Soft Inflation Data Paves Way for Rate Cut, Spot BTC ETFs Pull Back

Takeaways

• Inflation stays under control: The Consumer Price Index increased 2.5% in August compared to the previous year, down from the 2.9% bump in July. The latest data indicates the Federal Reserve will likely cut interest rates by 25 basis points next week.
• Bankrupt crypto exchange FTX has reached a $14 million settlement with Emergent Technologies, resolving a dispute over 55 million Robinhood shares: The agreement avoids further legal action and allows Emergent to finalize its bankruptcy proceedings.
• US spot bitcoin ETFs have seen a streak of daily net outflows, with nearly $1.2 billion withdrawn in just eight days: The downturn coincides with broader market volatility.
• The North Carolina Senate has passed a bill prohibiting state participation in any Federal Reserve-sponsored CBDC testing: The bill bans payments to the state using a CBDC. It passed despite a veto by Governor Roy Cooper.

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Inflation Increases 2.5%, Setting Scene for Rate Cut

The Consumer Price Index, a closely watched measure to gauge inflation, increased 2.5% in August from the same period a year ago. The data marked the smallest annual increase in CPI since February 2021 and came in slightly lower than July’s 2.9% year-over-year mark.

Core CPI, which excludes volatile food and fuel prices, jumped 3.2% in August from the previous year, which was roughly in line with economist forecasts. The price of bitcoin on Wednesday briefly dipped below $56,000, perhaps in part because the inflation dampened the chances of a 50-point rate cut. But it quickly bounced back Thursday, surpassing $58,000 amid a broader market rebound.

Federal Reserve officials are expected to cut rates next week at their policy meeting in hopes of achieving their long-desired “soft landing” following July’s sluggish jobs report. That decision could serve as a greenshoot for crypto assets that have historically performed well when interest rates are lower.

Spot Bitcoin ETFs Experience Longest Run of Net Outflows as Market Volatility Grows

Spot Bitcoin ETFs faced their longest streak of net outflows since their launch earlier this year, with nearly $1.2 billion pulled from the 12 ETFs over the eight days ending on September 6. The withdrawals occur as global markets grapple with economic concerns, including mixed US job data and deflationary pressures from China.

The price of bitcoin has faced headwinds this month, continuing its long history of struggling in September.

With demand for spot bitcoin ETFs surging earlier this year, bitcoin reached an all-time high of $73,798 in March. The recent sell-off, though, has dampened bitcoin's year-to-date rally.

Some analysts subsequently believe that the price of bitcoin is poised to surge over the final three months of 2024 if traders can make it through the traditional lull.

FTX Settles Dispute with Emergent Over $600M Robinhood Shares

Defunct exchange FTX has finalized a $14 million settlement with Sam Bankman-Fried’s Emergent Technologies, resolving a dispute over more than $600 million worth of Robinhood shares. The deal reportedly covers administrative expenses and allows Emergent to withdraw its claim on the 55 million shares.

As part of the agreement, Emergent will expedite its bankruptcy resolution in Antigua, and FTX believes this settlement will save litigation costs while securing more value for its creditors. CEO John Ray III confirmed that the deal came as a result of fair negotiations and has been reached in good faith.

Emergent, an offshore firm co-founded by Bankman-Fried, acquired the shares in 2022. After FTX’s collapse in November 2022, multiple parties, including FTX and BlockFi, claimed rights to the shares, which the Justice Department seized in January 2023. FTX founder Bankman-Fried still remains in prison, serving a 25-year sentence for charges including wire fraud and money laundering.

North Carolina Senate Passes Bill Banning CBDC Testing, Overriding Governor’s Veto

On Monday, the North Carolina Senate passed a bill prohibiting the state’s involvement in Federal Reserve testing of a central bank digital currency. The bill bans state payments using a CBDC and blocks state participation in any Federal Reserve pilot programs for CBDCs. It was passed by the Senate after a vote of 27-17 to override Governor Roy Cooper’s veto.

Governor Cooper had previously argued that the bill was “premature” and urged waiting for federal guidelines on digital currencies before taking action. His belief was that regulators should be given time to assess the technology as it develops before enacting a ban.

The legislation comes after the US House passed the CBDC Anti-Surveillance State Act, which seeks to prevent the Federal Reserve from issuing a CBDC directly to individuals. While the concept of a CBDC is being explored in several states, the implementation of one would still likely require congressional approval.

-The Gemini Team