Dispatch #40: 40 Weeks of Inflation and Bitcoin

Jun 18, 2021 6 min read

Dispatch

In this patch of your weekly Dispatch:

Bitcoin and the larger inflation narrative
The US House hears testimony on a digital dollar
Nexo joins hands with Amberdata to step up institutional data

The Big Idea

Where Bitcoin Fits in the Inflation Conversation

The past 40 weeks could have easily been 40 years. In just as many Dispatch issues, we saw the first institutional BTC allocation, smart-money hedge fund investors turning Bitcoin bulls and pushing the prices from one ATH to the next, the Fed pumping money into stock and bond markets, and an emerging market adopting Bitcoin as legal tender. What do these events hold in common? Fear of inflation.

The narrative that kicked off this bull market – Bitcoin as a hedge against runaway inflation caused by central bank printing – hasn’t gone anywhere. It saw a resurgence this week as the discussion around the Fed picked up serious steam.

As many assumed, this week’s FOMC meeting kept all current policies the same, i.e. near-zero interest rates and $120B in monthly bond purchases. However, like many assumed, the Fed also signaled expectations to raise interest rates earlier than expected – by the end of 2023. Of course, they’re feeling the pressure from rising US inflation, which hit 5% in May.

This conversation also has hedge funders back on the Bitcoin train. On Monday, Paul Tudor Jones talked extensively about his 5% BTC allocation on CNBC, calling the current market reality “bat shit crazy.”

Overall, a new poll suggests that US hedge fund managers expect to have 10.6% of their assets allocated into crypto within five years. Not bad for some magic internet money!

The Latest In…

Central Bank Digital Currencies

CBDCs took center stage in Washington D.C. this week, with testimony in the House Financial Services Committee on the future shape of a digital dollar. There was a lot to glean from the experts they invited. Some of them focused on the potential for a digital dollar to increase financial inclusion. Others claimed that CBDCs and private cryptos would both exist. Importantly, multiple experts argued that privacy needs to be paramount in any CBDC design and that today’s paper money is the right proxy. If nothing else, the hearing showed how much more seriously the US is thinking about a digital dollar than in the past.

The Latest In…

Green Bitcoin

Elon popped back up into the crypto sphere last weekend. When an article accused him of pump and dump schemes and selling Tesla’s crypto, Elon not only reaffirmed that they haven’t sold any BTC beyond the 10% they had previously disclosed, but that once 50% of BTC was being mined with renewables, Tesla would start accepting it again. No need to remind you that selling your crypto wouldn’t be necessary, yet we did. That number potentially gives not only miners but, more importantly, policymakers something to focus on as a target that allows for Bitcoin to play nice with an ESG world. Still, it looks to some like Elon may have been uninvited from the Bitcoin Mining Council?

The Latest In…

Nexo x Amberdata

The Nexo ecosystem just got a big upgrade! We have partnered with Amberdata, the industry leader in institutional digital asset and blockchain data, to further upgrade our data infrastructure and enhance the #NexoTransparency movement. Thanks to this collaboration, Amberdata will provide us with real-time and historical institutional data sets and analytics, allowing our Borrow and Earn offerings to benefit from their lightning-fast market data delivery and top-tier reference rates. We are very excited to see what this partnership has in store for us.

The Latest In…

Bitcoin ETFs

Some small progress this week on the ETF front. The SEC announced that it is seeking more input around Van Eck’s Bitcoin ETF application. In some ways, this is just the SEC giving themselves more time. Simultaneously, it suggests some amount of real engagement. In any case, it wasn’t the only thing we learned about the SEC vis-a-vis crypto this week. The agency published its list of regulatory priorities for the year and crypto was nowhere to be found. It seems like SEC Chair Gary Gensler is serious in his assertion that crypto regulation needs to come from Congress.

The Latest In…

DeFi

Don’t think that because it’s not center stage, people aren’t still focused on DeFi. This week saw some important yet under-the-radar news. DeFi exchange dYdX raised $65M, led by Paradigm. Mark Cuban published a blog post urging regulators to get on board with DeFi, which he said could be the next great American growth engine that we’ve been looking for. And in a related area, Goldman Sachs is reportedly working on offering Ether options. Seems like a bright setup for a DeFi summer 2.0?

The Week’s Most Interesting Data Story

Inflation by the Numbers

Sometimes a story is relevant enough to make it both into the Big Idea and the Most Interesting Data Story, and frankly, inflation qualifies. The top line number is clear, and what’s interesting is how the public debates are playing out. The Fed insists that inflation is transitory. At the same time, if the public thinks it’s real, the public will act like it’s real. That means buying things now, instead of in the future when they believe those same items will be more expensive. In other words, inflation becomes a self-fulfilling prophecy. There is simply no denying how important this is in setting the tone for both traditional and crypto markets.

Hot Topics

What the Community Is Discussing

El Salvador was the shot heard around the world. Numerous discussions are happening now about how a Bitcoin Standard could help other parts of the developing world.

DeFi is starting to pick up some interesting advocates. Tyler Cowen is an extremely respected intellectual writing about DeFi in Bloomberg.

Lest some of you think that 2017-style celeb endorsement is out of fashion, oh no. It’s back to the max!

Our Take

@AntoniNexo This Week

The Big D, one last time. This week, we distributed our fourth and final annual dividend in the whopping amount of $20,428,360. The Dividend Program has been a Nexo staple so, as Antoni said, our team is sentimental about seeing it go. “Nonetheless, Nexo is all about sustained innovation and…[p]art of that means saying goodbye to more traditional models of wealth sharing and creating new more efficient ones like Daily Interest on NEXO Tokens,” he added.
Is there a right way to regulate crypto? Antoni’s answer is a resounding ‘yes’ and he’s got the facts to prove it. In his latest long-form piece for Cointelegraph, he argues that CeFi companies with traditional licenses can act as a bridge between regulators and DeFi, while also devoting attention to some of the key concerns regulators have on crypto and the importance of addressing them. Read the entire article here.
Has the Colonial Pipeline attack broken Bitcoin? Last month’s cyberattack might have awakened the “Bitcoin is for criminals” narrative but Antoni believes that "trust in Bitcoin will grow resulting from the recovery of $2.3M in BTC.” He told Newsweek that the cryptocurrency’s “temporary price slip in response to the news was propagated by weak hands and predictably ill-actors who use BTC for illicit activities,” and added: “I’d gladly take a dip in prices if it means weeding out some of the bad guys.”