Crypto Winter Is Coming After SEC Rejects Key Bitcoin ETF

Grayscale—which had the support of the greater crypto industry behind it—has tapped a former U.S. Solicitor General to sue the SEC in what may be one of the most important legal battles in Bitcoin’s history.

Meanwhile, the SEC decision rules out the possibility of a major source of warmth in the coming “crypto winter,” a digital asset downturn characterized by a collapse in prices, drought of venture capital investment, and widespread job losses.

The cold winds have already set in. The market cap of crypto has collapsed to $850 billion from nearly $3 trillion in November 2021, with Bitcoin on track for its worst quarter since 2011, a year in which its price breached $1 for the first time.

There is a desire to blame crypto, with the flash, frauds, and flippancy toward traditional finance, for its own pain. This quarter’s collapse in prices, after all, has been stoked by the meltdown of stablecoin Terra, breakdowns in the popular digital asset lending space, and the bust of a major hedge fund threatening wider contagion.

But crypto itself can’t always control the weather. Bitcoin’s biggest problem right now is the stock market. A firm correlation with equities established over the past year has meant that the S&P 500’s bear market—spurred by inflation, aggressive Federal Reserve interest-rate hikes, and the risk of recession—has heaped severe pressure on tokens.

For all its antiestablishment roots and focus on decentralization, the uncomfortable truth is that Fed chair Jerome Powell is Bitcoin’s best hope for spring.

—Jack Denton

*** Barron’s senior managing editor Lauren R. Rublin and Adam Seessel, founder of Gravity Capital Management discuss the outlook for tech companies and individual stocks. Sign up here.

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Powell Says Clock Is ‘Running’ on Stamping Out High Inflation

Federal Reserve Chairman Jerome Powell said he was less concerned about the risk of raising rates too high and pushing the economy into a recession than the “bigger mistake” of failing to restore price stability and stamp out high inflation.

• Powell told the European Central Bank’s annual economic policy conference in Portugal on Wednesday that the central bank had to raise rates rapidly to avoid a worse danger of higher inflation becoming entrenched. “There’s a clock running here,” he said.

• Economists surveyed by The Wall Street Journal now estimate the probability of recession in the next 12 months at 44%. Consumer spending grew at a softer annual rate of 1.8% in the first quarter than the 3.1% estimate previously reported, according to the Commerce Department.

• Momentum is expected to keep the U.S. economy out of a recession this year, but worsening supply chain disruptions, extremely high prices, and aggressive Fed policies mean it is unlikely to emerge from 2023 “unscathed,” S&P Chief Economist Beth Ann Bovino wrote.

• Federal Reserve Bank of Cleveland President Loretta Mester said the central bank is on track for another major interest-rate increase in July. She said she might advocate for a 0.75-percentage point increase because she hadn’t seen inflation numbers that warrant going back to a half-point increase.

What’s Next: Powell has signaled another increase is likely at the Fed’s July 26-27 meeting. The central bank has raised its benchmark federal-funds rate three times since March, including by a 0.75-percentage-point rise this month, the biggest move since 1994.

—Janet H. Cho

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Risks Ahead for Tech, Analysts Say

J.P. Morgan

tech analysts lowered their financial expectations for all 26 of the companies they cover, citing slower consumer spending, rising fuel costs, and higher recession risk. They pointed to the limited ability of tech companies like Google’s

Alphabet

to offset broader macro trends.

• Analyst Doug Anmuth expects Google’s advertising to hold up better than others as its search business is more resilient than social media, and without additional pressures from

  
  
  Apple
  ’s
  privacy changes. He believes Amazon, Booking Holding, and Uber are best picks in a downturn given their leadership positions and other dynamics.

• Facebook’s Meta Platforms stock has plunged more than 51% this year, as it grapples with those privacy changes and heightened competition from TikTok. Monness Crespi Hardt analyst Brian White cut his target price on shares to $250 from $300, saying, “almost no company is immune to an economic contraction.”

• Even though the semiconductor sector has lost more than one-third of its value this year, BofA Global Research analyst Vivek Arya believes the pain isn’t over. He cut his revenue forecasts for the industry to 9.5% in 2022, from 13% previously, and expects sales to fall 1%.

• Arya downgraded four chip names, lowering his ratings for wireless chip suppliers Skyworks and Qorvo to Underperform from Neutral, citing slowing growth in the market for 5G smartphones. He also reduced his ratings for Teradyne and Texas Instruments to Neutral from Buy.

What’s Next: As Apple prepares to close the books on its June quarter, Wedbush analyst Daniel Ives says his favorite tech stock will benefit from pent-up demand for its iPhone 14, estimating that 240 million of roughly one billion iPhones haven’t been updated in 3½ years.

—Barron’s Staff and Janet H. Cho

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World’s 3,000 Billionaires Got Nearly $12 Trillion Richer in 2021

The world’s billionaires club not only added 107 people in 2021, but their collective wealth surged 17.8% to a record $11.8 trillion, according to a report from Wealth-X, a global wealth information and insight provider.

• Twenty so-called “super-billionaires” are each worth more than $50 billion, including Tesla and SpaceX’s Elon Musk (worth an estimated $234.5 billion); LVMH Chairman and CEO Bernard Arnault (whose family owns more than $151 billion); and Amazon founder Jeff Bezos (worth $142.2 billion).

• More than half the world’s 3,311 billionaires are considered to be “lower end,” meaning they own $1 billion to $2 billion, the report said. But 192 billionaires with a net worth of at least $10 billion each collectively own 41% of all billionaires’ wealth, or $4.8 trillion.

• North America is home to 1,035 billionaires (including 975 in the U.S.), while 954 live in Europe, and 899 live in Asia (China has 400 excluding Hong Kong). Russia’s billionaire population shrank 10.8% to 107 billionaires at the end of 2021.

• The median age of billionaires is 66. Forty percent of billionaires are 70 or older; while 11% are younger than 50. The average age of tech billionaires is 55. About 87% percent of billionaires are men, and 13% are women.

What’s Next: Although 135 billionaires live in New York, followed by Hong Kong (114), and San Francisco (85), Kuwait City has the world’s greatest density of billionaires, with one for approximately every 33,000 residents.

—Janet H. Cho

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Spirit Airlines Delays Shareholder Vote Amid JetBlue, Frontier Bidding War

Spirit Airlines

postponed its shareholder vote on

Frontier
’s
offer to buy the company. It had been scheduled for today, but will now convene on July 8.

• Spirit’s management recommended Frontier’s cash and share bid. JetBlue’s is all cash, and it is appealing directly to shareholders to back its offer.

• 
  
  Spirit
  
  said that delaying the vote will allow it to continue discussions with both JetBlue and Frontier as well as to solicit proxies from stockholders.

• Both

  
  
  JetBlue
  
  and Frontier have increased their offers in the past week, raising the amount offered for each share and lifting the breakup fee if regulators don’t approve the deal. Either combination would create the fifth-largest U.S. airline.

What’s Next:Moves in the shares following the announcement suggest investors see the delay improving the odds of JetBlue winning out. Spirit shares rose 1.9% in after-hours trading. Frontier rose while JetBlue fell.

—Lina Saigol

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Social Security Checks Could Jump $120 A Month in 2023

Social Security checks are expected to grow by $120 a month starting in 2023 for the average beneficiary, and could jump by as much as $180 a month, according to projections from the Center for a Responsible Federal Budget.

• The Social Security Administration calculates the annual cost-of-living adjustment by comparing the average consumer price index for July through September to the average for the same period the prior year. At the current pace of at least 7.9%, that’s an extra $121 for the average $1,657 Social Security check.

• The consumer price index increased by 8.6% year over year in May, higher than the 5.9% annual inflation adjustment Social Security beneficiaries received in January. Retirees have seen their costs soar from high inflation, while turmoil in the financial markets whittles down their savings in stocks and bonds.

• If Social Security beneficiaries receive a 8.6% raise in 2023, that would be the biggest annual cost-of-living adjustment in more than 40 years, according to another projection earlier this month.

• A recent Senior Citizens League survey found 20% of respondents had drawn down more of their retirement savings than usual over the past year, and 47% had visited a food pantry or applied for federal food assistance benefits.

What’s Next: The Social Security Administration will announce the annual cost-of-living adjustment for 2023 in October.

—Janet H. Cho

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What are the most common IRA rollover mistakes, and how do I avoid them?

If you’ve left your job, doing an IRA rollover of the balance in your company retirement plan is usually a tax-smart move. A rollover allows you to continue to defer taxes on the amount you roll over. But our beloved Congress laid some federal income tax traps for the unwary. Don’t be among the unwary. Here’s how to avoid the pitfalls.

1. Arrange direct transfer from company plan into your IRA

After exiting your old job, you’ll probably want to roll over money from your former employer’s qualified retirement plan (or plans) into an IRA. That way, you gain full control over the funds while continuing to defer taxes. But there’s a tax trap to avoid. Dodge it by arranging for a direct trustee-to-trustee transfer from the plan into your IRA. In other words, the check or EFT from the plan should go directly to the trustee or custodian of your IRA. While you must have an IRA set up and waiting to receive the transfer, the account can be empty before that.

Read more here.

—Bill Bischoff

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—Newsletter edited by Matt Bemer, Steve Goldstein, Brian Swint, and Rupert Steiner