Market Overview

Recent U.S. CPI data and initial jobless claims didn’t meet expectations, leaving investors concerned about the Federal Reserve's upcoming decisions regarding interest rates. The market has responded cautiously as concerns grow over the extent to which the Fed might adjust interest rates.

Market Update

On Thursday, October 10, U.S. stock markets closed with slight declines across all three major indexes, with the S&P 500 seeing the largest drop of 0.21%. Stock futures indicated minor gains, while gold remained steady at a high of $2,651 per ounce, and oil was trading at $75.77 per barrel.

Bitcoin dropped slightly to $60,000, staying relatively stable compared to the previous day. Altcoins showed a mixed performance, with some rising and others falling. The total crypto market capitalization shrunk to $2.226 trillion.

U.S. BTC spot ETFs saw net outflows of $81.1 million on Thursday, while ETH spot ETFs saw inflows of $10.1 million.

CPI Data and Jobless Claims Disappoint

The U.S. Labor Department recently reported that inflation and jobless claims exceeded expectations. CPI increased by 0.2% in September, pushing the year-over-year inflation rate to 2.4%, 0.1% higher than forecasted. The core CPI, which excludes food and energy prices, also rose by 0.3% month-over-month, bringing the annual rate to 3.3%.

In addition to higher-than-expected CPI, initial jobless claims spiked unexpectedly, reaching a seasonally adjusted 258,000 for the week ending October 5. This marks the highest number of claims since August 5, 2023.

These figures have placed the Federal Reserve in a difficult position. While reducing interest rates is expected to help mortgage rates decline, the opposite has occurred. The unexpected rise in jobless claims suggests that the September employment report may need to be revised downward due to incomplete data. In this situation, the Fed faces a dilemma: maintaining high interest rates could stifle economic growth, but reducing rates prematurely could worsen inflation.

Investors are currently hoping for a “soft landing” by the Fed. The market consensus, based on the CME's FedWatch Tool, is that the Fed will likely cut rates by 0.25% in its next meeting. However, any deviation from this plan could shake investor confidence. The Fed's next move is crucial, especially as it has already initiated a cycle of rate cuts, and investors expect further rate reductions in the long term.

China Stimulus Efforts

Meanwhile, China continues to roll out new stimulus policies to boost its economy. The People's Bank of China (PBoC) launched a new financial tool to help banks and financial institutions access liquidity more easily. A new 500 billion yuan ($70.61 billion) swap fund has been introduced, allowing eligible institutions to exchange assets like bonds, ETFs, or stocks for safer, more liquid assets like treasury bills or central bank bills.

The PBoC is also prepared to issue additional funding up to 1.5 trillion yuan if necessary. These moves highlight China’s aggressive approach to injecting money into the economy to maintain stability. However, recent statistics show a sharp rise in corporate bankruptcies, with nearly 5,000 companies filing for bankruptcy in the first half of this year alone, a significant increase from 2013.

Young Investors Favor Crypto – Adoption is Growing

A survey by investment firm Charles Schwab (managing $9.57 trillion in assets) reveals that nearly half of the respondents (45%) plan to invest in crypto ETFs. The younger generation, in particular, prioritizes investing in crypto assets over more traditional assets. Older generations, like Boomers (born between 1946-1964), still favor traditional assets such as government bonds, gold, and real estate over crypto.

Hedge funds are also increasingly engaging with crypto. A new survey by the Alternative Investment Management Association (AIMA) and PwC (one of the Big 4 accounting firms) shows that 47% of traditional hedge funds have crypto exposure, up from 29% in 2023 and 37% in 2022. While 67% of these funds plan to maintain their current crypto investments, others plan to increase exposure by the end of 2024.

Some hedge funds remain hesitant, with 76% of those not currently investing in crypto unlikely to change their stance in the next three years, up from 54% in 2023.

U.S. banks are also shifting their stance on crypto services. Even Jamie Dimon, CEO of Chase, who once referred to Bitcoin and crypto as tools for criminals and financial bubbles, has overseen Chase’s pioneering work in crypto services. Chase now offers a wide range of services, including crypto trading, custody, private crypto funds, and even support for crypto ETFs and tokenized assets.

SEC Continues Its Crackdown on Crypto

SEC Commissioner Mark Uyeda recently expressed dissatisfaction with the SEC’s approach to crypto, describing it as a "disaster" for the industry during an interview on Fox Business News. Uyeda, a crypto supporter, took the opportunity to criticize SEC Chair Gary Gensler’s harsh approach to the sector. Despite the criticism, the SEC has continued filing lawsuits against crypto companies.

The SEC recently sued Cumberland DRW, one of the largest crypto market makers, for allegedly selling assets like Polygon, Solana, Cosmos, Algorand, and Filecoin as securities without registering as a securities dealer. Cumberland is fighting back and has stated that it will not alter its business practices or the assets it provides liquidity for in response to the SEC’s actions.

Many, including John Reed Stark, a former SEC enforcement officer and crypto skeptic, have noted that these lawsuits could become irrelevant if Donald Trump wins the presidential election and restructures the SEC leadership.

As of October 10, 2024, Trump has widened his lead over Vice President Kamala Harris according to betting markets like PolyMarket. The latest data shows Trump with a 56.4% chance of winning, compared to Harris’s 43.6%.

Additional Updates:

• World Liberty Financial, a DeFi project connected to former President Donald Trump, will begin its token sale next week, aiming to raise $300 million. The project will sell 20% of its token supply, with a fully diluted valuation of $1.5 billion.
• The Thai SEC has proposed regulations allowing mutual and private funds to invest in crypto, including crypto ETFs listed on U.S. exchanges.
• South Korea’s Securities and Futures Commission has set up a virtual assets committee to discuss approving Bitcoin spot ETFs and allowing corporate accounts for crypto exchanges.
• Uniswap has announced Unichain, a layer-2 network built on Ethereum to enhance transaction speed, reduce costs, and improve liquidity. Uniswap Labs has confirmed that Unichain will be powered by Optimism Superchain, with the mainnet launch expected by late 2024.
• Cardano has become the first blockchain to have a smart contract recognized and enforced by an Argentine court. This case involved a loan agreement between two Cardano ambassadors.
• Vitalik Buterin, co-founder of Ethereum, has been proposed as a candidate for the 2024 Nobel Prize in Economics by two economists, Tyler Cowen and Alex Tabarrok, for his work on Ethereum and the successful transition from proof-of-work to proof-of-stake.
• Ripple has launched a crypto custody service for banks, expanding beyond its core payment solutions business.

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