Five Things to Know in Crypto This Week: SEC Legal Challenges and Crypto ETFs

US Economic Indicators and Fed Speakers Warn Against a Fed Rate Cut

Bitcoin (BTC) was down 3.61% to $64,209 from Monday, June 17 to Friday, June 21.

Significantly, BTC fell to a Friday low of $63,403 before retaking the $64,000 level.

Hawkish FOMC member commentary and better-than-expected US economic indicators impacted buyer demand for US BTC-spot ETFs and BTC.

FOMC Member Susan Collins warned the markets were betting too high on a September Fed rate cut. FOMC Members Adriana Kugler, Alberto Musaleme, and Thomas Barkin wanted to see more data before supporting a Fed rate cut.

While US retail sales figures suggested a possible dampening of demand-driven inflation, the services sector sent a different message.

The US S&P Global Services PMI unexpectedly increased from 54.8 to a 26-month high of 55.1 in June. Significantly, payrolls increased at the most marked rate in five months. Input price inflation softened, but wage growth remained among the main contributors.

S&P Global Market Intelligence Chief Business Economist Chris Williamson commented on the report, saying,

“Selling price inflation has meanwhile cooled again after ticking higher in May, down to one of the lowest levels seen over the past four years. Historical comparisons indicate that the latest decline brings the survey’s price gauge into line with the Fed’s 2% inflation target.”

The survey provided an ideal backdrop for the markets: softer inflation, a tighter labor market, and a marked pickup in service sector activity. Nevertheless, the Fed may want to monitor wages and any pass-through to demand-driven inflation. Tighter labor markets support wage growth, consumer spending, and demand-driven inflation.

According to the CME FedWatch Tool, the probability of the Fed holding interest rates unchanged in September increased from 29.8% to 33.2% in the week ending June 21. Despite the upswing, the markets remain vested in a September Fed rate cut, cushioning the downside for BTC and the broader crypto market.

The total crypto market cap was down 3.92% ($93.38 billion) to $2.291 trillion from Monday, June 17, to Friday, June 21. Conversely, the Nasdaq Composite Index ended the week flat.

US BTC-Spot ETF Market Sees Second Week of Total Net Outflows

The US BTC-spot ETF saw total net outflows of $105.9 million (excl. Friday flow data for iShares Bitcoin Trust), marking the second consecutive week of outflows. Uncertainty about the Fed interest rate trajectory affected buyer demand for US BTC-spot ETFs.

Significantly, the US BTC-spot ETF market faced the possibility of six consecutive days of total net outflows.

According to Farside Investors,

• Grayscale Bitcoin Trust (GBTC) had total net outflows of $152.6 million in the week ending June 21. The previous week, GBTC saw total net outflows of $274.3 million.
• Fidelity Wise Origin Bitcoin Fund (FBTC) reported total weekly net outflows of $271.0 million after outflows of $146.3 million the previous week.
• ARK 21Shares Bitcoin ETF (ARKB) and Bitwise Bitcoin ETF (BITB) had total weekly net outflows of $78.8 million and $35.6 million, respectively.
• However, iShares Bitcoin Trust (IBIT) could buck the trend for the second week, with total weekly net inflows of $1.5 million (excl. flow data for Friday). In the week ending June 14, IBIT saw total net inflows of $41.6 million.

While the US BTC-spot ETF market saw more outflows, the US ETH-spot ETF market grabbed the crypto headlines.

ETH-Spot ETF Issuers File S-1 Amendments and Await SEC Final Approval

In a flurry of activity, the remaining US ETH-spot ETF issuers filed their S-1 amendments on Friday, June 21.

ETF Store President Nate Geraci shared the news on X (formerly Twitter), posting,

“All spot eth ETF S-1 amendments are IN… Bitwise, Fidelity, 21Shares, Grayscale, Franklin, VanEck, iShares, & Invesco. Known fees so far are Franklin (0.19%) & VanEck (0.20%). Now we wait for the SEC.”

ETH avoided a pullback on Friday, with news of the S-1 amendment filing providing support. Nevertheless, uncertainty lingers about the likely demand for US ETH-spot ETFs.

Bloomberg Intelligence Senior ETF Analyst Eric Balchunas stood by his previous projection, saying,

“Thank you for all the reminders that I once referred to eth spot ETFs as “small potatoes” In hindsight, that was too dismissive, I take it back. That said, I do still think eth will be lucky to get 20% of the aum btc etfs have. We’ll see tho..”

Considering projected demand, relative to BTC ETFs, unexpectedly high demand for US ETH-spot ETFs could fuel the next ETH bull run.

ETH was down 2.73% to $3,534 from Monday to Friday, well below the November 2023 ETH-spot ETF market-hyped high of $4,870.

SEC vs. Ripple Case: Former SEC Official Plays Down Appeal Threat

Investors awaited the court verdict from the SEC vs. Ripple case. On Friday, June 14, the SEC filed its response to the Ripple Notice of Supplementary Authority, bolstering its proposal of a $10 million penalty for breaching US securities laws.

The SEC referred to the Ripple calculations from the Terraform Labs settlement, stating that the penalty floor Ripple would be $102.6 million and not $10 million.

However, $102.6 million was substantially below the $2 billion the SEC initially argued for in its remedies-related opening brief. The SEC response was not a settlement offer but highlighted the unreasonableness of their push for $2 billion and an injunction.

While investors considered the possible outcome of the case, the crypto community discussed the prospects of an SEC appeal. The crypto market expects the SEC to appeal against the Programmatic Sales of XRP ruling. In July 2023, Judge Analisa Torres ruled that programmatic sales of XRP do not satisfy the third prong of the Howey Test.

Pro-crypto lawyer Jeremy Hogan commented on an interview with former SEC Division Chief Kristina Littman, saying,

“Sound logic. Plus remember that even if the SEC ‘wins’ the appeal, the case just comes back down to the trial court for further factual determinations. There is no final glorious victory for the SEC up in the 2nd Circuit, just the potential for disaster.”

Kristina Littman had this to say about the chances of an SEC appeal,

“I think there’s some speculation the SEC might just let the Ripple opinion stay there as a district court opinion and not risk elevating to a circuit level where they could potentially illicit bad law when they have otherwise favorable rulings in the aftermath of the Ripple litigation.”

An end to SEC plans to appeal against the Programmatic Sales ruling could signal an XRP return to $1.00. XRP rallied to a July 13 high of $0.9327 in response to the Programmatic Sales ruling before reacting to the threat of an SEC appeal.

From Monday, June 17, to Friday, June 21, XRP was up 0.16% to $0.4899.

SEC Ends Ethereum 2.0 Investigation Clearing the Way for ETH-Spot ETFs

On Tuesday, June 18, Consensys announced that the SEC ceased its investigation into Ethereum 2.0. The announcement signaled that the SEC will not file charges alleging that ETH sales breach US securities laws.

The SEC decision paved the way for a US ETH-spot ETF market, with the SEC removing the commodities-securities debate. If the SEC pursued the investigation and alleged ETH to be a security, ETH-spot ETF approvals could have opened the door to a broader US crypto-spot ETF market.