Good morning. Here’s what’s happening:
Prices: Bitcoin and other cryptos have a lost weekend.
Insights: Is there a case for inflation?
Technician's take (Editor's Note): In place of the usual technical analysis, First Mover Asia is republishing an essay by CoinDesk columnist David Z. Morris on this weekend's Consensus 2022 event.
Bitcoin (BTC): $26,759 -5.9%
Ether (ETH): $1,447 -5.4%
Bitcoin Falls and Then Falls Some More
Still stinging from Friday's inglorious U.S. consumer price report that showed inflation rising, crypto investors spent much of the weekend in a defensive crouch.
Bitcoin was recently trading around $26,700, off more than 8% since late Friday. The largest cryptocurrency by market capitalization had been lingering around $30,000 for a month.
Altcoins were harder hit, with ether falling to its lowest level in more than 14 months. The second-largest crypto by market cap was recently trading at roughly $1,450, off more than 15% over the weekend. Ether had spent much of the past month at roughly $1,800. AVAX and AXS were each recently down by over 20% since Friday. The price plunges underscored investors' risk wariness – the more risky the asset, the more wary.
"Altcoins have historically underperformed BTC during bearish phases, and currently they have the added pressure of potential regulatory roadblocks given the nature of their issuance, especially via token sales and such," Joe DiPasquale, the CEO of crypto fund manager BitBull, wrote to CoinDesk. "Only a small number of altcoins can realistically survive such market movements and even fewer are likely to see previous all time highs in terms of price."
Cryptos' declines tracked equity markets, which plummeted Friday after the latest CPI, which some observers thought would tick slightly better for consumers, rose to 8.6% annually, a more than 40-year high that suggested rising prices would be around for awhile. The tech-focused Nasdaq plunged 3.5%, while the S&P 500 and Dow Jones Industrial Average were off over 2.5%.
In the CPI, airline fare prices jumped over 12%, a result of rising fuel prices that have worsened since Russia invaded Ukraine in February. U.S. gasoline prices topped $5 per gallon, and as demand increases during the traditional summer travel season, seem likely to ripple not only through family budgets but businesses who must now factor in additional fuel costs into their pricing. The University of Michigan's consumer sentiment index plunged more than eight points to its lowest level in 14 years, with more than half of those individuals surveyed tying their opinions to rising prices.
Investors are widely expecting the U.S. central bank to boost interest rates a half percentage point later this week as part of an ongoing effort to quell inflation. Last week, the central banks of Australia and Canada, where inflation has also soared, increased rates by 50 basis points, while the European Central Bank said it would end asset purchases and begin rate hikes later this summer.
"We expect major central banks to quickly and methodically continue removing accommodation via quantitative tightening (QT) and policy rate hikes into 2023," First Republic Bank said in a weekly review for investors.
"Markets will also remain very fragile, as today’s negative reaction to the higher than expected inflation print demonstrated," First Republic added. "We expect this fragility to continue whipsawing markets."
For cryptocurrencies, which have correlated with equity markets increasingly over the past year, the path forward is at best uncertain, DiPasquale said.
"Last week, we mentioned that the probability of a breakdown was higher despite BTC showing signs of support," he wrote. "That breakdown is currently in play, and we will be looking for potential new lows and reactions to them as we assess market sentiment. The inflation figures definitely don't bode well for markets."
S&P 500: 3,900 -2.9%
DJIA: 39,392 -2.7%
Nasdaq: 11,340 -3.5%
Gold: $1,876 -0.2%
Is There a Case for Inflation?
Cryptocurrency evangelists trumpet digital assets’ ability to hold, if not decrease, the price of goods and services more loudly than perhaps any other of their benefits.
They argue that deflation is more desirable than inflation, and have been conveniently able to highlight the havoc the current inflationary surges have played with investor nerves and the global economy. Last Friday’s consumer price index (CPI) showing an 8.6% jump in prices, the highest in more than four decades, only heightened fears that central banks’ more hawkish monetary policies were failing to lower costs or prevent a recession.
Yet, in an op-ed Friday, Paul Brody, the global blockchain leader for consulting powerhouse EY and a CoinDesk contributor, asserted that inflation is preferable to deflation and that the current spike in prices is temporary.
“Let’s start with the most foundational error common across multiple crypto ecosystems: the idea that deflationary systems are better than inflationary ones,” Brody writes, noting that Ethereum advocates are as adamant as “Bitcoin maximalists.”
“The theory is appealing: If you have crypto and the rate at which new crypto is added goes to zero or starts to go negative, the value of your crypto should rise,” he writes. “The hidden assumption in there is that demand for said crypto remains the same or goes up.”
Yet, Brody writes that “deflationary ecosystems” have historically failed, including most notably during the Great Depression when the U.S. abandoned its gold standard.
Brody notes that consumers in times of deflation are more likely to hold currency that they expect will gain value over time, boosting savings but sinking demand for products and services, while during inflation, they are apt to spend. But he also makes the key point that perfect price stability is “an impossible and unreasonable target.”
“All things being equal, a little inflation is better than a little deflation,” Brody writes, adding that central banking efforts the past two years first to boost the economy by keeping interest rates low and then to control inflation are not the disaster that some critics are contending. “Inflation and central banks seem to be performing exactly as intended,” he writes.
“Monetary and fiscal policy isn’t an exact science,” he writes, and compares the issues created by the pandemic to post World War II when inflation rose 18% before settling.
Some crypto advocates mistakenly believe that digital assets offer a solution to inflation. But they may be targeting the wrong issue. “Pushing for ever more deflationary architectures will certainly please the HODLers,” Brody writes, but it won’t further Ethereum’s cause, bitcoin or any other cryptocurrency.
(Editor's Note: In place of Technician's Take, First Mover Asia is republishing this essay by CoinDesk columnist David Z. Morris on this weekend's Consensus 2022 event.)
AUSTIN, Texas — We’ve wrapped up the first full public day of Consensus, and I’ve been asked to share my thoughts about what I’m seeing from the ground. But it’s hard to think of anything more meaningful to say than simply:
For a bit of context, CoinDesk held the very first Consensus event just under seven years ago, in 2015. Attendance was a whopping 500 people.
This year’s Consensus is the first in-person iteration of the conference since the start of the coronavirus pandemic in 2020. The most recent attendance number I’ve heard for this year’s event is 17,000.
So yeah. Wow. Woah. Dang.
I’ve attended most of the Consensus conferences since 2016, and one point of reference in particular stands out – the infamous 2018 conference at New York’s Marriott Marquis. It was the height of post-initial coin offering mania. Though the mood was beginning to turn sour, the event attracted nearly 9,000 attendees.
That was seemingly too much for the Marriott's space to handle: The registration lines give attendees trauma flashbacks to this day. That grim memory is one reason the conference made the move to Austin, Texas, where I’m ecstatic to report that I’ve seen no such traffic jams so far despite almost double the attendance.
An even more interesting comparison to 2018 is the vibe, man. The 2018 event came after a brutal market crash, with bitcoin (BTC) trading at about $6,600 during the event (down 66% from the local peak just shy of $20,000 the preceding December). The mood was fairly grim.
This year’s event was also preceded by a market crash. Bitcoin is down 57% from its all-time high of $67,000 set last November. But unlike in 2018, it’s hard to find a downcast eye or frowning face at Consensus 2022.
The convention center is packed with curious attendees hungry for knowledge about decentralized autonomous organizations (DAO), Ethereum scaling systems and all kinds of relatively arcane, future-forward or speculative matters that don’t have much to do with the current market but could pay off big-time in the long run.
It’s true that markets in crypto are highly tied to sentiment – but for the most dedicated, it’s increasingly clear that sentiment isn’t entirely tied to markets. And that group is growing.
Another notable new presence at Consensus: real, widespread, in-your-face diversity. We’ve been talking for years about how the openness of crypto would make it accessible for a much broader spectrum of people, and we’re starting to see that really happen. As someone who grew up and lives in a multiracial environment, it made me feel particularly great to see a lot of Black folks in attendance, onstage and backstage. No small kudos for that has to go to the efforts of CoinDeskers and contributors including Isaiah Thomas, Tyrone Ross and Spencer Dinwiddie.
See also: Consensus Compared: Why 2022 Feels Different | Opinion
Unfortunately, Consensus’ growth also means more chances for attendees to misbehave. If you want to keep your dignity and reputation intact, you might want to avoid having full-length conversations while watching a panel, sneaking into unauthorized areas to pitch journalists or bringing a loudspeaker to disrupt panels (all behaviors I’ve seen in the last two days).
There’s a lot to gain at Consensus – but there’s even more to lose, if you leave people in the industry convinced you’re a jackass. Just because we have fun and make our own rules doesn’t mean we’re not respectful of each other.
Amid everything else, I managed to moderate a few panels on Thursday at the Big Ideas stage, put together by the Layer 2 features and opinion team. I got to talk about DAO design with Ellie Rennie from RMIT and others, and also had a VERY weird and fun conversation with Chris Gabriel, aka YouTube’s MemeAnalysis. For those who couldn’t make it or watch the streams of those events, we’ll likely have some clips and write-ups available soon.
Of course, it would have been a whole lot cooler if you’d seen it all in person. Here’s hoping that next year you’ll join us.
2 p.m. HKT/SGT(6 a.m. UTC): U.K. trade balance (April)
2 p.m. HKT/SGT(6 a.m. UTC): U.K. gross domestic product (April)
2 p.m. HKT/SGT(6 a.m. UTC): U.K. Industrial production (April/YoY)
Punk6529 joined Consensus 2022 in Austin, Texas. Moderator: Michael Casey, CoinDesk chief content officer.
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Edward Snowden Says Use Crypto, Don't Invest in It: Speaking remotely at Consensus 2022, the whistleblower also described most of those who signed a recent anti-crypto letter to Washington as "prolific public trolls."
Wanna Bet? Crypto Prediction Markets Could Be a New ‘Source of Truth’: Andrew Eaddy and Clay Graubard made the case for empowering individuals through technology as trust in institutions declines.
Texas Feels Like Bitcoin Country (Maybe Because I Was There for a Bitcoin Conference): A Bitcoin developer conference last week put three important Bitcoin themes in focus: lightning, design and education.
Consensus Compared: Why 2022 Feels Different: There are echoes to 2018. But, on many metrics, this year's event isn't the same at all, says CoinDesk's chief content officer.
Today's crypto explainer: Location, Location, Location: Investing in Real Estate in the Metaverse
Other voices: Who Pays for Crypto’s Collapse? (The Wall Street Journal)
Said and heard
“The breadth of inflation pressures in the economy should alarm the [Federal Reserve],” (ING Chief International Economist James Knightley in The Wall Street Journal) ... "This year’s event was also preceded by a market crash. Bitcoin is down 57% from its all-time high of $67,000 set last November. But unlike in 2018, it’s hard to find a downcast eye or frowning face at Consensus 2022. The convention center is packed with curious attendees hungry for knowledge about decentralized autonomous organizations (DAO), Ethereum scaling systems and all kinds of relatively arcane, future-forward or speculative matters that don’t have much to do with the current market but could pay off big-time in the long run. (CoinDesk columnist David Z. Morris) ... "Through informed decision-making, users can reduce their exposure to the wild risks seen with Terra. So while the current atmosphere may seem hostile, we have a unique opportunity to show the world that secure, regulated stablecoins exist." (Binance CEO Changpeng Zhao for CoinDesk) ... “More than half of all merchants agree to accept crypto.” (Ukraine Deputy Minister of Digital Transformation Alex Bornyakov to CoinDesk)
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