US Inflation Slows, Election Odds Swing, and 3AC Moves to Sue TerraForm Labs for $1.3B

Takeaways

• Inflation cools again: Consumer prices in the US increased just 2.9% in July compared to the previous year, the slowest mark in three years, according to the US Department of Labor.
• Kamala Harris has overtaken Donald Trump in odds to win the US presidential election on Polymarket: Harris's campaign has reached out to the crypto industry, but it's unclear where she stands on regulating digital assets.
• Three Arrows Capital’s liquidators have filed a $1.3 billion lawsuit against Terraform Labs: The suit, stemming from losses during the 2022 Terra network collapse, alleges market manipulation by Terraform.
• Tether hit back at a $2.4 billion lawsuit from Celsius Network, deeming it unfounded and asserting its compliance with prior agreements: The dispute revolves around the liquidation of bitcoin assets to offset Celsius's debt.
• US spot ETH ETFs experienced $4.9 million in net inflows on Monday, ending a three-day streak of outflows: Grayscale’s ETHE logged zero flows, while VanEck’s ETHV was the only ETF to report negative flows.
• Grayscale has launched a new fund investing in MakerDAO’s governance token (MKR): The token saw a price increase following the announcement, with the fund structured as a closed-end product available to accredited investors.

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Inflation Pulls Back Again, Building Case for September Rate Cut

The Consumer Price Index increased just 2.9% year-over-year in the US in July, giving the Federal Reserve ample reason to cut the benchmark federal funds rate at their next meeting in September. The Fed uses CPI, which excludes volatile food and fuel prices, as a key gauge to measure inflationary pressures on the economy. They have held rates at 5.3% since July 2023, the highest mark in roughly two decades.

Cryptocurrency prices had a muted reaction to the positive report Wednesday, with bitcoin and ether staying relatively flat. Both are widely viewed as “risk assets” that perform better when interest rates are lower. But bitcoin has faced continued selling pressure from defunct exchange Mt. Gox distributing billions in repayments to creditors. On Wednesday, a wallet associated with the US government sent almost $600 million bitcoin previously seized from Silk Road to a Coinbase Prime wallet.

Despite the recent volatility, bitcoin and ethereum have had a positive 2024 so far, rising 28.8% and 8.1% year-to-date, respectively.

Harris Election Odds Surpass Trump on Polymarket

Vice President Kamala Harris has overtaken Donald Trump in the race for the upcoming US presidential election, according to Polymarket, a decentralized prediction market. Over the weekend, Harris's odds of winning the election climbed to 52%, surpassing Trump, whose chances have dropped to 46%. The change comes after election prospects had grown significantly for Trump, in the wake of concerns surrounding President Joe Biden’s health.

As the election draws closer, Harris's campaign has begun engaging with the cryptocurrency community, a sector that has become increasingly relevant in political discussions. But she has yet to take a position on the asset class after spending the past four years in an administration widely seen as hostile toward the industry. Meanwhile, Trump, who has positioned himself as a pro-crypto candidate continues to express his support for Bitcoin, after having recently spoken at Bitcoin Nashville.

Although Harris and her running mate, Tim Walz, have yet to make public statements on cryptocurrency directly, Walz's tenure as Minnesota governor saw the enactment of legislation aimed at tightening regulation around cryptocurrency kiosks. Trump has also criticized the idea of the US selling its cryptocurrency holdings, arguing that the nation should instead focus on building out the country’s crypto assets.

3AC Liquidators Sue Terraform Labs for $1.3B Over 2022 Crash Losses

The liquidators of the now-defunct cryptocurrency hedge fund Three Arrows Capital (3AC) have initiated a lawsuit against Terraform Labs, seeking $1.3 billion in damages for losses incurred during the 2022 market crash. This lawsuit follows a previous claim in June 2023, where the liquidators sought the same amount from 3AC’s founders, Su Zhu and Kyle Davies.

In May 2022 the Terra network’s algorithmic stablecoin, terraUSD (UST), and its associated token, LUNA, collapsed, erasing around $40 billion in value. The fallout led to 3AC filing for bankruptcy in July 2022, citing significant losses tied to Terra’s collapse.

The liquidators are accusing Terraform Labs of market manipulation relating to LUNA and terraUSD through artificial inflation of their prices, which led 3AC to invest in these assets before they ultimately collapsed in value. While the ultimate ruling of the lawsuit remains to be determined, Montenegro authorities recently ruled that the founder of Terraform Labs, Do Kwon, would be extradited to South Korea, for his involvement in the network’s collapse.

Tether Denounces Celsius's $2.4B Lawsuit as Unfounded

Tether Limited has moved to dismiss a lawsuit initiated by Celsius Network, labeling it as a "shakedown." The legal battle revolves around approximately $2.4 billion in bitcoin, which Celsius alleges Tether improperly liquidated over two years prior to Celsius's bankruptcy.

The lawsuit, lodged on August 9, contends that Tether violated the terms of their mutual agreement. Tether, on the other hand, maintains that its actions were justified under a 2022 contract stipulating that Celsius must furnish additional bitcoin as collateral amid declining prices. Upon Celsius's failure to fulfill these collateral obligations, Tether asserts it acted on Celsius's directive to liquidate the Bitcoin, consequently settling their substantial debt of $815 million.

US Spot ETH ETFs See $4.9M Inflows, Marking Reversal After Consecutive Outflows

US spot ethereum ETFs recorded $4.9 million in inflows on Monday, marking a reversal after three consecutive days of outflows. The Grayscale Ethereum Trust (ETHE), which recently converted into an ETF, notably logged zero flows for the first time since its conversion.

Fidelity’s FETH led the pack with $3.98 million in net inflows, followed by Bitwise’s ETHW, which reported $2.86 million in inflows.

The introduction of these products follows the success of spot bitcoin ETFs and has generated considerable interest amongst investors, although speculators are still waiting to observe what the long term impact on the price of ether might be.

Grayscale Launches New Fund Focused on MakerDAO’s Governance Token

Grayscale has announced the launch of a new fund focused on the governance token of MakerDAO (MKR) – the creators of the stablecoin DAI. MKR experienced a price increase with the release of the news, reaching around $2,150.

The newly introduced Grayscale MakerDAO Trust is available to both individual and institutional accredited investors – structured as a closed-end fund, meaning direct withdrawals are not allowed.

It’s not the first foray into private single-asset funds for tokens for Grayscale; firm already has similar funds for Chainlink (LINK) and Basic Attention Token (BAT). However, the move to launch one for MKR could prove beneficial for Grayscale’s positioning in the crypto asset management sector. As it stands, Grayscale is the largest crypto fund manager globally, managing over $25 billion in assets as of August 1st.

-The Gemini Team