Taylor Swift Was Right to Doubt Crypto. Cathie Wood’s Betting It Will Recover.

The crypto community would prefer it if we called the coins by names like digital tokens, or currencies, or, hey, great investments. Just don’t call them securities. It would appear that the game of cat-and-mouse is now up.

The arrival of U.S. regulation is a seismic event, and not in the way crypto cheerleaders imagined. Some had argued tighter regulation would help it grow, but the association with legally questionable practices is more likely to scare away institutional investors. Same for the armies of retail investors who dipped their toes into the crypto universe.

Crypto isn’t dead. Indeed, Cathie Wood is topping up her large Coinbase holding on the dip, betting that the asset class will make a comeback.

And crypto may still have some practical use in the world. But mostly in places where traditional finance has already failed, such as El Salvador. Operations will likely move further offshore.

Of course, it’s possible that crypto will one day thrive under U.S. securities rules, but it seems unlikely. Aside from holding some of the big players accountable, compliance will add to the cost of operations. And given the precipitous drop in crypto’s value since the end of 2021, it would seem the potential for vast profits from the ecosystem is diminishing

The SEC’s move is unlikely to kill digital coins. However, it is also very unlikely that crypto will ever get back together with mainstream finance.

—Brian Swint

*** Join MarketWatch real estate reporter Aarthi Swaminathan and real estate agent and investor Rashauna Scott today at noon when they discuss the best way to get started in real estate investing, despite high home prices and mortgage rates approaching 7%, and the latest strategy people are taking on. Sign up here.

Try your hand at this morning’s Barron’s Daily crossword puzzle and sudoku games. For all games, including a digital jigsaw based on the week’s cover story, click here.

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Coinbase, Also Facing Charges, Could See Revenue Hit

Coinbase Global
has been charged with securities violations by the Securities and Exchange Commission, which could make the U.S. crypto exchange vulnerable to a revenue hit of more than 30%. The SEC accusations challenge core elements of its business, analysts said.

• Shares of
  Coinbase
  sank 12% in Tuesday trading after shedding 9% on Monday, when the SEC sued crypto exchange rival Binance and its founder—also for securities violations. Coinbase had received a warning in March that charges could be coming.
• The SEC said Coinbase had unlawfully acted as an exchange, broker, and clearing agency of crypto-asset securities, and that its interest-bearing “staking-as-a-service” program represented the sale of unregistered securities. Coinbase didn’t respond to a Barron’s request for comment. Back in March it said: “We don’t list securities today.”
• The company depends on token trading and staking as sources of revenue and future growth, and the SEC charges represent an existential threat to its revenue, analysts said. Berenberg analyst Mark Palmer figures 37% of Coinbase’s revenue is at risk if the SEC goes after token trading and staking.
• Crypto-related stocks were holding up.
  Robinhood Markets
  rose 1%,
  Block
  rose 3.8%, and
  PayPal
  0.8%. Bitcoin rallied 5.5%, to $27,158, while Ethereum rose 4%. Robinhood had $38 million in crypto-related transaction revenue in the first quarter, less than 10% of its total net revenue.

What’s Next: Sotheby’s is selling 37 works of digital art once owned by the defunct Singapore cryptocurrency hedge fund Three Arrows Capital in a live auction next week in New York. The collection, entitled “Grails,” is expected to bring in $5 million.

—Jack Denton and Liz Moyer

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GOP’s Plan to Save Gas Stoves Up in Smoke, For Now

Eleven House Republicans joined Democrats to block a procedural vote in a rebuke of Speaker Kevin McCarthy (R., Calif.) over the debt ceiling deal he brokered with President Joe Biden. The move torpedoed votes on two Republican-backed bills to prevent the banning of gas stoves, at least for now.

• The defecting Republicans, mostly members of the House Freedom Caucus, voted with Democrats to defeat Tuesday’s procedural vote, 206 to 220. That kept the Save Our Gas Stoves Act and the Gas Stoves Protection and Freedom Act from going to a vote this week.
• Rep. Matt Gaetz (R., Fla.) said they voted down the rule “because we’re frustrated at the way this place is operating,” saying the commitments McCarthy made to get elected speaker “have been violated as a consequence of the debt-limit deal.” McCarthy could not immediately be reached.
• Some GOP members are angry about the debt-ceiling deal, which helped avert a U.S. default. Rep. Ken Buck (R., Colo.) tweeted that McCarthy broke his commitment to keep spending at 2022 levels. House Majority Leader Steve Scalise’s (R-La.) “no” vote means the House can resurrect the procedural vote later.
• Some Republicans have claimed the Biden administration is aiming to take away the gas stoves already in people’s homes, despite the White House repeatedly insisting it isn’t. Several studies found gas-stove emissions pose potential health hazards and contribute to climate change.

What’s Next: New York Gov. Kathy Hochul’s budget passed last month includes a measure banning gas stoves in new residential buildings up to seven stories tall starting in 2026, with exceptions for commercial and industrial buildings. The restriction doesn’t apply to current residences or commercial spaces.

—Janet H. Cho and Liz Moyer

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PGA Tour Merging with Saudi-Backed LIV Golf, Ending Rivalry

The PGA Tour and the Saudi Arabia-backed upstart LIV Golf unexpectedly announced they are merging into a new, for-profit entity in a deal that also includes DP World Tour, the professional tour in Europe. They said the deal would end pending litigation.

• The deal combines Saudi money with the PGA Tour’s name, connections, and business rights to create potential for future investments, at a time when the Tour and other golf entities are being investigated by the Justice Department for potential antitrust violations, The Wall Street Journal reported.
• LIV, the motto of which is “golf but louder,” paid huge sums to poach PGA stars such as Phil Mickelson and Brooks Koepka. The Kingdom’s entry into golf raised questions about the Saudis using the sport’s popularity to draw attention away from its human rights record, the Journal said.
• Yasir Al-Rumayyan, governor of Saudi’s Public Investment Fund, will chair the new unnamed entity; PGA Tour commissioner Jay Monahan will be CEO; and the Tour will hold a majority voting interest. Mickelson, LIV, and PGA didn’t immediately respond to Barron’s requests for comment.
• The merger is also expected to benefit equipment, apparel, and driving-range operators.
  Topgolf Callaway Brands
  stock, which Barron’s wrote about last month, rose 5.5% on Tuesday. Shares of
  Acushnet,
  which owns the Titleist brand, climbed 4.5%.

What’s Next: The 2023 LIV Golf schedule will continue as planned, according to a memo Monahan sent to employees and seen by the Journal. Monahan and Al-Rumayyan told CNBC they are confident they could work out remaining details in coming weeks.

—Janet H. Cho and Al Root

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China’s Exports Tumble as Recovery Falters

Chinese exports tumbled sharply in May in a concerning sign for global demand and for the recovery of the world’s second-largest economy.

• China’s exports fell 7.5% year over year in May, the first decline in three months, and much further than the 0.4% drop expected by economists. Imports continued to fall, with a 4.5% fall, but at a slower rate than the 7.9% decline in April.
• Previously, China’s gross domestic product (GDP) grew 4.5% in the first quarter, as the post-Covid rebound appeared to start well but recent data have pointed to a faltering recovery.
• Separately, the OECD raised its global growth forecast for 2023 to 2.7%, from 2.6%. in its latest economic outlook published Wednesday. It said China’s reopening following Covid restrictions has boosted global activity and lower energy prices are easing the pressure on households.

What’s Next: Despite the OECD’s slightly improved forecast, the export data are a bad indicator for global growth. They may, however, intensify the pressure on China to unveil a stimulus package.

—Callum Keown

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Boeing Finds a New Manufacturing Defect in 787 Jets

Boeing
has found a manufacturing defect involving its wide-body, twin-aisle Dreamliner 787 jets, a potential setback as the aviation and aerospace company tries to keep up with booming demand for its long-range planes. It may affect about 90 Dreamliners that have been built but not yet delivered.

• The plane maker called it a “nonconforming condition related to a fitting on the horizontal stabilizer.” It said aircraft that are found to have it will be reworked before ticket and delivery. A Boeing spokeswoman told Barron’s the issue doesn’t affect its forecast deliveries this year.
• Boeing said it wasn’t an immediate flight safety issue and the in-service fleet can continue to operate. The Federal Aviation and Boeing’s customers have been notified, and the plane maker said it would keep them informed on its progress.
• Tiny gaps were found in certain areas of the airplane fuselage back in early 2021. And in October 2021, Boeing said nonconforming parts received from a supplier had to be replaced. Deliveries resumed in August 2022.
• Boeing stock is up 8.8% so far this year, and has gained 47% over the past 12 months as investors have become increasingly optimistic about a recovery in international air travel coming out of the Covid-19 pandemic.

What’s Next: Boeing said in its first-quarter earnings report in April that its 787 program was producing at least three jets a month, with plans to ramp up to five jets a month in late 2023, and 10 jets a month by 2025-26, MarketWatch reported.

—Al Root and Janet H. Cho

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Dear Quentin,

I am 52, and live alone without other income.

For the past 15 years, I earned a large salary in a demanding role at a tech company. The company was sold and I took time off, and then started a different job in a new industry. I earn half of my old tech salary, and I have 75% less stress.

I have been generous in the past when giving gifts for graduations or birthdays for my sister’s children or friends’ children ($50 or $100 gift cards). Now my budget is greatly reduced, and I can only offer $25 gift cards. Is that an insult?

I am concerned my friends will think I’m cheap.

Do you have advice for me?

—Aunt/Friend Who Wants to do the Right Thing

Read the Moneyist’s response here.

—Quentin Fottrell

***

—Newsletter edited by Liz Moyer, Patrick O’Donnell, Rupert Steiner