On the Margin Newsletter: Crypto may seem down, but here’s why analysts remain optimistic

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

• Why optimism remains for big crypto price surges in the year’s second half. 
• Updates as the Sam Bankman-Fried legal saga rages on. 
• Fed Chair Powell tells Congress what has been keeping him up at night.

Optimism amid the dip

Bitcoin and ether are both down more than 16% from a month ago, with BTC dipping below $55,000 earlier this week.

Some of the high spirits spurred by BTC’s peak above $73,000 in March have dwindled, and yet to many, the dips appear to be business as usual for a sector used to volatility. The recent pullback could even represent a buying opportunity.

Many analysts and execs seem to be viewing this price plummet — fueled in part by the German government dumping bitcoin and Mt Gox repayments — as merely a short-term setback.

LMAX market strategist Joel Kruger noted in a Tuesday email that a close-out to the week below $56,500 could indicate a downward trend leading to a bigger decline toward $40,000. But Kruger added he expects a strong recovery as long-term investors take advantage of the drop.

SkyBridge Capital CEO Anthony Scaramucci told CNBC he believes BTC can still reach $100,000 by the end of the year. That was a mark floated by others back when BTC was up around $70,000; it was trading at roughly $57,600 at 2 pm ET Wednesday.

BTC must “chug through this slog” to ultimately get there, Scaramucci noted, but the asset’s fundamentals remain strong over the long-term, he argued. 

Why do some believe there’s little reason for concern?

First off, it is normal to have 20%-plus BTC drawdowns in bull markets, noted Matthew Sigel, head of digital asset research at VanEck. Three downtrends of that magnitude occurred during the last bull run in 2021, he added, and only two have happened this year.

The first US spot ether ETFs are also set to trade soon . Those launches would impact ETH’s price in the way bitcoin funds drove up BTC, Galaxy Research VP Charles Yu said. Globe 3 Capital’s Jeff Embry previously told Blockworks a new all-time high above $4,800 would come in the medium-term after final US ETH fund approval.

Then, there’s the whole transfer-of-wealth theme you’ve probably heard before. Cerulli Associates estimates $84 trillion to change hands — from older to younger generations — over the next 20 years.

A Bank of America survey published last month shows 49% of younger high-net-worth investors (ages 21-43) own crypto assets, with another 38% interested in owning them. The demographic ranks crypto second in terms of areas of growth, behind only real estate.  

And US spot crypto ETFs (available for BTC, and soon ETH ) make it easier for retail investors and financial advisers to allocate to the segment . 

Rather than dumping shares of bitcoin ETFs, investors appear to be buying the dip. Roughly $650 million of net capital has entered the US BTC fund category over the past three trading days, Farside Investors data indicates. 

Fiorenzo Manganiello, a Geneva Business School blockchain professor and managing partner of LIAN Group, said he expects hedge funds and pension funds to allocate 5% of their portfolios to crypto ETFs by next year. Advisers have told Blockworks their crypto allocations (on behalf of clients) typically range from 1% and 5%.

Regulatory developments remain a wild card , as always. So too do Fed rate decisions.    

But it appears crypto has the backing of at least one major US political party heading into a contentious November election. The GOP platform notes it will end what it calls an “unAmerican crypto crackdown.” 

A poll of Republicans by Paradigm found that 60% say Congress should pass legislation that establishes “clear and predictable rules for cryptocurrency companies and entrepreneurs.” This is likely to pressure Democrats — some of whom have started to support crypto-focused legislation — to evolve their stance on the issue. 

This newsletter goes out every weekday, so you know we’ll be keeping an eye out. 

— Ben Strack

$500 million 

The assets under management now in BlackRock’s first tokenized fund . That is about $100 million more than what is in a longer-running competing offering by Franklin Templeton. 

The world’s largest asset manager launched the BlackRock USD Institutional Digital Liquidity Fund in March. It allows qualified investors to earn US dollar yields by subscribing to the fund via Securitize Markets, a firm focused on tokenizing real-world assets. 

A number of TradFi giants push forward with blockchain- and tokenization-focused efforts . Fortune reported Wednesday that Goldman Sachs plans to launch three tokenization projects by the end of the year. 

SBF associates to have their day in court 

The latest update in the SBF legal saga came yesterday. 

Former FTX execs Nishad Singh and Gary Wang, who previously pleaded guilty and cooperated with the prosecution to testify against Sam Bankman-Fried, will be sentenced in the fall . 

Singh, FTX’s former director of engineering and old high school classmate of Bankman-Fried, pleaded guilty to six federal counts in February 2023. He testified at SBF’s criminal trial last fall that hedge fund Alameda Research took billions of dollars from FTX . Bankman-Fried directed executives to take the cash, Singh told the jury. 

“I’ve always been intimidated [by Bankman-Fried],” Singh said during the November trial . “Sam’s a formidable character…I think over time a lot of that eroded.” 

Singh is slated to be sentenced on Nov. 20. 

Wang, who worked as FTX’s chief technology officer, pleaded guilty to four federal counts of fraud and conspiracy in December 2022. He also painted an incriminating picture of SBF to the jury, testifying that Alameda’s trading account had special privileges not available to other FTX customers or market makers. 

“FTX was not fine; assets were not fine,” Wang told the jury, referring to last-ditch attempts by SBF and others to reassure the public as the exchange collapsed. 

Wang’s sentencing is scheduled for Oct. 30. 

Singh and Wang’s sentencing hearings will come months after Ryan Salame was ordered to 7.5 years in prison for his role in the exchange’s collapse. Salame pleaded guilty shortly before SBF’s trial and did not testify. Prosecutors told Presiding Judge Lewis Kaplan, who will sentence all parties, that Salame was not very cooperative.

Given the role Singh and Wang played in SBF’s conviction , it’s possible they could both walk — or serve very little time. We won’t know what prosecutors recommend until the weeks prior to the sentencing hearings. Judge Kaplan seems to have little patience for all those involved in the FTX saga, so anything could happen. 

Caroline Ellison, Alameda’s ex-CEO and Bankman-Fried’s on-again-off-again romantic partner , also pleaded guilty and cooperated with prosecutors. She faces a maximum sentence of 110 years in prison and has not yet had her hearing scheduled. 

— Casey Wagner

Powell says ‘soft landing’ keeps him up at night 

Federal Reserve Chair Jerome Powell continued his Congressional tour Wednesday, heading to the House Financial Services Committee after facing Senators Tuesday. 

Powell said more of the same, noting additional data would be needed before the central bank could cut rates . But markets reacted more positively today. 

The SP 500 and Nasdaq Composite indexes were each solidly in the green by the time Powell wrapped with the committee, gaining 0.6% and 0.9%, respectively, midway through Wednesday’s session. 

Cryptos, on the other hand, were mixed. Bitcoin was trending lower, losing 0.3% over 24 hours Wednesday afternoon. Ether was on the rise, gaining 1%, although the rally is likely due more to optimism about ether ETFs, which could start trading any day now .

Powell said Wednesday his biggest concern these days is ensuring a soft landing — the coveted equilibrium that allows inflation to cool without slowing economic activity. 

“Trying to make decisions that give that the best chance to happen…is the thing that I think about in the wee hours,” Powell said. 

The focus now will be on the labor market, he said, and analysts seem to agree. 

Softening in the labor market puts more pressure on central bankers to act. But again, Powell was tight-lipped about any sort of timeline. 

— Casey Wagner

Bulletin Board 

• All eyes (or at least ours) will be back on the House later this afternoon. Representatives are expected to vote on whether or not to overturn President Biden’s veto of the bill to override the SEC’s SAB121 rule , which creates stricter accounting rules for crypto custodians. 
• As if Coinbase didn’t have enough legal documents to deal with, the exchange opted to file an amicus brief Wednesday in support of LEJILEX and the Crypto Freedom Alliance of Texas in their suit against the SEC. The securities regulator continues to overstep its authority , the exchange claims. 
• The latest On the Margin Podcast episode — featuring Julien Brigden, co-founder of Macro Intelligence 2 Partners — is live. Check it out on YouTube , or wherever you get your podcasts. 

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