How inflation is impacting Bitcoin
Gas prices: the bane of drivers and crypto users alike. As historic inflation impacts everyday commodities, what does it mean for Bitcoin? [alancrosthewaite via Getty Images]
There’s never a dull moment on the blockchain. Here’s what you need to know this week:
Bitcoin prices are stalling. BTC is often cited as an inflation hedge, so why is it 30% off recent all-time-highs amid historic inflation?
Crypto is revolutionizing crowdfunding. From Kickstarter to ConstitutionDAO: how fundraising is evolving.
The week in numbers. The surprising price of a Bored Ape NFT, and other key figures to know.
If Bitcoin is an inflation hedge, why are prices struggling?
On Friday, the U.S. Bureau of Labor Statistics reported its largest 12-month jump in Consumer Price Index (CPI) numbers since 1982. You might expect Bitcoin — which was designed to be resistant to inflation — to rise on news of the highest inflation metrics in four decades, but after jumping around 4% in the hours after the CPI report, Bitcoin forfeited its gains over the weekend. And since reaching a new all-time high near $69,000 in November, the cryptocurrency has been broadly trending downward even as global inflation has surged. So has Bitcoin’s value as a hedge investment been overstated, or is something else going on? Let’s dig in.
Despite lagging prices, Bitcoin’s network is hitting all-time highs by a variety of other metrics. Bitcoin’s mining power has fully recovered since falling sharply after China’s midyear mining crackdown (The U.S. and Kazakhstan are now top mining destinations). Meanwhile, a record number of global computers (roughly 18,000 “nodes”) are operating Bitcoin’s Lightning Network, which enables faster, cheaper BTC transactions.
Bitcoin’s limited supply is key to its potential as a hedge against inflation. Around 90% of the maximum 21 million BTC that will ever exist has already been mined and circulated. And while the supply of BTC has increased, as expected, by 4.2% since the beginning of 2020, the supply of U.S. dollars has increased by nearly 37% (around $6 trillion new dollars) as the government and Federal Reserve responded to COVID with an unprecedented “money-printing” strategy and other stimulus measures.
Countries such as Argentina and Turkey have seen even sharper increases in money supply than the U.S. and faster currency devaluation. They’ve also seen Bitcoin appreciate more dramatically against their respective currencies. While BTC has appreciated nearly 60% against the U.S. dollar this year, it has appreciated nearly 90% against the Argentine peso and more than 200% against the Turkish lira.
Why it matters… Historically, Bitcoin has handily outperformed inflationary fiat currencies — making it a popular hedge for both institutional and retail investors. But that doesn't mean spiking inflation automatically causes BTC prices to rise, or that the two are correlated at all. Crypto markets, after all, are complicated. From a macro view, the Federal Reserve’s efforts to combat inflation could strengthen the dollar but reduce BTC’s momentum as an inflation hedge. Meanwhile, some investors might feel empowered to sell and take profits at the end of the year, especially as BTC remains historically high.
Just for Fund
How crypto is revolutionizing global fundraising
Last month, a group of internet strangers banded together and raised $47 million in an attempt to buy a rare copy of the U.S. Constitution. Weeks after ConstitutionDAO broke fundraising records, the OG crowdfunding platform Kickstarter announced its own decentralized, crypto-fueled crowdfunding platform. But which blockchains will power the future of fundraising?
Kickstarter’s decentralized crowdfunding protocol will be built on Celo, a blockchain that aims to power mobile payments and financial applications worldwide. The “total value locked” — or amount deposited — on the Celo blockchain has surged this year to more than $500 million.
ConstitutionDAO raised nearly $47 million from nearly 17,500 unique addresses across the world — with a median contribution of just 0.051 ETH. While the group was ultimately outbid at a Sotheby’s auction by billionaire hedge-fund manager Ken Griffin, the DAO’s record-breaking fundraise and the rise of crypto collecting technology like NFTs are transforming the auction landscape.
In January, a former Christie’s exec is going to auction 10,000 digital pieces of a 2005 Banksy painting as NFTs issued on the Avalanche blockchain. Avalanche is an Ethereum-compatible blockchain that has seen significant growth this past year: the total value locked has soared to more than $10 billion — with the number of daily transactions on the network recently topping 700,000.
Why it matters… While ConstitutionDAO used Ethereum’s blockchain — which remains the dominant home for smart-contract powered technology like DeFi and NFTs — the Kickstarter and Banksy-share projects have turned to competing blockchains Celo and Avalanche. Why? Because like Ethereum, they are smart-contract compatible and support a wide range of apps and protocols, but with much lower network fees and speedier transaction times. Ethereum is racing forward with scaling solutions like the ETH2 upgrade, but a key question remains: how much market share can rival blockchains achieve in the meantime?
Numbers to Know
Approximate amount, in euros, that Germany’s savings banks hold for more than 50 million Germans. Why is this relevant? Because some members of the German Savings Bank Association are considering offering customers crypto wallets as interest in crypto investments soars amid high inflation and negative interest rates.
Amount that crypto venture funds have raised this year, as of the end of November — nearly triple the sum raised by crypto ventures in all of 2020.
Number of avatars released as part of RTFKT Studios’ recent CloneX NFT drop. Digital fashion studio RTFKT was recently acquired by Nike. It describes the “interplanetary tourist” NFTs as the beginning of “a whole new ecosystem for our community.” (Nike isn’t the only sneaker brand making NFT/metaverse moves: Adidas recently partnered with Bored Ape Yacht Club.)
Amount that one unlucky NFT collector earned selling a Bored Ape Yacht Club NFT over the weekend. The ape’s owner meant to list the NFT for 75 ETH (approximately $300,000 at the time) but accidentally listed it for .75 ETH. The bargain ape was immediately scooped up by a bot. The seller attributed the mistake to “a lapse in concentration.”
Listen to Coinbase's new podcast, Around The Block
Want to learn more about how ConstitutionDAO allowed strangers around the globe to bid $47 million at a Sotheby’s auction? Check out this recent episode of the Coinbase podcast Around the Block — which takes you deep into crypto’s most thought-provoking ideas and poses questions like, “How can DAOs forever change how humans organize and connect communities and capital?”
Every Wednesday, Coinbase Ventures’ Justin Mart and Katherine Wu unpack crypto’s game-changing innovations, interview industry experts, and peer into the future of the cryptoeconomy. New this week: Justin and Katherine define “Zero Knowledge Proofs” and discuss on-chain privacy with Jill Gunter of Slow Ventures.
Which of the following is a popular NFT artist?
Find the answer below.