Inflation Increases 2.5%, Setting Scene for Rate Cut

Welcome to the Weekly Market Update! Explore weekly crypto price movements, read a quick digest of notable market news, and dive into a crypto topic — this week we learn more about interest rates.

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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• US spot bitcoin ETFs have seen a streak of daily net outflows, with nearly $1.2 billion withdrawn in just eight days: The downturn coincides with broader market volatility.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.

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.

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.

Understanding Interest Rates

Interest is the cost of borrowing money (or the reward for lending money). Usually, central banks set interest rates, like the Federal Reserve in the U.S. Lending institutions — commercial banks, credit unions, and the like — then calculate interest as a percentage of the principal loan and add it to the total cost of a loan. All industry sectors pay close attention to changes in interest rates, as they affect consumer and corporate debt, the health of financial markets, and the economy as a whole. Borrowing and lending money can generate activity in cryptocurrency markets in two ways. Interest rates might attract new investors to crypto via a recognizable way of thinking about digital assets, while adding a degree of comfort. And for those already holding crypto, interest rates could offer an incentive to lend it, thus contributing to liquidity and the flow of assets. Learn more here.

Onward and Upward,

Team Gemini