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

• A look at the weird things related to today’s ISM manufacturing PMI.
• The bull and bear BTC price cases heading into autumn, given expected rate cuts.
• Why the SEC might object to FTX’s repayment plans.  

What is the ISM index telling us?

Markets are being rocked by some weird things from the ISM manufacturing PMI that came out today. Following a weak monthly print of 46.8 in July, a rebound was anticipated with consensus expectations at 47.5. The final number for August came in at 47.2:

This downside surprise shines a light on the continued weakness we’ve seen in the US manufacturing sector. The narrative is consistent with the disappointing goods inflation data we keep getting. 

Looking underneath the hood, there are a few interesting trends emerging:

One of the most notable patterns seen is the substantial increase in inventories while new orders are tanking:

Intuitively, what’s implied is that demand is slowing, inventories are building up, and that is leading to a decrease in new orders. All of that is a recipe for continued goods disinflation, like we’ve seen for over a year now:

Source: Nick Timiraos

On the margin (see what I did there?), this trend of continued manufacturing weakness hints at further disinflation and economic weakness. The thorn in the analysis, however, is what’s going on with ISM prices paid: It’s trending higher and keeps surprising to the upside:

Inventory buildup due to decreasing consumer demand while prices continue higher…huh. If the word “stagflationary” pops into your head, you’re not alone. 

The market is now trying to digest what this implies for the economic story unfolding ahead of the Fed’s rate-cutting cycle beginning September. 

Despite gold being seen as an ideal hedge for this sort of stagflationary backdrop, it is down on the day. Oil, which normally would remain strong in a potential stagflationary environment, is down 4.5% this afternoon. Meanwhile, the US 10-year is rallying and the yield hit as low as 3.82% today.

This mix of market reactions perfectly mirrors today’s ISM prints: a mix of everything. It’s difficult to parse through the noise. 

— Felix Jauvin

$480 million

The net money exiting US spot bitcoin ETFs during the last four trading days (from Aug. 27 to Aug. 30).

This came after the funds saw net inflows earlier in the week despite a BTC price drop, suggesting the decline “may be more closely tied to onchain and digital asset exchange activities than to ETF flows,” Fineqia International research analyst Matteo Greco said in a Monday note.

The roughly $40 billion of trading volumes for the fund category in August is “uncommon” for a summer month, he added — indicating “strong interest and demand for BTC-based financial products.” 

The bull/bear BTC price case as autumn approaches

Yesterday’s newsletter brought up some of the potential market-moving events in September, including jobs data, a presidential debate and an anticipated interest rate cut.   

We can go a step further by pointing out industry watchers’ bull and bear cases for BTC’s price, particularly as it relates to what may be the most significant driver: the expected rate cut. 

The markets are pegging the probability of a Fed rate cut of 25 basis points (as opposed to a 50 bps cut) at 63%, according to CME Group’s FedWatch tool. 

While such a cut would likely signal “the beginning of a typical easing cycle,” Bitfinex analysts wrote in a report, a more aggressive 50 bps cut could spur a price spike followed by a correction “as recession concerns escalate.”   

“Over the past week, we have seen spot holders de-risk while perpetual market speculators have been attempting to ‘buy the dip’ and we continue to observe significant long open interest on BTC perpetuals,” the analysts added.

BTC was trading at $57,600 at 2 pm ET Tuesday.

Authors of the Bitfinex report speculate that a BTC price decline of up to 20% is possible upon the rate cut this month, with a bottom between $40,000 and $50,000.

The possible “sell-the-news reaction” following dovish comments from Fed Chair Jerome Powell could come in a month during which BTC tends to trade down, they wrote. 

An X post by Galaxy Digital research head Alex Thorn helps us visualize this latter historical trend: 

Ledn CIO John Glover said in a Tuesday email that his repeated expectation — of a BTC price move toward $90,000 in the fall — remains.

Autumn, as you know, starts in a few weeks. Glover has his eye on the $69,000 level for BTC to break, before continuing higher. 

“The key level to watch on the downside continues to be [$49,000], and a break below this level will bring a world of hurt to the longs,” he added. “I assign this outcome a low probability.”

— Ben Strack 

Not so fast, FTX… 

Bankrupt crypto exchange FTX has finally reached a settlement agreement to repay more than $16 billion to former users. But the SEC isn’t having it. 

In a Friday court filing, the SEC raised concerns about FTX’s potential plans to make some repayments via stablecoins, which regulators say fall into a legal gray area under securities laws.

FTX has said in its bankruptcy filings that some creditors could be repaid in “cash,” which includes US dollar-pegged stablecoins. 

The securities regulator makes no allegations that FTX is breaking or intends to break the law; the filing is more of a way for the agency to alert the bankruptcy estate that it’s keeping an eye on things. 

“The SEC is not opining as to the legality, under the federal securities laws, of the transactions outlined in the plan and reserves its rights to challenge transactions involving crypto assets,” the SEC filing states. 

“Why provide clarity to the market when threats and aspersions will do?” wondered Coinbase chief legal officer Paul Grewal in an X post responding to the SEC disclosure.

Though the SEC previously alleged that stablecoins fall within its jurisdiction, these efforts haven’t made it far. The Commission in July dropped charges against Paxos relating to an investigation into Binance’s BUSD (after issuing a notice to the company in 2023 regarding its involvement with the stablecoin). 

SEC Chair Gary Gensler in April 2022 said stablecoins raise “three important” issues. They are a potential threat to monetary policy, a potential tool for illicit financial activity and could harm investors, he said. Still, he made no allegation that such assets are securities. 

We’ll have to wait and see whether or not the SEC continues to get involved in FTX’s repayment plans. It seems easy enough for the estate to sell USDC (or whatever it has) and repay creditors in good ol’ USD. But in bankruptcy proceedings, nothing is ever easy. 

— Casey Wagner

Bulletin Board 

• It’s primary day in Massachusetts! One of the most notable races is for the GOP candidate who will take on Sen. Elizabeth Warren in November. The Republican nominee hopefuls are industrial engineer Bob Antonellis and John Deaton, a Quincy City Council president and attorney. Polls close at 8 pm ET. 
• The SEC Tuesday morning announced a settlement with now-defunct crypto hedge fund Galois Capital for allegedly failing to properly safeguard client assets. Blockworks editor Katherine Ross has the full story here. 
• Riot Platforms — the largest shareholder of fellow bitcoin miner Bitfarms — questioned the company’s proposed deal to buy Stronghold Digital Mining in a Tuesday open letter. It called for Bitfarms to avoid entering into any “financing transaction” before its shareholder meeting slated for October. 

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