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| Insights, news and analysis for the professional investor By Lawrence Lewitinn, Managing Editor for Global Capital Markets December 12, 2021 Sponsored by Bitcoin (BTC) - $49,025.97 Ether (ETH) - $4,015.64 Prices as of 12/12/21 @ 9:00 a.m. UTC If you were forwarded this newsletter and would like to receive it, sign up here.
All that quantitative easing, government spending and supply chain disruptions appear to have caught up with the American economy, sending November’s Consumer Price Index (CPI) soaring to 6.8% on a year-over-year basis.
A number like that should be wildly bullish for bitcoin. After all, if it’s a store of value, the limited supply of the cryptocurrency should boost its prices against a weaker U.S. dollar.
Yet that’s not quite what’s going on. Instead, the market is holding off on aggressively buying bitcoin since it’s waiting to see if the Federal Reserve will go into full-throttle taper mode, if not eventual tightening. That would not only cool inflation but also dampen enthusiasm for hedges like, say, gold or bitcoin.
What’s a crypto investor to do? As institutions get more into it, they’re starting to look at the likes of Ethereum. But one of the big problems there is that with all the NFTs and trading going on, it’s not cheap to use that network.
Which brings us to the alternative Layer 1 networks. In many cases, they offer a cheaper way to do some of the same things as Ethereum does. A lot of the tokens powering these systems have given investors breathtaking returns in 2021, but going forward, will it outperform ether as new investors discover that there are cryptocurrencies beyond bitcoin?
Only time will tell.
– Lawrence Lewitinn
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The Briefing As the Federal Reserve appears to be poised to take a more hawkish stance on monetary policy (for now… maybe), especially in light of recent high inflation data, cryptocurrency investors seem to be rethinking how they’re allocating their money in the sector.
One would expect that to mean good news not just for the price of ether, the native token of the Ethereum network, but also for its layer 1 alternatives. Instead of a gold-like store of value (a chief value proposition for bitcoin), ether and its rivals represent bets on sophisticated platforms for building smart contracts, non-fungible tokens (NFTs), decentralized finance (DeFi) applications and other wizardry.
“That’s why you’re seeing ethereum really outperform bitcoin,” said Mike Novogratz, the CEO of Galaxy Investment Partners, on CNBC’s “Squawk Box” on Wednesday. “If you look at the ethereum price, ethereum still trades as bullish as can be. People see ethereum as a technology bet and bitcoin as a debasement of fiat currency bet.”
Thus, if the narrative is cooling on what seemed to be endless money printing by the Fed, investors who were bullish on blockchain technology may be looking to buy more assets beyond bitcoin.
The most established of these is, of course, ether, but with Ethereum transaction costs getting prohibitively expensive with the boom in NFTs, it would be no surprise if the market is looking for other networks that won’t break the bank on every transaction. Read the full column, and see more charts, here.
– L.L.
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Chain Links Bitcoin broke below $50,000 again on Thursday, giving up momentum from the bounce off $42,000 earlier in the week. TAKEAWAY: The largest crypto asset by market cap is now 30% off its highs and underperforming the general market. Bitcoin dominance fell to the same levels seen this past May and in July 2018, which has historically been a signal of further downside against the dollar.
Polygon continues to use acquisitions to boost its line of Ethereum-scaling technologies, as it purchased scaling startup Mir for $400 million in Matic. TAKEAWAY: Polygon has effectively adopted a strategy widely used in traditional markets and brought it within crypto. Polygon’s initial infrastructure was criticized for not being a true Ethereum layer 2 platform, and so the team continues to expand its product offerings with acquisitions.
Sam Bankman-Fried, the CEO of crypto derivatives exchange FTX, announced that its subsidiary FTX US is now a member of the International Swaps and Derivatives Association (ISDA). TAKEAWAY: FTX has gained popularity across the world significantly through crypto derivatives products, which have been overregulated and banned in the United States. FTX US recently acquired a U.S.-based derivatives firm and looks to further expand in the country.
Well-known crypto CEOs testified at a congressional hearing to present their case for positive crypto regulation. TAKEAWAY: U.S. politicians are looking to understand the cryptocurrency industry on a deeper level before putting the technology in regulators’ crosshairs. Executives from crypto exchanges, custody providers and stablecoin issuers all appeared to highlight crypto’s benefits and potential in a pivotal moment for the industry.
U.S. November inflation numbers jumped to their highest level since May 1982, with the consumer price index rising 6.8% from a year ago. TAKEAWAY: The Federal Reserve has started to sound concern on inflation and may look to slow stimulus soon. Bitcoin, thought to be a hedge against inflation, has failed to react positively to the monetary news in recent weeks.
– Teddy Oosterbaan
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