U.S. stock indexes were lower Tuesday as investors monitored earnings reports and economic data ahead of inflation figures due later in the week.
The S&P 500 slipped 0.7%, a day after the broad index finished with modest losses. The Dow Jones Industrial Average slid 0.4% while the technology-heavy Nasdaq Composite fell 1.5%.
Investors await consumer-price data on Wednesday that could set expectations for how the Federal Reserve will approach monetary policy at its coming meetings. In recent weeks, better-than-expected corporate earnings and strong labor-market data have eased concerns about an imminent U.S. recession, helping stock markets rebound from their lows.
With inflation running at a multidecade high, investors say Wednesday’s consumer-price index update will be key to the outlook for rates and the direction of the market.
“The market has enjoyed a risk-on environment since the lows of mid-June, and investors interpreted Chair [Jerome] Powell as more dovish than he had hoped at the last Federal Reserve meeting,” said Quincy Krosby, chief global strategist for LPL Financial. “But today’s market is tomorrow’s market—Wednesday’s inflation data will provide a clearer picture as to whether this bear market is truly behind us.”
According to Ms. Krosby, inflation is the No. 1 concern for the market, including not only whether it is subsiding, but how quickly.
Earnings season is winding down, though some major companies are still set to report figures. Roblox, Coinbase Global and Wynn Resorts will release results after markets close. Chip maker
Micron Technology
fell 4.7% Tuesday after issuing a revenue warning, just a day after
Nvidia
offered similar preliminary guidance.
Norwegian Cruise Line Holdings
fell 11% after reporting a wider-than-expected quarterly loss. Shares of peer cruise line
Carnival Corporation
fell 5.7% as the pockets of the travel sector struggle to recover from its pandemic lows.
Energy stocks gained 1.7% in the morning session, led by shares of Occidental Petroleum which advanced 4.4% on the back of news Monday that Warren Buffett’s Berkshire Hathaway took its stake in the company past the 20% mark.
Traders worked on the trading floor at the New York Stock Exchange on Monday.
Photo:
ANDREW KELLY/REUTERS
Brent crude prices flip-flopped in Tuesday trading, swinging 1.8% in either direction. Barrels of the crude benchmark lurched into positive territory early in the morning after Moscow cut the flow of oil through a pipeline to Europe, and last traded nearly flat at $96.62 per barrel.
“Oil prices are still driven by the near-term macroeconomic outlook,” said
Robert Thummel,
managing director and senior portfolio manager of TortoiseEcofin. “Concerns remain that the Federal Reserve will continue slowing the economy if Wednesday’s inflation data comes in higher than expected, but markets still see persistent undersupply and high demand as creating upward pressure on oil prices.
Data released Tuesday showed U.S. labor productivity declined for a second straight quarter while labor costs were more elevated than economists expected.
The yield on the benchmark 10-year U.S. Treasury note edged up to 2.800% from 2.763% on Monday, while the two-year yield rose to 3.263% from 3.214%. With shorter-term yields significantly above longer-term ones, the yield curve remains inverted, a key recession indicator.
Overseas, the Stoxx Europe 600 fell 0.7%, with losses led by travel and technology firms. In Asia, stock markets were mixed. In Japan, the Nikkei 225 fell 0.9% while in China, the Shanghai Composite Index rose 0.3%. In Hong Kong, the Hang Seng Index weakened by 0.2%.
Write to Will Horner at william.horner@wsj.com and Eric Wallerstein at eric.wallerstein@wsj.com
WASHINGTON—Leaders of a Senate committee are pitching legislation that would assign oversight of the two largest cryptocurrencies, bitcoin and ether, to the federal agency that regulates milk futures and interest-rate swaps.
Senate Agriculture Committee Chairwoman Debbie Stabenow (D., Mich.) and top-ranking Republican John Boozman of Arkansas unveiled a plan Wednesday that would empower the Commodity Futures Trading Commission to regulate spot markets for digital commodities, a newly created asset class. Currently the CFTC has authority to police derivatives, such as futures and swaps, rather than underlying commodities.
The bill marks the latest salvo in an intensifying battle among federal agencies and congressional committees that oversee them over who will regulate crypto. Thirteen years after bitcoin was created, cryptocurrencies remain largely unregulated by the federal government, leaving investors without key protections from fraud and market manipulation.
The competition for jurisdiction heated up in recent months as a meltdown in crypto markets underscored the need for guardrails in the eyes of many policy makers. The competition also reflects the industry’s ramped-up lobbying presence in Washington and its push to reach more mainstream investors through Super Bowl ads and other high-profile marketing initiatives.
“‘When there’s a topic as hot as crypto, everybody wants a seat at the table.’”
“When there’s a topic as hot as crypto, everybody wants a seat at the table,” said
Aaron Klein,
a senior fellow at Brookings Institution who focuses on financial regulation. “The question is, are we going to have regulatory turf paralysis?”
In practical terms, for federal agencies such as the CFTC, Securities and Exchange Commission, and Federal Reserve, adding crypto to their remit would bring bigger budgets, greater influence and more job opportunities for officials who leave public service. For members of the congressional committees that oversee such regulators, a new industry in their sandbox would create another stream of lobbyists and campaign donations.
“We need to treat this seriously and take our responsibilities seriously for protecting consumers,” Ms. Stabenow said in a virtual press conference alongside Mr. Boozman.
Washington has introduced a flurry of bills in recent months to draw jurisdictional lines. Sens.
Cynthia Lummis
(R., Wyo.) and
Kirsten Gillibrand
(D., N.Y.) unveiled a proposal in June that would create exemptions for cryptocurrencies in securities laws, banking statutes and tax code. In July, leaders of the House Financial Services Committee said they were working on a bill to grant the Federal Reserve a greater role in regulating some stablecoins, crypto tokens pegged against the dollar and other official currencies.
When cryptocurrency lending platform Celsius froze user accounts amid a plunge in valuations, it sent ripples across the industry and raised questions about what happens to user assets if a crypto platform files for bankruptcy. WSJ’s Vicky Ge Huang explains. Photo illustration: Jordan Kranse
Agencies also are seeking to claim territory. CFTC Chairman
Rostin Behnam,
a former staffer to Ms. Stabenow, said last week his agency is “ready and well situated” to oversee spot markets for some cryptocurrencies. He has worked with his former boss for months to help craft legislation that would authorize the CFTC to do so, people familiar with the matter say.
Meanwhile, SEC Chairman
Gary Gensler
has repeatedly demanded that cryptocurrency-trading platforms such as
Coinbase Global Inc.
register with the agency as securities exchanges akin to the New York Stock Exchange or Nasdaq. In May, the SEC nearly doubled the staff of an enforcement unit focused on cryptocurrencies.
“Four years ago when I started this job, there were some people that just thought this thing was all going to blow up and go away, that this was sort of a passing fad,” said Kristin Smith, executive director of the Blockchain Association, a trade group representing crypto firms.
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Now, she said, “We’ve got all these regulators suddenly vying for control.”
After the SEC alleged in an insider-trading case in July that at least seven cryptocurrencies listed on Coinbase should have been registered as securities, Republican CFTC Commissioner
Caroline Pham
accused the SEC of “regulation by enforcement.”
“The SEC is not working together with the CFTC,” Ms. Pham said in an interview. “They go out unilaterally to try to establish precedent that’s going to dramatically reshape the landscape as to what’s a security and what’s a commodity.”
Ms. Pham has posted photos to her
Twitter
account of herself posing alongside crypto lobbyists and executives including
Sam Bankman-Fried,
the billionaire founder of trading platform FTX.
Ms. Pham said that crypto is one of the areas she is focused on, and, “I take pictures with everybody. Like, literally, everybody.”
At the heart of the turf war are questions about how cryptocurrencies fit into the definition of a security, the legal classification that includes stocks and bonds.
Coinbase and other firms have lobbied Congress to create a new category for digital commodities and empower the CFTC to regulate it.
Photo:
Shannon Stapleton/REUTERS
A 1946 Supreme Court case created a test that focuses on whether investors buy an asset in hopes of profiting from the efforts of other people. If so, the issuer is required to register with the SEC and publicly disclose any information that may be material to the security’s price.
Even though investors in bitcoin and ether rely on a network of users and programmers to validate transactions and perform software updates, cryptocurrency enthusiasts insist those groups are too decentralized for the assets to be regulated like securities. Instead, they argue, the assets should be considered commodities, which have a broader definition and no full-time regulator.
Firms such as Coinbase, FTX and Ripple have spent millions of dollars over the past year lobbying Congress to create a new category for digital commodities and empower the CFTC to regulate it. The agency has roughly one-sixth the head count of the SEC, and its rules are seen by the industry as easier to comply with than securities laws.
“When you ask the people that are in the industry…almost all feel like the regulator should be primarily the CFTC,” Mr. Boozman said. “The fact that they’re fairly united on that makes it easier on members.”
Crypto skeptics worry that creating a new legal concept for cryptocurrencies could create an alternative to securities registration for a wider variety of assets.
“People who are taking action that could undermine our securities law are playing with fire,” said Dennis Kelleher, president of investor-advocacy group Better Markets. “You may love or hate the SEC, but transparent disclosure, clear rules…and enforcement is what builds trust and confidence in our markets.”
The legislation being unveiled Wednesday would seek to exclude securities from the definition of digital commodities, making it narrower in scope than that of other crypto-related bills floated in recent months, such as the Lummis-Gillibrand proposal.
Ms. Stabenow said she expects the Agriculture Committee to hold a hearing on the bill as early as September.
SHARE YOUR THOUGHTS
How should the two largest cryptocurrencies, bitcoin and ether, be regulated? Join the conversation below.
The bill would require any entity acting as a digital commodity platform—including crypto exchanges such as Coinbase and FTX—to register with the CFTC as trading facilities, dealers or brokers. The exchanges would have to monitor trading, protect investors from abuse and only offer assets that are resistant to market manipulation, among other requirements.
Platforms also would be obliged to disclose some information about the assets they list, such as operating structure and conflicts of interest. Such information would likely fall short of the extensive disclosures required by the SEC for securities.
The derivatives markets the CFTC currently oversees are dominated by professional investors, such as banks and hedge funds. Crypto markets, by contrast, draw legions of small investors who are more vulnerable to scams.
If the agency wins jurisdiction over bitcoin and ether, the CFTC would have to write rules from scratch to protect such investors.
“How robust would they be and how long would that take?” asked Tyler Gellasch, executive director of the Healthy Markets Association, an investor trade group.
Stock futures are falling after disappointing earnings reports from some popular technology stocks. Here’s what we’re watching at the end of a rough week on Wall Street:
Bitcoin’s price fell below $40,000, and crypto stocks were dragged down with it.
Coinbase
COIN 0.97%
dropped 5.6% ahead of the bell, and bitcoin miners
Marathon Digital
MARA -0.08%
and
Riot Blockchain
RIOT -0.11%
slid 7.8% and 8.7% respectively.
Netflix
NFLX -1.48%
plunged 19% premarket. The streaming giant said it expects to add a much smaller number of subscribers this quarter than it did a year ago as it adjusts to growing competition and lasting disruptions from the coronavirus pandemic. The bad news seemed to rub off on streaming-device maker Roku, which shed 4% premarket.
Peloton
PTON -23.93%
powered 5.5% higher premarket, but that only makes up a bit of Thursday’s 24% drop. The company is reviewing the size of its workforce and resetting production levels as it adapts to more seasonal demand for its exercise equipment.
A Peloton stationary bike at one of the fitness company’s studios in New York, Dec. 4, 2019.
Photo:
Scott Heins/Getty Images
Intel
INTC -2.95%
nudged down 0.2%. The company plans to invest at least $20 billion in new chip-making capacity in Ohio.
CSX
CSX -0.03%
fell 3.2%, though the railroad operator is projecting that shipping volume will rise faster than GDP this year and reported a slight earnings beat.
Ally Financial
ALLY -0.02%
shares slipped 2.4% premarket after it reported lower earnings per share during the recent quarter from a year prior.
Huntington Bancshares
HBAN -2.51%
ticked down 4.5% after it also reported a slight drop in earnings per share.
Chart of the Day
Europe’s tech scene has struggled to emerge from the shadows of giants in the U.S. and Asia, but friendly local policies and a global overflow of investment capital are now giving the region a gusher of cash.
WASHINGTON—Cryptocurrency industry executives appeared before Congress on Wednesday to argue that their technologies hold promise for the future, as lawmakers and regulators wrestle with how to bring the more than $2 trillion market under government oversight.
The House Financial Services Committee, led by
Rep. Maxine Waters
(D., Calif.), called the hearing in hopes of improving lawmakers’ understanding of crypto assets and how the sector fits into existing regulations. While millions of Americans have invested in crypto assets, many experts say the asset class needs clearer rules of the road, which Congress could provide.
Cryptocurrency is a name given to a broad group of digital assets such as bitcoin. While the assets are criticized by some as volatile, opaque and presenting risks to users and the broader financial system, the industry executives said cryptocurrency can make financial transactions faster, less expensive and more accessible to users around the world.
“The industry has the potential to improve a lot of people’s lives,” FTX Trading Ltd. Chief Executive Sam Bankman-Fried told lawmakers.
Senior executives from stablecoin issuer Circle Internet Financial Ltd., crypto exchange
Coinbase Global Inc.,
COIN 0.37%
bitcoin-mining firm Bitfury Group Ltd., cryptocurrency-payments system Stellar Development Foundation and blockchain firm Paxos Trust Co. also testified. They aim to tout what supporters believe to be the potential upsides of crypto and blockchain technology while playing down the dangers highlighted by many policy makers and consumer-protection advocates.
Ms. Waters raised concerns about the crypto industry’s lack of regulation. “Currently, cryptocurrency markets have no overarching or centralized regulatory framework, leaving investments in the digital-asset space vulnerable to fraud, manipulation and abuse,” she said Wednesday.
SHARE YOUR THOUGHTS
What were you most interested in hearing from the CEO testimonies? Join the conversation below.
As the crypto industry builds out its lobbying presence in Washington, it has found more allies in the GOP than among Democrats. The top Republican on the financial-services committee, Rep.
Patrick McHenry
of North Carolina, echoed industry lobbyists’ warning Wednesday that excessive regulation of cryptocurrency could push technological innovation to other countries, leaving the U.S. at a disadvantage.
“We don’t need knee-jerk reactions by lawmakers to regulate out of fear of the unknown rather than seeking to understand,” he said. “That fear of the unknown and the move to regulate before understanding will only stifle American ingenuity and put us at a competitive disadvantage”
The executives argued that cryptocurrencies don’t fit neatly within the existing structure of U.S. financial regulations and that lawmakers should consider tailor-made legislation for their industry. Critics say the industry wants to write its own rules to avoid the oversight that banks, brokers and stock exchanges face.
“Because of their nascent stage of development and unique underlying technology, digital assets trade in markets that are fundamentally different from traditional financial markets,” Coinbase Chief Financial Officer
Alesia Haas
said in her testimony. “As a result, existing regulatory regimes often do not accommodate this new technology.”
Crypto proponents believe that the technology can facilitate faster and cheaper transactions than traditional payment networks and that it has the potential to foster innovation and financial inclusion.
“When you look at the number of people who are underbanked or unbanked, both in the United States and globally, it’s indicative of a system that does not work for everyone,” Mr. Bankman-Fried said. “It’s a product of payments infrastructure that is difficult and clunky enough to use that it just does not work for most people.”
Five percent of American adults didn’t have a bank account in 2020, according to the Federal Reserve.
Lawmakers including Rep.
Ritchie Torres
(D., N.Y.) asked about the potential for crypto to help immigrants send remittances between countries, a process that can be slow and costly through banks or money-transfer companies. Supporters often tout that as a use.
But such transactions remain uncommon. Using cryptocurrency involves a learning curve, mistakes can be irreversible, and there aren’t enough outlets offering crypto remittances to give it a competitive presence.
Coinbase Chief Financial Officer Alesia Haas said ‘existing regulatory regimes often do not accommodate’ digital assets.
Photo:
Stefani Reynolds/Bloomberg News
Many policy makers worry that the rapid growth of the crypto market, which has more than quadrupled in value over the past year, poses a threat to financial stability. They say that the market is rife with fraud, that bitcoin mining wastes vast amounts of electricity and that criminals use cryptocurrencies to evade taxes and circumvent anti-money-laundering laws.
Oversight of crypto markets is spotty in the U.S., where financial regulation is split between federal and state agencies. Major gaps exist, according to regulators.
One of the few confrontational exchanges Wednesday took place between
Rep. Brad Sherman
(D., Calif.) and Ms. Haas over the amount of Coinbase’s transaction fees. Mr. Sherman asked if buying and selling $100 of bitcoin over two days could result in nearly $6 in fees. After initially saying she couldn’t answer the question, Ms. Haas eventually said depending on the product, he could be correct.
Mr. Sherman expressed deep skepticism of cryptocurrency’s potential uses and urged regulators to protect investors if Congress fails to pass meaningful legislation.
Most lawmakers displayed less-formed opinions of the crypto industry than they typically do of other sectors such as social media or banking. While testifying in Congress can often be uncomfortable for corporate bosses, some of the executives who participated in Wednesday’s hearing expected it to advance their cause.
“I think it went really, really well,” Circle Chief Executive
Jeremy Allaire
said after the hearing. “It was very comprehensive, not contentious.”
Shiba Inu Coin’s recent surge, and subsequent fall in value, is part of a growing trend of meme coins that are rivaling some of the largest digital tokens in the world. WSJ retail investing reporter Caitlin McCabe explains why investors are pouring money into this meme based cryptocurrency. Photo: Amber Bragdon/Getty Images
—Alexander Osipovich and Caitlin Ostroff contributed to this article.
Corrections & Amplifications Alesia Haas is Coinbase’s chief financial officer. An earlier version of this article incorrectly said she was CEO. (Corrected on Dec. 8)