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On the Margin Newsletter: Future of crypto regulation uncertain amid European election results

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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:

  • Election results are in from Europe, leaving crypto’s future unclear.
  • Ether ETF S-1 revisions continue. The end is near though.
  • Congress is back in session, and lawmakers have a slew of hearings. Find out what we’ll be listening for.

European elections set off fireworks of their own

While US readers (hopefully) took a break from pondering politics during the July 4 festivities, our friends across the pond were busy finalizing official election results.

The UK’s left-leaning Labour Party emerged victorious on Friday, marking its first win in nearly 20 years. Leader Keir Starmer is the new prime minister. He replaces Rishi Sunak, a vocal crypto fan who in 2022 revealed plans to make the UK a “hub” for the industry and advocated for a UK CBDC.

In a shocking reversal in France, leftist groups received unexpected support. The New Popular Front secured the most seats, but still failed to win a majority.

France now has a hung parliament, a situation likely to make passing any new legislation a challenge. French Prime Minister Gabriel Attal will remain in the role for now. This comes at the request of President Emmanuel Macron, who said protecting the “stability of the country” is the top priority.

While the New Popular Front has not said much about crypto specifically, it has promised big changes to Macron’s fiscal policy, including cutting taxes for low earners and introducing a wealth tax for the rich. Changes to the capital gains tax structure — which could nix the flat tax many investors and businesses have enjoyed — would impact crypto holders and companies, too.

Despite the ongoing uncertainty, the euro rallied to a more than three-week high against the dollar after stumbling over the weekend. Also on Monday, the pound sterling hit a four-week high against the dollar, which is still struggling to recover after last week’s labor report.

The elections come as crypto faces somewhat of a turning point in Europe. EU members last month reached their first deadline for MiCA regulations — with stablecoin policies taking effect. Other requirements for exchanges and wallets must be met by December.

While crypto in the US has been “politicized,” Xapo Bank CEO Seamus Rocca said in a note Monday, the UK Labour Party has not been vocal about the space (of late, or historically).

The general election has derailed the regulatory framework UK lawmakers were slated to debut in July. But there is still hope the new administration can pick up where the Conservatives left off.

“Will crypto become politicized in the UK between the Tory and Labour parties?” Rocca wondered. “I honestly don’t know the answer to that, but what I do know is that the UK needs to think about how to make itself attractive to entrepreneurship, innovation, fintech and crypto to help create an industry and jobs.”

In the US, voters and lawmakers are still digesting the fallout from the June presidential debate. In a Monday letter to Democratic Congressional leaders, President Biden reiterated his commitment to staying in the race, even as the list of Dems calling for his withdrawal grows.

— Casey Wagner

$143 million

The amount of inflows bitcoin ETFs saw on Friday, data shows, even though bitcoin’s price has dropped substantially in recent weeks.

Though not a particularly large amount, it was the highest daily inflow total for the category since June 6. It also shows a decoupling between price action and flows, which as Fineqia International’s Matteo Greco noted, indicates BTC’s latest drop has been driven by crypto-native space activity.

Put simply, Bloomberg Intelligence analyst James Seyffart added in an X post that bitcoin ETFs are “doing the exact opposite of dumping” — even as BTC’s price has dropped roughly 20% from a month ago.

Penultimate ETH ETF S-1 round

This could be the week US spot ether ETFs launch, some say. Others believe next week might be more likely.

These are just guesses, sure — but they are educated guesses. Here’s what we know:

More amended registration documents (aka S-1s) are in, and they’re looking more final than ever.

Bitwise submitted its latest S-1 last week, while those by VanEck and 21Shares came in prior to publishing this newsletter Monday. Unlike filings earlier on in the process that included ample bracketed white space, these are looking robust and appear just about ready to go.

While VanEck included its previously disclosed 0.20% sponsor fee in its Monday S-1, Bitwise and 21Shares have still not listed one. Other fund groups such as BlackRock might also wait until the final round of S-1s to reveal their fees.

More S-1s are likely to drop after this newsletter hits your inbox. After all, the SEC last week offered only “immaterial” suggested revisions, a person close to the filings told Blockworks at the time. Those edits are due today.

Issuers are expecting the SEC to come back to them with a deadline to submit one more S-1 with all details (including the fund’s price) filled in. The agency would likely, at that time, give the firms a date on which they could launch their ETH funds.

You’ve heard the “dog days of summer” trope, especially as crypto prices are down. BTC and ETH have each seen a roughly 20% decline over the past month.

But ether ETFs could be a catalyst for a crypto market uptrend in the second half of 2024, some industry watchers expect.

Jupiter Zheng, a partner at HashKey Capital, said he predicts between $15 billion and $20 billion of trading volumes for US ETH ETFs in the first month (roughly 70% of what US spot BTC funds saw). Demand for the funds could help propel ETH to a price range between $6,000 and $10,000 by the end of the year, he added. ETH currently trades at about $3,000.

Galaxy Digital analysts expect the US ETH ETFs to bring in about 30% of the net inflows that bitcoin ETFs did (equaling about $1 billion a month) for the remainder of the year. This is similar to other projections we’ve heard.

Bitwise’s Matt Hougan said earlier this year that TradFi investors may need more time to “digest” bitcoin before jumping into ETH funds.

Whatever the case, clarity on the investor reception question appears to be fast approaching.

— Ben Strack

On Our Radar

We welcome back our US readers after the holiday weekend! Congressional leaders also return to the office this week with a packed schedule of hearings. Here’s what we’ll be watching:

  • Fed Chair Jerome Powell is making the rounds on Capitol Hill this week. He will be testifying before the Senate Banking Committee on Tuesday and before the House Financial Services Committee on Wednesday as part of the Fed’s semiannual monetary policy report. We expect Powell will repeat to lawmakers that central bankers need more data before they cut interest rates. But these appearances can be market-moving, so it’s worth tuning in.
  • Treasury Secretary Janet Yellen will face members of the HFSC Tuesday to testify on the state of the international financial system. Yellen will be asked about progress made in reforming the IMF and the status of new anti-money laundering standards.
  • SEC Commissioner Caroline Crenshaw heads to the Senate on Thursday for her nomination hearing after President Biden last month nominated her to a second term. We will be listening for any mentions of crypto policy, as Crenshaw has aligned herself with Gensler in recent years. Senate Banking Committee members will also consider Christy Goldsmith Romero, nominated to become FDIC chairperson; Kristin Johnson, put up to be an Assistant Secretary of the Treasury; and Gordon Ito, nominated to be a member of the Financial Stability Oversight Council.

— Casey Wagner

Bulletin Board

  • BTC was trading at about $56,200 at 2 pm ET, pretty flat on the day but about 19% lower than a month ago. ETH’s price hovered just below $3,000, showing the asset has plummeted similarly to BTC in the past 30 days.
  • Bitcoin miner Bitfarms appointed a new CEO as rival Riot Platforms appears to continue its attempted take-over. The new chief executive, Ben Gagnon, was formerly the company’s chief mining officer. Nicolas Bonta, who became Bitfarms’ interim CEO in May, remains chairman of its board of directors, though Riot is trying to replace him via a special shareholder meeting.
  • Core Scientific said Monday it’s set to eliminate $260 million of debt from its balance sheet after converting secured convertible notes. This comes as Core’s stock price has jumped in recent weeks, easily eclipsing the $6.81 threshold (on a daily volume weighted average basis for 20 straight trading days) required to convert the notes.

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