Staying Low

• Equities hit record highs and crypto lagged. The S&P rose 0.44% to 7,785.76, a third straight weekly gain, and the Russell 2000 added 3.15%. BTC fell 3.08% to $62.8K and total market cap fell 2.22% to $2.160T. 
• CPI landed exactly on consensus and rate hike expectations have lowered. Headline 3.4% y/y, core 2.5%. Polymarket now prices 75% hold against 25% hike, versus 56% and 41% on August 10.
• Regulation Crypto proposal vote delayed. No replacement date for the back up proposal for CLARITY. CLARITY sits at 20% on Polymarket, down from 25%. Both the legislative and regulatory paths are now stalled.
• Q2 13Fs show banks growing ETH exposure three times faster than BTC. Morgan Stanley added 18.6% to ETH against 3.7% to BTC in coin terms; JPMorgan added 67.3% to ETH against 12.2% to BTC.
• Volatility compressed for a fourth week. DVOL 34.83, with the VIX and MOVE both down 7.8%. Aggregate OI built 2.7% to $118.07B, the long/short ratio ran to 61.68% before falling back to 54%, and September puts cost 1.27x calls of equal delta.
• BTC ETFs saw $385.2M in net outflows. ETH ETFs lost $3.0M. ETH continues to hold up better than BTC. 

Equities Hit New Highs

The S&P 500 rose 0.44% from Monday's 7.751.74 open to Friday's 7,785.76 close, a new high and its third consecutive weekly gain. The Nasdaq added 0.18%, the Russell 2000 gained 3.15%, and the Dow lost 0.6%. Small caps outperformed large caps while crypto dipped.

BTC opened the week at $64.8K and finished Sunday at $62.8K, down 3.08%. ETH held up marginally better at -1.80%. Total market cap fell 2.22% to $2.160T. Brent gained 3.58% and gold added 0.84%. BTC has now held its $60K to $66K range since June. 

Inflation, SEC Delays and 13Fs 

Consensus CPI 

Headline CPI rose 0.1% m/m and 3.4% y/y, down from 3.5%. Core rose 0.2% m/m and 2.5% y/y, down from 2.6%. Both exactly in line with consensus.

Core at 2.5% is close to target. The gap between it and the 3.7% headline PCE print from two weeks ago is energy costs rather than the labour market, which is why a hike is now hard to justify on the inflation data alone. Polymarket now prices 75% hold against 25% hike, versus 56% and 41% on 10 August.

SEC Delays

The SEC cancelled the open meeting scheduled for 10am ET Friday, August 14 at which the Regulation Crypto proposal was to be voted on. The cancellation notice cited an unforeseen scheduling issue and gave no replacement date.

The roughly 400-page proposal contains three pathways:

• Startup exemption. Sell up to roughly $5M of tokens to US buyers over a four-year window without registering the offering. Disclosure is a public whitepaper rather than audited accounts, and the issuer notifies the SEC on entering and exiting the window.
• Fundraising exemption. Sell up to $75M in any twelve-month period without registering, in exchange for audited financials and semiannual reporting. The cap is lifted directly from Regulation A+ Tier 2, the SEC's existing mini-IPO route for smaller companies.
• Decentralization safe harbor. Once a network's founders have permanently stopped the managerial work they promised buyers, the token exits securities classification entirely.

The proposal has not been withdrawn. A vote would only have opened a notice-and-comment period, so the cancellation delays the start of rulemaking rather than killing the policy. Our July 27 issue described Regulation Crypto as the weaker fallback if CLARITY fails. Both paths are now stalled. CLARITY sits at 20% on Polymarket, down from 25% last week.

Institutional Purchases

We saw several institutions increase their crypto holdings after the Q2 13Fs were released on August 14. Morgan Stanley's bitcoin holdings fell 11% in value but rose 3.7% in BTC terms to 11,510 coins, with its IBIT reduction more than offset by 739 BTC in its own newly launched trust. Its ETH exposure rose 18.6% to 84,243 ETH. JPMorgan added 12.2% to bitcoin, reaching 10,513 BTC, and 67.3% to ETH, at 19,148 ETH. Between them the two banks added roughly 1,556 BTC (~$91M) and 20,897 ETH (~$33M) over the quarter. ETH grew more than three times faster in proportional terms, though bitcoin still took the larger share of the money. Druckenmiller’s Duquesne Family Office disclosed a new position in Hyperliquid Strategies (PURR) of 2,941,500 shares worth $23.15M, 0.44% of its $5.21B book. 

Note: A bank's 13F is largely client custody, not a proprietary book, and it captures only long positions in reportable securities.

OI Building Up

Deribit DVOL sits at 34.83 compared to 36.21 in our previous article. Volatility has dropped even further and is near its 12 month lows. The VIX and MOVE are both down 7.8%, so cross-asset volatility is falling alongside crypto.

Aggregate crypto futures OI reached $118.07B on August 16 against $115B last issue, up 2.7% and the highest since June. Coinglass's 24-hour long/short ratio ran as high as 61.68% / 38.32% into the weekend against 49.74% / 50.26% last week, and has since unwound to 54% / 46%. In the BTC options market, we see traders are paying a premium for downside protection. Puts expiring in September costs 1.27x that of calls of equal delta. 

ETF Flows Flip Positive

BTC and ETH ETFs saw $388M of outflows last week. BTC ETFs saw $385.2M, the worst in 5 weeks and a reversal of last week. ETH ETFs had a very slow week with $3M of net outflows, extending the pattern of the past four months where ETH holds up better than BTC.

Key Events for the Week Ahead

Monday, August 17

• US: Empire State Manufacturing, NAHB Housing Market Index.

Tuesday, August 18

• UK: Labour market, 7am BST.

Wednesday, August 19

• UK: July CPI, 7am BST.

Thursday, August 20

• US: Initial jobless claims, Philadelphia Fed, existing home sales
• CFTC Innovation Advisory Committee meets with crypto regulation first on the agenda, the only live regulatory venue left this month after the SEC cancellation.
• China: PBOC Loan Prime Rate fixing.

Friday, August 21

• Japan: July national CPI.
• Global: S&P Global flash manufacturing and services PMIs across the US, UK, Eurozone and Japan.
• UK: July retail sales