Asia Morning Briefing: BTC Stalls at 105K as Analyst Says Market Looks 'Overheated'

Key Points

• Alphabet (GOOG, GOOGL) stock could decline by 15% to 25% if US District Judge Amit Mehta mandates the sale of Google's Chrome browser, according to Barclays analysts.
• Google lost a significant antitrust trial in August 2024, with Judge Mehta ruling that the company monopolized the search engine market, particularly in general search and search text ads.
• The Department of Justice has proposed remedies including divesting Chrome, sharing search data with competitors, and banning exclusivity agreements that make Google the default search engine on devices and browsers.
• Barclays analyst Ross Sandler noted a low but increased probability of Chrome divestiture, which could severely impact Google, as Chrome accounts for 35% of its search revenue and has 4 billion users.
• A potential Chrome sale could also lead to a 30% reduction in Alphabet’s earnings per share, with a decision on remedies expected in August 2024.

Summary

Alphabet (GOOG, GOOGL) faces a potential stock drop of 15% to 25% if US District Judge Amit Mehta orders the divestiture of its Chrome browser, as warned by Barclays analysts. This follows Google's loss in a landmark antitrust trial in August 2024, where it was found guilty of monopolizing the search engine market. The Department of Justice has proposed severe remedies, including selling Chrome, sharing search data with rivals, and ending exclusivity deals that position Google as the default search engine on devices. Barclays analyst Ross Sandler highlighted that Chrome, with 4 billion users, contributes 35% of Google’s search revenue, making its potential sale a significant blow, possibly cutting Alphabet’s earnings per share by 30%. While the likelihood of divestiture remains low, it has risen after recent closing arguments. Judge Mehta’s remedy decision is anticipated in August, and Google plans to appeal. Separately, Alphabet agreed to a $500 million settlement with shareholders over antitrust compliance issues. Alphabet’s stock fell 1.5% on Monday and is down 10.6% year to date, reflecting investor concerns over these legal challenges.

Key Points

• Federal Reserve Divide: A split exists within the Federal Reserve on whether to maintain current interest rates or consider cuts later this year, influenced by potential inflation from President Trump's tariffs.**
• Temporary vs. Persistent Inflation: Some policymakers, including Fed Governor Chris Waller, believe tariff-induced inflation will be temporary and advocate for "looking through" these effects, while others, like Minneapolis Fed President Neel Kashkari, worry about persistent inflation and favor holding rates steady.**
• Waller’s Optimism: Waller supports potential rate cuts later in 2025 if inflation progresses toward the Fed’s 2% goal and the job market remains strong, expecting tariff effects to be short-lived.**
• Caution from Others: Dallas Fed President Lorie Logan and others emphasize patience, noting that current rates are well-positioned, and the long-term risks of premature cuts could lead to inflation spirals.**
• Tariff Developments: Recent Fed minutes and Trump’s announcement to double tariffs on steel and aluminum to 50% highlight concerns about supply chain disruptions and longer-lasting inflationary pressures.**

Summary

A growing divide within the Federal Reserve centers on how to address potential inflation from President Trump’s tariffs, with some officials like Governor Chris Waller advocating for overlooking temporary price increases and remaining open to rate cuts in 2025 if inflation nears the 2% target and the job market holds strong. Conversely, others, including Minneapolis Fed President Neel Kashkari and Dallas Fed President Lorie Logan, caution against cuts, citing risks of persistent inflation from tariffs and supply chain issues, and prefer maintaining current rates until clarity emerges on trade policies. Waller believes tariff effects will be fleeting, lacking the severe disruptions seen during the pandemic, while recent Fed minutes and Trump’s decision to raise steel and aluminum tariffs to 50% fuel concerns about longer-term price pressures. Logan stresses the importance of patience, noting that monetary policy is well-positioned to adapt as risks evolve, and warns against premature rate cuts that could spark inflation. Meanwhile, Chicago Fed President Austan Goolsbee acknowledges uncertainty but remains optimistic about a path to lower rates if current challenges subside. The debate continues as the Fed balances its dual mandate of stable prices and full employment amidst evolving trade dynamics.

Key Points

• The U.S. Senate's GENIUS Act, aimed at regulating stablecoin issuers like Tether's USDT and Circle's USDC, is in the final stages of floor debate with strong bipartisan support.
• If passed, this bill would be the first major crypto legislation to clear the Senate, marking a significant milestone for the industry.
• Crypto lobbying groups, including the Blockchain Association and Crypto Council for Innovation, urge senators to focus on the bill's core goal of stablecoin oversight amidst unrelated amendments.
• Despite a 60-65% chance of becoming law this year per Capital Alpha Partners, the bill still faces challenges, including over 50 amendments and potential House revisions.
• Unrelated legislative efforts, such as the Credit Card Competition Act, are being attached as amendments, potentially complicating the bill's passage.

Summary

The U.S. Senate is in the final stages of debating the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act, a bill to regulate stablecoin issuers like Tether's USDT and Circle's USDC. Having cleared the Senate Banking Committee and an initial floor vote with bipartisan support, the bill could become the first major crypto legislation to pass the Senate if approved this week. However, it faces challenges from over 50 amendments, including unrelated proposals like the Credit Card Competition Act, which analysts give low odds of passing. Crypto lobbying groups, including the Blockchain Association, are urging lawmakers to stay focused on stablecoin oversight. While Capital Alpha Partners estimates a 60-65% chance of the bill becoming law this year, it still requires House approval, where further revisions may occur. This legislative effort, under scrutiny amid concerns over political ties, represents a critical step for crypto regulation in the U.S.