Thanks for listening as always, and until next time, peace.