Crypto news

This week marked significant developments in the crypto landscape. Stripe reintroduced crypto payments by launching stablecoin financial accounts in 101 countries, supporting USDC and Bridge's USDB, and enabling businesses to hold and transact in stablecoins globally. Meta is reportedly exploring stablecoin integration for creator payouts on platforms like Instagram, signaling a renewed interest in crypto after its previous Diem project. Ethereum's Pectra upgrade went live, enhancing user experience and scalability, and increasing validator staking limits, which contributed to ETH's price surge to over $2,400.

• We have long discussed stablecoins as a low-hanging fruit use case for crypto
• This is particularly attractive for cross-border payments, which is why Stripe has set up infrastructure in 101 countries
• Stripe’s announcement follows their acquisition of Bridge earlier this year
• Bridge built infrastructure allowing for stablecoin issues and compliance
• Importantly, it will also support using Circle’s USDC stablecoin
• The other easy use case for stablecoins is micro-payments, which seems to be what META is working on
• METAs infrastructure would allow creators to charge for their content in an easy and efficient way
• The Ethereum upgrade comes at a time when  the second-largest cryptocurrency has suffered in price as developers shifted to faster and cheaper networks like Solana
• The much-debated upgrade allows for a larger cap on validator staking, which makes the network leaner and easier to use
• It also improves the user experience of smart contracts and allows the network to become more scalable
• The flip side is that the network becomes more centralized and more complex
• The price of ETH surged 20% on the news

First trade deal with UK announced

The U.S. and U.K. announced a limited trade agreement, marking the first such deal since President Trump's imposition of global tariffs in April. The agreement reduces U.S. tariffs on British steel and aluminum to zero and lowers car tariffs to 10% for up to 100,000 vehicles annually.  In return, the U.K. will cut tariffs on U.S. ethanol and beef, while maintaining its food safety standards. However, a 10% baseline tariff on most British exports remains, leading to criticism that the deal offers limited relief for U.K. businesses and small exporters. While both governments hailed the agreement as a "breakthrough," analysts view it as a modest step with unresolved issues, particularly for SMEs and sectors like pharmaceuticals and digital services.

• Given that the US doesn’t even run a trade deficit with the UK, this was more symbolic than substantive
• However, it does give us a little insight into how things may settle out with other countries
• It seems the US is looking for a 10% baseline tariff across the board, which may be less disruptive to trade and raise some revenue
• The gorilla in the room remains China, which with 145% tariffs we are effectively in a trade embargo with
• The positive development with China is that it has been reported that China is sending delegates to begin talks
• The NY Post also reported that the tariff may be lowered to 50%
• Trump also tweeted that he thinks the appropriate level for tariffs on China is 80%
• The bottom line is, it is good that we are witnessing some progress, but it seems a deal with China is still far away
• The longer the embargo with China goes on, the more disruptive it will be to the economy

The Fed stays put, does it matter?

The Federal Reserve held its benchmark interest rate steady at 4.25% to 4.5% for the third consecutive meeting, citing heightened uncertainty stemming from President Trump's aggressive tariff policies. Fed Chair Jerome Powell emphasized a cautious approach, noting that while the economy remains resilient, the risks of higher inflation and unemployment have increased due to the evolving trade landscape. Despite President Trump's public criticism and calls for rate cuts, the Fed maintained its stance, awaiting clearer economic indicators before making any policy adjustments. This decision underscores the central bank's commitment to its dual mandate of promoting maximum employment and stabilizing prices amidst complex economic challenges.

• While the Fed was widely expected to stay put, we would argue that markets are not as focused on the Fed as they have been in recent history
• As the Federal government has been running significant fiscal deficits, what happens with Federal spending is arguably more important
• Even with the much-discussed efforts of DOGE, the fiscal deficit remains elevated, and is projected even to rise this year
• Where tariffs shake out will also be a very important driver of markets
• That said, the 2-year yield, which the Fed does not control, has led the Federal Funds rate all throughout the cycle
• If you observe the 2-year yield today, it would suggest that the Fed Funds rate is still a bit high

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