Inflation Cools and Crypto Rallies
June CPI inflation fell to 3.5%, below the expected 3.8%. Core CPI, which strips out food and energy, dropped to 2.6%, under the 2.8% forecast. That was the biggest monthly drop since May 2020, the largest negative reading since the 2020 pandemic. Bitcoin jumped on the lowest US CPI data since 2020.
Ethereum rose about 4.4% after the cooler numbers. The softer inflation data lifted risk-on buying because it lowers the chance the Federal Reserve needs to raise rates. Traders no longer expect a hike this month.
On the rate outlook, the direct question was whether a rate increase is now off the table given the drop in consumer prices. The answer: no hike anytime soon, likely none into the foreseeable future. Yet the futures market still prices an implied 59% chance of a hike at the September FOMC meeting and an 81% chance Fed funds get raised by the end of the year. The first hike is now priced in for September or October. So there is short-term relief, though the odds of a hike by year-end actually ticked up.
The Genius Act Deadline
Fed Chair Kevin Warsh is racing to finalize rules under the Genius Act before Saturday's deadline. The Genius Act is the stablecoin bill, passed into law with bipartisan support over a year ago and signed exactly one year ago on that Saturday. Its passage started a set of deadlines for rules to be written, and the clock has been running since.
Warsh was confirmed about two months ago and has been in the job seven weeks. The Fed's deadline to issue its rules is Saturday, and whether it meets that is an open question. His stated goal is to coordinate with the bank regulators so they issue rules at the same moment, ideally as a single proposed rulemaking open for public comment, though that may not happen perfectly this time. Consumer protection was one of the main reasons the legislation passed.
The framework will cover issuance standards, asset collateral ratios, and consumer protection rules for stablecoins. Clearer rules of the road let big money feel comfortable entering the space, which helps the chains that most stablecoins are built on. In the US, that means Ethereum and Solana; Tron sits more offshore. So this development favors Ethereum and Solana most.
AI and Crypto as a Generational Shift
Warsh framed the technology moment in strong terms. If this cycle follows previous positive technology shocks, the US will be richer and more productive, with more labor, more wages, and more compensation. He believes this shock is likely more significant than past ones, calling it probably the biggest change in his adult lifetime. What makes it different is that it changes the method and the speed of innovation itself, not just the creation of a new product. He cannot think of a country better positioned to take advantage of it.
The flip side is disruption. His best guess is that the technology augments existing work, making current employees more productive. He rejects the lump of labor fallacy, the idea that a fixed number of jobs already exists and technology only removes them. Disruption may hit in the near term, but the technology will create many other jobs. His historical example: no one at the birth of the internet knew it would create a million and a half Uber and Lyft drivers, and he certainly didn't.
The takeaway is that if the Fed can bring rates down and lift productivity, it will, even though nothing is guaranteed. What they can do, they will do, and that reads as bullish.
Industry Pushing for Rules
The Hyperliquid Policy Center met with the SEC to discuss crypto regulation under a crypto task force memo, alongside Phantom, the Solana wallet. The Hyperliquid team is urging the CFTC to create DeFi-specific rules that recognize users holding their own assets. Both the SEC and the CFTC are generally pro-crypto. Rather than waiting, these firms are asking regulators directly what basic rules they need so they can grow within them.
Musk Steps Back From Crypto
Elon Musk says he will not promote crypto. At most he will mention it as a joke, and if crypto plummets, it is not because of him. He still sees merit in Bitcoin and some other crypto, and keeps a soft spot for Dogecoin because he likes dogs and memes. He is distancing himself in a deliberate way.
The Crypto Clarity Act
With 24 days left for the US Senate to pass the Crypto Clarity Act before its summer recess, Senator Cynthia Lummis says the final text will be introduced in the next couple of days. Getting the bill into its current shape took nearly every working day over the last 10 months. The Senate is now in session for four straight weeks. Passing the bill before the August recess matters so markets get the stability that comes with staying onshore to do business in the United States.
