- Bitcoin backs off from Monday’s 2-1/2 month high as SEC’s Gensler issues more crypto regulatory warnings
- ADP employment expected to show another solid rise
- U.S. ISM services index expected to stabilize after June’s sharp decline
Bitcoin backs off from Monday’s 2-1/2 month high as SEC’s Gensler issues more crypto regulatory warnings — Bitcoin on Tuesday initially showed some strength but then backed off after SEC Chairman Gensler made clear that U.S. regulation will tighten for cryptocurrencies. Mr. Gensler said, “We just don’t have enough investor protection in crypto. It’s more like the Wild West.”
Mr. Gensler didn’t sound positive about the multiple crypto ETF applications that the SEC is currently considering, although he sounded much more positive about funds based on CME bitcoin futures. He said that crypto ETFs that meet the stricter rules for mutual funds would see approval much sooner than the current applications that have been filed under the 1930 securities laws.
Mr. Gensler indicated that the SEC could respond positively to ETFs based on CME bitcoin futures, which require margin to trade. He said, “Given these important protections, I look forward to the staff’s review of such filings, particularly if those are limited to these CME-traded bitcoin futures.”
Policymakers have struggled with how to respond to the mostly unregulated $1.6 trillion cryptocurrency market, which has seen explosive growth and wild price swings. SEC Chair Gensler’s views on cryptocurrencies carry weight since he was a former professor at MIT who taught a class on blockchain technology. Mr. Gensler has urged Congress to work on legislation that gives SEC oversight of crypto trading venues. He also said that Bitcoin is not supervised by the SEC because it is considered a commodity rather than a security.
The bipartisan $550 billion infrastructure bill that is currently being considered on the Senate floor has provisions that would substantially increase crypto reporting requirements to the IRS, which negotiators say would bring the U.S. $28 billion of new revenue. However, the provision has been criticized by crypto market participants as onerous and overly broad. Senators Wyden and Toomey are writing an amendment that would impose more practical requirements, although that amendment could be difficult to pass since it might bring in less revenue and thus create the need to find other pay-fors to make up for the shortfall.
Mr. Gensler said he thinks regulating crypto exchanges is perhaps the easiest way for the government to get a quick handle on digital token trading. Gensler said he is concerned about new ways people are getting into crypto, such as peer-to-peer lending on decentralized finance, or DeFi platforms. If firms are advertising a specific interest-rate return on a crypto asset, that could bring the loans under SEC oversight. Also, crypto platforms that pool digital assets could be seen as akin to mutual funds, which could potentially allow the SEC to regulate them.
ADP employment expected to show another solid rise — The markets will be watching today’s ADP report and Friday’s payroll report to see if businesses are pulling back on hiring people as they wait to see how much damage the delta variant will do. The 7-day average of new U.S. Covid infections on Monday rose to a 5-1/2 month high 85,552, which is about eight times the 16-month low of 11,351 posted on June 23.
The consensus is for today’s July ADP employment report to increase by +650,000, which would be just mildly below June’s increase of +692,000. ADP jobs have risen sharply since March, with a 4-month average monthly increase of +680,000. Jobs have risen sharply as the U.S. economy surges and many sectors have reopened such as restaurants, travel, and entertainment.
ADP jobs have now risen by 12.8 million from the pandemic trough seen in April 2020. However, the U.S. economy needs to produce another 6.8 million jobs to match the record high seen in February 2020.
Looking ahead to Friday’s unemployment report, the consensus is for July payrolls to increase by +875,000, which would be slightly stronger than June’s increase of +850,000 and the 3-month average of +717,000. Payrolls have risen by +15.6 million from last year’s pandemic trough but still need to rise by another +6.8 million to match the pre-pandemic record high posted in February 2020.
U.S. ISM services index expected to stabilize after June’s sharp decline — The consensus is for today’s July ISM services index to show a +0.4 point increase to 60.5, stabilizing after June’s sharp -3.9 point decline to 60.1.
Sentiment in the service sector cooled off in June as the delta variant caused a new surge in Covid infections and resulted in increased pandemic measures in some areas of the country. However, the June PMI level of 60.1 was still high and indicated a strong sense of optimism among many service-sector executives.
This past Monday’s July ISM index for the manufacturing sector showed a -1.1 point decline to 59.5, which was weaker than expected and did not bode well for today’s service-sector ISM index. Also, Markit’s U.S. services PMI fell by -4.8 points to 59.8 in its preliminary report for July.
